Today had been anticipated as potentially the most significant UK Budget since the 2008 financial crisis - one for the majority government to announce their economic and tax policies for growth across the UK economy. It was also the first for the new Chancellor of the Exchequer, Rishi Sunak who has only been in the job for a month and the first in a post Brexit environment.
However, in light of the emerging Coronavirus pandemic, the Chancellor initially had to focus on propping up the fragile economic confidence by announcing a package of short term fiscal and spending measures that, in tandem with the Bank of England’s package of monetary measures, are aiming to protect the economy against the imminent shock that coronavirus presents.
Once the short term measures had been announced, the Chancellor moved to outline how this budget will lay the path for renewed prosperity across the UK. The spending announcements he made represent a significant move away from the austerity mindset of the last decade. There is a renewed acceptance that government has a significant role to play in being the driving force behind economic performance, with significant infrastructure investment and commitments around low pay increases. The Chancellor noted that “if the country needs it, we will build it”. What this means in terms of economic performance will be determined by how quickly this ambition can be realised on the ground.
Even before the coronavirus outbreak, the global economy was facing into a difficult period. The steps the Chancellor has taken are projected contribute to UK economic growth of between 1% and nearly 2% per annum over the next five years. For Northern Ireland, the detail on how the various funding announcements will become clearer in the hours and days following the budget. There will be hope here that the immediate measures on coronavirus impact mitigations will be applied by the NI Executive however there will be disappointment that the budget didn’t address any Air Passenger Duty or regional air connectivity issues that have come into sharp focus since the collapse of Flybe.
Key highlights include:
Temporary Covid-19 Measures – Employees who contract Covid-19 or are required to self-isolate will be able to claim Statutory Sick Pay (‘SSP’) from day one instead of day four with full rebates being available to employer’s with less than 250 staff.
There are also new measures for small businesses including the ability for the self-employed to claim sick benefits from day one instead of day eight and access to the ‘business interruption’ loans up to £1.2 million.
Entrepreneurs’ Relief – Following much speculation and calls for the reduced capital gains tax rate of 10% for Entrepreneurs who meet certain conditions to be abolished, the previously generous lifetime threshold of £10 million has been curtailed dramatically to its 2008 introductory level of £1 million.
Employees – The personal allowance will remain frozen at £12,500 to align the National Insurance Contribution (‘NIC’) threshold, which is being increased from £8,632 to £9,500 from 6 April 2020.
Employers – The employment allowance which is able to be deducted from qualifying Employer’s Class 1 NIC’s liability each year will increase to £4,000.
Pension Relief – As expected there are changes to pensions tax relief with the income threshold at which tax relief on pension contributions starts to shrink will rise from £110,000 to £200,000. However, at the same time, the minimum floor which the annual allowance could apply to for higher earners will fall from £10,000 to £4,000.
Corporation Tax - In line with the Conservatives election pledges, the proposed reduced rate of 17% which should have been coming into effect on 1 April 2020 will no longer be implemented.
R&D - The R&D expenditure credit (‘RDEC’) will increase another 1% this year to 13%. This measure increases the tax relief for large companies (and small and medium sized enterprises in some cases) that carry out qualifying R&D and claim the RDEC. The credit is taxable, as a result the net tax relief for qualifying businesses increases from 9.72 per cent to 10.53 per cent.
Capital Allowances - The Structural Buildings Allowances (‘SBA’) which were introduced for qualifying expenditure on works contracted post 29 October 2018 will be increased from a rate of 2% to 3% from April 2020. This should assist companies incurring capital costs to obtain relief over a period of 33 years instead of the previous 50 years.
VAT – In time for Christmas, VAT on books, newspapers, magazines or journals whether read digitally or physically will be removed effective 1 December 2020. In addition, from January 2021, there will no longer be VAT charged on female sanitary products.
Brexit – The government is undertaking a spending review which is due to conclude in July. In addition, from 1 January 2021 (after the end of the Brexit transitional period), postponed accounting for VAT will apply to all imports of goods, including from the EU. This will prevent VAT registered businesses that import from the EU from suffering a cash-flow disadvantage, and provide a cash-flow boost to businesses importing from outside the EU.
Plastic Packaging Tax - From April 2020, a flat rate of £200 per tonne will be imposed on plastic packaging where the packaging does not meet the minimum 30% recycled threshold.
SDLT – From April 2021, the government will introduce a 2% stamp duty land tax (SDLT) surcharge on non-UK residents purchasing residential property in Northern Ireland and England.
Duties – Duties have been frozen for wine, spirits, beer, cider and also fuel.