The Chancellor of the Exchequer, Rishi Sunak, completed his first Budget on 11 March 2020. After having only a matter of weeks to settle into his new job, he had the unenviable task of balancing the looming fiscal threat of COVID-19 with delivering the promises made in the 2019 Conservative Government Manifesto. His response? Spend.
For COVID-19 Sunak appears to have an open purse when it comes to vital funding for the NHS. There is also relief for individuals and businesses in the short term including easier access to benefits for the self-employed and the temporary suspension of business tax rates for firms in the retail, hospitality and leisure industries with a rateable value below £51,000. All welcome measures to hopefully relieve some of the financial anxieties surrounding the current crisis. Perhaps to further lift the collective morale, alcohol duties on wine, spirits, beer and cider will be frozen and smaller pubs will receive an increase in business tax rebate from £1,000 to £5,000. Fuel duty will remain unchanged for the 10th consecutive year and VAT will be removed on women’s sanitary products and e-publications.
Ian Miles, Private Client Tax Partner at James Cowper Kreston comments that: “Tax changes mean that individuals may have more to spend too. The rise in the threshold for National Insurance Contributions is set to increase from £8,632 to £9,500 which will provide a saving of just over £100 per annum for all workers and the self-employed. There was also some hidden good news for high earners. Dressed up as relief for NHS doctors, people earning between £150,000 and £240,000 who may have previously had to pay the pension tax charge will no longer have to. There is some withdrawal of tax relief on pension contributions for taxpayers earning in excess of £300,000 but the Chancellor has not abolished higher rate tax relief on pensions more generally as was muted a few weeks ago. Entrepreneurs’ relief which has been labelled one of the most expensive but least lucrative tax breaks has been reformed, with the lifetime allowance being reduced from £10m to £1m. This will disappoint many local entrepreneurs who look to the sale of their businesses to fund their retirement. For local businesses there are winners and losers. Small businesses will welcome the increase in the annual employment allowance from £3,000 to £4,000 but companies may face higher corporation tax bills because it was confirmed, as widely expected, that the rate will not be cut to 17% next month, remaining at the current rate of 19%.”
Sharon Bedford, Business Tax Partner at James Cowper Kreston comments that: “Although the stated aim of the budget was to spread opportunities widely across the UK regions, the predominance of hi-tech businesses in the Thames Valley mean that it might still benefit. Billions are being invested in Research and Development and some of this should find its way into the region. There is also an increase in the Research and Development Expenditure credit from 12% to 13% from April.” There was a lack of detail in the Budget to say how the spend will be funded but there was an inference that businesses will be relied upon to fuel growth and generate more tax. Certainly, there will be more opportunities for some businesses resulting from Sunak’s spending spree but whether his gamble pays off in the longer term, time will only tell.