March 18, 2020

These comments were first published in Practical Law Tax on 13th March 2020 as part of their round-up on the views of leading tax practitioners on the Spring 2020 Budget. You can read the article in full here (free access).

This week’s Budget was the first since Phillip Hammond stood at the dispatch box in October 2018, since which time there have been some seismic changes to the political and economic landscape.

The present government’s ambitious investment plans and emergency funding to counter the impact of the Coronavirus will clearly need to be funded by more than the reduction in the UK’s contribution to the EU. In addition to borrowing therefore, there were a number of measures contained in the Budget intended to raise additional tax revenue. Whilst the Coronavirus impact might have been relatively last minute, most of the noteworthy revenue raisers were not unexpected, including the U-turn on the decision to cut the corporation tax rate from 19% to 17% from 1 April 2020, the reduction of the lifetime limit for entrepreneurs’ relief limit from £10m to £1m for disposals on or after Budget day and the government’s perseverance with the introduction of the off-payroll working (IR35) rule changes for the private sector from 6 April 2020. All of these measures were underpinned by the Chancellor’s assurances that there would be more investment in HMRC to increase taxpayer compliance with existing rules.

The key revenue raisers were widely expected within the tax community. The arguments against entrepreneur’s relief in particular have been well rehearsed and recognised by the Office of Tax Simplification. Indeed, some taxpayers have been certain enough to act in anticipation of the withdrawal of the relief, prompting the Chancellor to include specific provisions to frustrate certain forestalling arrangements which seek to ‘lock-in’ the previous £10m lifetime allowance, i.e. by requiring evidence of a wholly commercial purpose, as opposed to that of obtaining a capital gains tax advantage. Of possible broader impact, is the roll-out of the IR35 changes to the private sector, which has been widely criticised by those affected. The government has previously promised a 12 month ‘soft landing’ period in terms of the enforcement of the IR35 rules but it remains to be seen exactly what this means in practice.

The Chancellor was also keen to demonstrate the government’s commitment to businesses, especially high growth, innovative business. The Budget therefore included measures designed to support such businesses. First, was the announcement of an increase in the research and development expenditure credit from 12% to 13% from 1 April 2020, which will enable innovative companies to claim a larger corporation tax deduction for qualifying research and development costs. Second, the Chancellor also confirmed that the government would undertake a review of the enterprise management incentive (EMI) scheme with the aim of ensuring that the scheme is fit for purpose in its provision of support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme.

Finally, one of the unexpected Budget announcements was the extension of the current zero-rating of books and printed matter to digital publishing (the so called e-book tax) with effect from 1 December 2020, a somewhat surprising postponement given that this zero rate has been permitted under EU law since late 2018.