On Wednesday 11th March, less than one-month into his appointment, Rishi Sunak delivered his first Budget as Chancellor. With the UK reportedly facing the biggest financial threat in more than a decade, and on the back of fears that COVID-19 could cause a recession, Sunak turned on the spending taps and presented the largest sustained fiscal loosening since the pre-election Budget of March 1992 – a fiscal stimulus of £30bn, accompanied by a weighty increase in Government borrowing.
Bank of England (BoE) slashes interest rates
In an unprecedented move and only hours before the Budget, the Bank of England slashed interest rates from 0.75 per cent to 0.25 per cent and announced a series of big-money measures designed to help businesses get through the economic shock of the coronavirus. The emergency meeting certainly set the tone for the day with some aggressive spending policies.
The Budget kicked off with the Chancellor introducing a range of measures as a support for businesses at this highly unpredictable and uncertain time, amounting to a total of £30bn in extra spending: £12bn in direct support to businesses and £18bn to counteract the predicted temporary downturn in the economy.
In an attempt to prevent unnecessary and permanent economic scars of the coronavirus, the Chancellor made distinct moves to provide small and medium-sized and micro businesses with a safety-net to ensure cashflow will not be hit by a combination of slumping demand, trade difficulties and staff absence. Core to the support, Sunak announced an emergency tax holiday to help bridge the gap. No business should be penalised for doing the right thing and the short-term tax holiday for smaller business is a strategy that will help the economy stay upright during this time of real uncertainty. HMRC will suffer a short-term hit, but it will be in the interests of avoiding a UK recession.
Certainly, an overriding concern for many right now, is that the monetary impact of COVID-19 for all businesses is not yet fully understood. We urge those business taking advantage of the tax holiday to be mindful of their cashflow in order to ensure they have enough to pay their taxes once the ‘hiatus’ is over. This is certainly not a reason for firms to rest on their laurels when it comes to keeping a healthy cashflow; ultimately failure to stay on top of this could be self-sabotage.
The Government also pledged to fully meet the cost of providing statutory sick pay (SSP) for workers self-isolating for 14-days (in businesses up to 250 people), a £3,000 cash grant to businesses eligible for small business rates relief and a coronavirus business interruption loan scheme, offering £1bn in overdrafts and short-term loans through the British Business Bank.
Whilst these measures are of course welcomed, there have been concerns over the absence of financial support for medium to large businesses in this time of uncertainty, with many saying that the Budget appeared to only focus on micro to small firms in the UK.
A significant scale-back of entrepreneur’s relief (ER)
In a move that The Treasury calculated will raise £6.3bn over the next five years, Sunak announced the lifetime limit is reduced from £10 million to £1 million for ER qualifying disposals made on or after 11th March 2020.
Welcome it may be that the Chancellor did not abolish ER altogether, the negative impact this could have on entrepreneurs, not least because it had already come into effect when the Budget was announced. The changes will have a detrimental impact on those who were unable to take advantage of the reliefs in time. They will suffer monetary losses as a result.
Special provisions for disposals entered into before 11th March 2020 have not yet been completed. Our advice to those now contemplating retirement or a sale of either, all or part, of their business is to seek advice to further explore other options.
Inheritance Tax kicked into the long grass
Despite the pre-Budget speculation around changes to Inheritance Tax, the Chancellor did not follow-through with an announcement on the day. The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
Inheritance Tax (IHT) is construed as complicated and difficult to navigate. At the very least, we expected Sunak to confirm that changes would be considered in the future. We welcomed the proposed revisions to IHT; it has long been the case that it is seen as a method of double-taxation given the tax payer has (in most cases) paid tax on their earnings throughout their lifetime so the additional 40% on death (for those above the nil rate band) does feel like a double-blow.
However, an overview of the tax in order to simplify the system would be welcomed by individuals and professional advisers alike. Perhaps a measure to simplify the way in which lifetime gifts are considered, especially with reference to the requirement for the donor to survive for seven years after the gift is given, would be well received. An increase in the nil rate band limit of £325,000 (a limit that has been static for 10 years) should also be considered. This will take more modest estates out of the tax.
Certainly, this was a Budget that was announced during unprecedented times and quite understandably coronavirus took precedence in the speech. Pledges were delivered to provide the NHS with “whatever resources it needs, whatever it costs” to cope with the outbreak.
Elsewhere too though, Sunak thrust additional spending towards education, scientific research, innovation and tripled funding in transport and infrastructure. However, one must ask, where are all these funds coming from?
This year’s Budget unquestionably included theatre and a great deal of spending, but unfortunately, there was very little substance on how it will be paid for.
Peter O’Connell, Managing Partner of Shaw Gibbs