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The following is a summary of 2020 Spring Budget in relation to Business Taxes.

To return to the full summary of facts click here.

 

Capital Gains Tax – Entrepreneurs’ Relief (ER)

Entrepreneurs’ Relief provides a 10% rate of Capital Gains tax for individuals who dispose of part or all of their business or shares in their trading company, when certain conditions have been met. The lifetime limit of gains to which this relief applies will be reduced from £10m to £1m for all qualifying disposals on or after 11 March 2020. Special provisions will be available for disposals which were entered into before 11 March 2020 but have not yet been completed. Contact us for further information.

This is an unwelcome change for many successful Northern Ireland businesses, particularly for any businesses currently in negotiations to sell, considering that the change takes immediate effect.

 

Corporation Tax Rate

In the 2016 Budget, it was announced that the Corporation Tax rate would be reduced to 17% from 1 April 2020. The Government has reversed this decision, and the Chancellor has chosen to maintain the current rate of Corporation Tax of 19% for the 2020 and 2021 financial years.

This will impact all companies, but particularly those that have made quarterly payments based on the 17% rate as they will have underpaid and may be subject to late payment interest.

 

Employment Allowance

The Employment Allowance allows eligible employers to reduce their employer Class 1 National Insurance liability. From April 2020, the Employment Allowance will increase from £3,000 to £4,000, but will only be available to businesses with a Class 1 National Insurance liability under £100,000.

The increase to the Employment Allowance is particularly welcome as many small businesses experience the effect of increases to the National Minimum Wage.

 

Corporate Capital Loss Restriction

As announced in Budget 2018, a 50% capital loss relief restriction will be introduced for disposals after 1 April 2020. Companies with carried-forward capital losses that dispose of a capital asset and make a chargeable gain of over £5m will only be able to use carried-forward losses against 50% of the gain in excess of £5m.

This restriction has been sought by HMRC for a long time. It ensures that companies pay some Corporation Tax on disposals after 1 April 2020, even if they have significant capital losses carried-forward, e.g. losses from property disposals after the 2008 financial crash.

 

Capital Allowances – CO2 Emission Thresholds for Business Cars

The Government has recently announced a proposal to ban new petrol, diesel, and hybrid cars from 2035 and is therefore keen to incentivise businesses to acquire environmentally friendly company vehicles. To help businesses with the cost of these vehicles, the 100% First Year Allowances (FYAs) will be extended until April 2025 but will only apply to vehicles with zero CO2 emissions. Furthermore, the CO2 Emission threshold for claiming 18% capital allowances is also reducing from 110g/km to 50g/km from April 2021.

 

Capital Allowances – Structures and Buildings Allowances

Finance Act 2019 introduced the Structures and Buildings Allowance (SBA), which allows businesses to claim capital allowances at a rate of 2% over a period of 50 years on the construction of non-residential structures used for the purposes of their trade on or after 29 October 2018. From 6 April 2020, businesses will be able to claim a deduction of 3% over a period of approximately 33 years.

The increase to 3% is still not particularly generous, but shows movement in the right direction.

 

Research and Development Expenditure Credit

The Research and Development Expenditure Credit (RDEC) is currently available to large companies (and some small and medium-sized enterprises) and allows those undertaking qualifying R&D expenditure to receive a tax credit. For expenditure incurred on or after 1 April 2020, the rate of the tax credit will increase from 12% to 13%.

Budget 2020 has set out an ambitious R&D investment strategy, and by increasing the rate of the RDEC, the Government is hoping large enterprises will increase productivity and promote growth.

 

Corporation Tax for Non-UK Resident Companies

From 6 April 2020, non-UK resident companies with UK property income will be subject to Corporation Tax rather than Income Tax.

Non-UK resident companies will benefit from the lower Corporation Tax rate of 19% compared to the Income Tax rate of 20%, and an extended filing deadline. This measure will be particularly relevant for companies established in the Republic of Ireland with investment properties in Northern Ireland.

 

Enterprise Zones - Enhanced Capital Allowances

Finance Bill 2018 announced the end of Enhanced Capital Allowances (ECAs) from 1 April 2020. ECAs allowed companies who purchased energy or water-saving plant and machinery a deduction for the full cost of the equipment against the company’s trading profits.

Budget 2020, however, allows for companies who are based in any of the UK’s designated Enterprise Zones to continue to benefit from ECAs until at least 31 March 2021. The Government hopes that protecting this measure will help companies already established in an Enterprise Zone and promote capital investment.

 

Digital Services Tax

This is a new tax of 2% on the revenues generated from UK users in respect of search engines, social media services and online marketplaces. This tax will apply from 1 April 2020.

This will impact the likes of Google and Amazon as it will apply to businesses with group worldwide revenues of more than £500m with more than £25m relating to their UK users, and they may choose to pass this cost on to consumers.

 

Corporation Tax Treatment of Intangible Fixed Assets

Intangible assets acquired on or after 1 July 2020 will be under the same tax regime with no distinction made between intangible assets acquired pre and post 1 April 2002.  The existing restrictions on relief for amortisation of goodwill and other assets will still apply.  This means that there will continue to be no Corporation Tax deduction on the amortisation of goodwill for businesses incorporated since 8 July 2015.

 

To return to the full summary click here.

 

A PDF version is available to download here.