Budget 2020: Top 7 implications for businesses

Just 27 days after his surprise appointment as Chancellor, Rishi Sunak delivered his first Budget to the refrain of ‘getting things done’.

It was a Budget delivered through the increasingly cloudy COVID-19 lens and the UK’s recent departure from the EU.

Business Asset Disposal Relief (formally Entrepreneurs’ Relief)

Business Asset Disposal Relief reportedly costs the Government £2bn and following promises in the Conservative party’s election manifesto changes were expected. The Chancellor announced a reduction in the lifetime limit from £10m to £1m.

Importantly, Capital Gains Tax rates remain at 20% for sales of companies, so still beneficial compared to Income Tax. There are also anti-avoidance measures in place for those who undertook pre-Budget planning.

The Government intends on this saving to fund (in part) an increase in Structures and Buildings Allowances. This is a relief on the cost of commercial buildings and is being increased from 2% to 3%. The effect of the above two measures is to move this relief from individuals to, in general, large businesses.

Large businesses will have to proactively notify HMRC if they take a tax position different to HMRC’s stated view. However, we do not yet know what definition of ‘large’ is being used by HMRC for this purpose.

Support for technology businesses

It is good to see the Government recognise that significant investment in technology is a fundamental requirement for the UK to remain a competitive player, post Brexit. Particular emphasis has been placed on supporting R&D through the provision of funding with a specific focus on life sciences and growing a greener economy.

One of the ironies with the existing R&D legislation is that the definitions of qualifying expenditure has not been updated to reflect changes in modern technology and practices. A particularly welcome change is the announced consultation to potentially widen the definition of qualifying expenditure to include data and cloud computing. This has been long overdue.

The previously announced increase to the rate of R&D Expenditure Credits from 12% to 13% from 1 April 2020 will be welcomed by larger companies who invest heavily in R&D.

Supporting innovation

The Budget included £800m of funding for the creation of a UK version of the US Advanced Research Projects Agency (ARPA), a blue-skies research centre. This comes as no great surprise as the creation of a UK ARPA has been a long-held dream of Dominic Cummings, adviser to the prime minister.

So what will the UK’s ARPA look like?  Back in 1958 the US ARPA was given a budget of $500m – over £3bn today – so the initial funding of £800m pales somewhat in comparison; making it ever more important to focus these funds on the right projects. The critical thing for ARPA to do is create a tight focus on the types of areas it wishes to invest in; with the example model in the US having a relatively narrow “defence” focus.

Also, how ARPA interacts with other research funders in the UK ecosystem will be interesting. When this new agency was first mooted last year there was some confusion how this would compare with the UK Research and Innovation body (UKRI), which itself is relatively new and where much of current research funding is rooted.

Is another new agency needed when the same goals could potentially be achieved with UKRI?

More information is needed to understand exactly what the UK ARPA will be. Undoubtedly providing more funding for research is a good thing, but work needs to be done to ensure the research communities and various political parties are supportive of the venture as it could quite easily become the folly of current government rather than a new research powerhouse that it could potentially be.

Green investment

The Budget showed a clear focus for utilising the UK’s ongoing success as a nation for cutting edge innovation to help solve the environmental issues facing us as a society.

The Chancellor committed to at least doubling the size of the Energy Innovation Programme, building at least two carbon capture and storage plants while investing in the natural environment, increasing tree planting by over 600% to cover an area greater than Birmingham.

As a further incentive, the Government is extending its plug-in grants to vans while investing £500 million over the next five years to support the rollout of a fast charging network.

The Government has, however, recognised that on its own this will not meet its net zero target. It is therefore introducing a climate change levy on gas whilst freezing the rate on electricity.

In addition, it is removing the entitlement to use red diesel from April 2022 (excluding agriculture, fish farming, rail and non-commercial heating) and introducing a new plastic packaging tax at a rate of £200 per tonne when it contains less than 30% recycled plastic.

Incentives throughout the budget look to assist in this capital spend with an example being those covering zero and ultra-low emission vehicles allow business owners to benefit from a 100% allowance against profits from April 2021 when investing in this type of asset.

Support for businesses impacted by the coronavirus

A package of measures was announced by the Chancellor to help businesses affected by the coronavirus, including:

• Businesses with fewer than 250 employees will be refunded for sick pay payments for 14 days.
• A new temporary coronavirus interruption loan scheme, with loans of up to £1.2m, to be made available to businesses and backed by a government guarantee for up to 80% of the loan value.
• The abolition of business rates for one year for retail, hospitality and leisure businesses with premises with a rateable value below £51,000.
• Further relief from business rates for small businesses that already claim business rates relief.
• HMRC will increase its facilities for taxpayers to apply for Time to Pay agreements for tax. How HMRC actually implement this is still a work in progress. Our recent experience of HMRC’s debt management team doesn’t bode well for this on the ground.

E-publications

In an apparent turnaround following HMRC’s business brief issued on 19 February, the Chancellor has announced that zero rating will apply “in time for Christmas” to e-publications with effect from 1 December 2020.

Whilst this may seem like a generous gesture and only fair as it now creates a level playing field for paper publications and e-publications, it follows a recent tribunal case which HMRC had lost. Prior to this, HMRC had been adamant that it was not going to apply the zero rate despite the EU allowing it. As ever, the devil is in the detail and we will await more details in due course but it will be interesting to see what scope there will be for any retrospective claim.

HMRC regains its status as a preferred creditor

And finally, the Government has confirmed that HMRC will regain its status as a preferred creditor for VAT, PAYE, CIS and employees’ NIC for businesses that go into insolvency from 1 December 2020.