The new Chancellor was hoping today would be the ‘levelling-up’ budget – spreading wealth and opportunity outside London and across the UK. But the spread of coronavirus means the world is changing quickly and, in turn, so is the UK’s response. The announcements today are unlikely to be sufficient if things take a turn for the worse. However, they are steps in the right direction and demonstrate that the government is willing to do what it needs to offset the short-term hit to the economy.
Cutting through the rhetoric of ‘getting things done’, we have summarised what we consider the 5 key points that could impact your clients.
Rishi has loosened the purse strings by £12bn for what he called a ‘temporary’ but ‘significant’ challenge in order to help minimise the long-term impact of coronavirus on the NHS and UK businesses. His three step spending
1. Increased funding for the NHS amid the coronavirus chaos. The shortage of nurses and the plea for doctors to come out of retirement hasn’t helped so far, so hopefully the proposed £5bn of emergency funding in response to COVID-19 should help ease the pain.
2. With the potential for up to one fifth of the working population off work at any given time, we could see a reduction in both supply and demand, which would have a temporary impact on the economy. To reduce this impact, Mr Sunak has vowed to change the rules around statutory sick-pay, with those claiming this relief eligible from day 1 instead of day 4.
3. To combat the challenges facing smaller businesses and the potential sick-pay bills they could fork out, any business with under 250 employees is eligible for a refund from the Treasury of up to 14 days sick pay per employee.
A further £18bn has been set aside to support the economy this year, taking the total spend to £30bn to help with this unexpected global issue.
Entrepreneurs Relief (ER)
The Chancellor also announced what he called a ‘sensible reform’, resulting in the dramatic cut in the amount of tax relief that can be claimed on the sale of small and medium sized businesses, slashing the lifetime limit on ER from £10m down to just £1m.
For example, a business owner selling their company for £5m would now face an increased tax bill of £400,000 compared to the position pre-budget, where up to £10m of ER could be claimed.
This was once again a relatively quiet budget in respect of pension legislation. There were no amendments to tax relief or the Lifetime Allowance, and the latter will now be £1.073m. However, there was some tweaking around the edges when it comes to pension funding rules, specifically the Annual Allowance for those with high salaries.
The Chancellor announced that the thresholds above which the standard annual allowance (£40k) is tapered has increased by £90k. This removes anyone with income below £200k. The total amount of tapering was also extended, so that the standard allowance of £40k would be fully tapered down to just £4k pa (previously £10k).
The Chancellor delivered this announcement focusing on the benefit it will deliver to 98% of NHS doctors and consultants. This is an opportunity for higher earning individuals to recommence pension funding.
While it wasn’t explicitly mentioned, tucked away in the paperwork was a generous boost to the Junior ISA (JISA) allowance. The Chancellor has announced that the amount families can save into a JISA or Child Trust Fund (CTF) will be more than doubled in 2020–21, increasing from £4,368 to £9,000.
This means that, at the age of 16, a child can have access to both an adult ISA as well as their JISA, so can potentially put away £29k tax free, starting from April this year.
Small businesses were also a major focus of Mr Sunak’s first budget, both with regard to the coronavirus-based stimulus and more generally.
To start with, the National Insurance (NI) threshold will be increased from £8,632 to £9,500, and the NI allowance claimable by businesses will increase from £3,000 to £4,000.
For those firms claiming small business relief, a £3,000 grant will be available, and start-ups will benefit from a loan programme. Additionally, £10m will be invested to increase Growth Hub capacity to support SMEs. Finally, corporation tax remains frozen at 19%.
If you would like to find out if these changes could impact you, please get in touch with us on 020 3823 8777, or email firstname.lastname@example.org