As fears over the ongoing coronavirus outbreak grow, recently appointed Chancellor Rishi Sunak delivered a Budget packed with measures to help businesses, but Macalvins Chartered Accountants believes a cut to Entrepreneurs’ Relief could affect many SME owners.
Tariq Husain, CEO at Macalvins Chartered Accountants, said that while many businesses will appreciate the £12 billion of measures to combat the economic impact of coronavirus, the sudden cut to the Entrepreneurs’ Relief (ER) lifetime allowance will affect tax bills for years to come.
During his speech, the Chancellor declared that the allowance would be slashed immediately from £10 million to just £1 million.
Tariq said that this major announcement could delay or stop ongoing and future business sales, mergers and acquisitions, as owners consider the additional tax that they may incur.
“Going into the Budget we knew that the Government intended to reform ER based on the Conservative party’s manifesto, with some fearing that it might be abolished altogether.
“This measure will mean that many will see the amount of relief they can receive against Capital Gains Tax (CGT) significantly reduced, especially if they have previously sold a business or shares,” said Tariq.
“Business owners and shareholders will need to take this change into consideration, as the effective rate of CGT that they pay increases from 10 per cent under ER up to the regular 20 per cent rate.”
There was a growing sense of anticipation leading up to the Budget, based on the Government’s manifesto pledges.
Before the Chancellor could meet these pledges, he had to address the coronavirus crisis faced by British businesses.
Mr Sunak announced that £2 billion would be allocated to cover firms’ sick pay bills. This funding, which will cover up to 14 days of an employee’s statutory sick pay (SSP), will be open to businesses with up to 250 employees.
Tariq said: “With the number of cases of infection growing daily the Government needed to take action in the Budget to help businesses and it has made several concessions to help them shoulder the cost and deal with the uncertainty of this epidemic.”
As well as offering a refund on SSP, the Government announced that business rates will be abolished this year for businesses in the retail, leisure and hospitality sectors with a rateable value below £51,000.
The Government will also offer a £3,000 cash grant for businesses that are eligible for small business rates relief.
The Chancellor also announced an increase to the rate of Research & Development Expenditure Credit from 12 per cent to 13 per cent, an increase to the Structures and Buildings Allowance from two to three per cent, a rise in NIC Employment Allowance to £4,000 and a £30 billion commitment to public spending.
A large proportion of this investment will go towards the Government’s ambitious plans for infrastructure, including improvements to roads and broadband.
Tariq said: “The National Insurance threshold will increase from £8,632 to £9,500 next month, while a commitment to increase the National Living Wage to two-thirds of median earnings by 2024 will help to drive up wages.”
The tapered annual pensions allowance thresholds will also increase by £90,000 to £200,000, while people on the highest incomes will see the minimum amount the annual allowance can reduce to fall from £10,000 to £4,000.