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CHANGES TO BUSINESS TAXES AND RELIEFS IN SPRING BUDGET 2020

The UK Government has introduced its Spring Budget 2020. This marks a new era for UK, as the Chancellor Rishi Sunak announces a freedom to allocate UK resources without intervention of EU. The Budget included large spending commitments and emergency funding to help UK fight economic impacts of COVID-19 Outbreak that has resulted into job losses, business closures and homelessness on considerable scales. The focus of the budget was Small Medium Enterprises. Our Director at Certax Fitzrovia Ltd; Raza Laghari has extracted major bullet points for you to understand how Spring Budget 2020 will impact your business; generally and particularly.

Following are Changes to Business Taxes and Reliefs that have been announced in Spring Budget 2020-

Changes to Corporation Taxes:

It was expected that corporation rate for financial year beginning 1 April, 2020 will be reduced to 17% from 19%. However, Chancellor Rishi Sunak has announced that the corporation tax rate will remain 19% for the period 1st April, 2020 to 31st March, 2021.

Changes to Capital Allowances:

  • For Corporation Tax, the annual rate of capital allowance for qualifying investments to construct new structures and buildings, or upgrade existing ones will increase to 3% from 2%. This change is effective from 1st April 2020.
  • For income tax, capital allowances for qualifying investments to construct new or upgrade old non-residential structures will also increase to 3% from 2%. This change will however, be effective from 6th April 2020.
  • Spring Budget 2020 has announced 100% first year allowance for investments in new plant and machinery in marked Enterprise Zones. This will be available till 31st March, 2021; after which it will be subject to Spring Budget 2021 announcement.
  • There is an extension to 100% first year allowance for zero-emission business cars and zero-emission business goods, vehicles and equipment by four years beginning April 2021. Beginning April 2021, CO2 emission thresholds will be reduced from 50g/km to 0g/km for low emission cars first year allowance and from 110g/km to 50g/km for purpose of writing down allowance for business cars. This means that cars with CO2 emissions of only 0g/km will be eligible for writing down allowance at 18%. Cars with emissions exceeding 50g’km will only be eligible for 6% writing down allowance.

Increase in Research and Development Expenditure Credit (RDEC):

In order to rebuild UK economy after the COVID-19 Outbreak, the UK government announces a huge increase from 1% to 13% for tax credit for all companies that are eligible for RDEC schemes. This increased tax credit rate is effective from 1st April, 2020.

In another happy move for RDEC scheme eligible companies, the Chancellor has announced that the 2018 Budget Restrictions for qualifying loss making companies’ tax credits will be delayed till 1st April, 2021; as of now. Previously, 2018 Budget announced that effective from 1st April, 2020, the amount of R&D tax credit for all qualifying loss making companies will be restricted to maximum of three times of net Total PAYE and NIC Liability of a given year.

Corporation Tax Loss Relief Proposed Changes in Spring Budget 2020:

Draft legislations have been issued to restrict deduction allowance to £5 million inclusive of all capital losses brought forward, from 1st April 2020. This will impact where companies have been carrying forward capital losses to reduce their chargeable gains.

Corporate Tax Relief for Intangible Assets from 1st July 2020:

On the other hand, the government has announced extension to corporation tax relief so that all Pre-finance Act 2002 intangible assets acquired on or after 1st July 2020 will also be covered. This means companies can now claim relief for older intellectual property rights also. All intangible assets will now be taxed under a single regime.

Business Rates Tax Holiday and Cash Grants for Small Businesses:

The government has announced a 100% Business rates Tax Holiday for all small businesses with Rateable value of less than £51,000.  This applies to all businesses in retail, leisure and hospitality sectors. These may include shops and restaurants, museums, art galleries, theatres, cinemas, caravan parks, gyms and sports clubs, small hotels, Bed & Breakfasts, guest houses, music venues and night clubs. All business rates will be discounted for £5,000 for the year up against the £1,000 for the year for Pubs.

All small businesses eligible for Business Rates Relief have been promised £3,000 cash grant. The Chancellor announced that currently there are about 700,000 such businesses in UK.

Changes to National Insurance Threshold in Spring Budget 2020:

From 1st April, 2020, the National Insurance Threshold is up to £9,500 from £8,632.

VAT amendment in Spring 2020 Budget:

Only two changes to VAT have been mentioned in the recent budget.

1) Tampon tax stands abolished from 1st January 2021 when Britain’s Transition period for exiting EU ends. This includes scrapping of VAT on all women sanitary products; no longer classifying them as luxury or non-essential products.
2)VAT will also be abolished from 1st December, 2020 for all digital publications, e-books,

Academic journals and newspapers.

New Digital Services Tax:

Spring Budget 2020 announces implementation of new Digital Services Tax of 2% on all revenues generated from search engines, social media platforms and online market places that are derived from UK users only. This new tax applies only when two conditions are present:

1)The group’s worldwide revenue from digital activities exceed £500 million.

2)At least £25 million are derived from UK users.

Diesel Tax Relief Amendment:

Previously some companies enjoyed Diesel Tax Relief where they paid just over 11p/litre as compared to the regular 58p/litre consumption. The Government has now announced complete abolishing of Diesel Tax for such companies; majority of which belong to agriculture sector. This means they won’t even be required to pay the 11p/litre tax now.

New ‘Green’ Tax Introduced:

The UK Government has been trying to achieve ambitious green targets. In a new bid, the government has announced that all manufacturers or importers of products that have less than 30% recyclable material composition will henceforth be charged at £200/tonne.

Amendment to the Entrepreneur Relief:

Contrary to the expected, The Entrepreneur Relief has not been abolished completely. However, the lifetime allowance has been reduced to £1 million from £10 million.

Proposal for Ten New UK Free Ports:

The Chancellor has announced that UK Government is considering establishing ten free ports across all four UK nations. The proposal revolves around following tariff benefits:

  • No Tariffs/ import VAT/ Excise or Duty suspension for all goods being brought from across border into the Free ports. The taxes and duties will apply only when goods leave the free port for domestic market.
  • Duty Inversions for all goods where the duty of final product is lower than duty on component parts. In such cases, the government will allow duty free import of component so that businesses pay duty at finished product rate when goods enter domestic market.
  • Duty exemptions for re-exported goods. This will allow businesses to import components duty free in free ports, manufacture final product and then export it without any tariff.
  • Simplification of customs processes and documentation requirements for all businesses accessing free ports.

Other Business Grants and Reliefs in Spring Budget 2020:

  • The government will refund employers; with less than 250 employees, Statutory Sick Pay Costs for up to 2 weeks per employee that has either contracted COVID-19 or is self-isolating.
  • For Self Employed, the minimum income barrier of Employment Support Allowance is temporarily removed. This means self-employed will have access to such benefits from day 1 of illness or isolation. This was previously only available after 1 week.
  • Government has also announced Business Interruption Loans of up to £1.2 million to any SME has incurred additional costs as result of Covid-19 outbreak.
  • The chancellor has also promised a review of High street business rates system in coming few days.
  • The Government’s Time to Pay Scheme ensures that all businesses are given a pre agreed deferral period and time frame to eventually pay their HMRC liabilities.

Certax Fitzrovia Ltd prides itself on keeping all its Clients up to date with changes in Taxes and Reliefs, as announced by the government. Book your appointments now to see how the Spring Budget 2020 will impact your business and how can you take benefits from latest Reliefs and Grants announced by the government.

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