Budget 2020: AAT responds to "a Budget of two halves"

Following the release of the Budget Statement on Wednesday 11 March from the Chancellor Rishi Sunak, Brian Palmer, tax policy advisor at AAT said:

“Today’s Budget is something of a ‘Budget of two halves’. On the one hand, we have the government’s emergency response to the ongoing coronavirus epidemic, which includes measures to shore up UK businesses in the event of a recession, such as extending Time to Pay and guaranteeing loans to small businesses. However, the promised infrastructure revolution is also radically expanding with a new wave of investment, particularly outside of London, and measures to make the economy greener and fairer. The Chancellor has a delicate balancing act to maintain, and we will continue to see how the ongoing situation impacts the government’s decision to focus on economic security whilst developing a skilled, productive UK economy over the coming months.”

Brian Palmer also responded further on a number of key issues arising from the announcement:

Tax relief for businesses affected by coronavirus

“The Chancellor’s package of targeted measures to help UK businesses reduce the financial impact of coronavirus will no doubt be welcomed by many. Extending Time To Pay, relief on business rates – including abolishing them altogether in many cases - and guaranteeing loans for small businesses will all come as a relief to the UK’s 5.9 million SMEs, who face these challenges on a regular basis and risk shuttering completely otherwise. Additionally, the promised stimulus package should boost entrepreneurship and help to support the UK economy and small business owners to thrive in the longer term. The question will be whether these measures stimulate the UK economy sufficiently to go beyond being a temporary measure, and whether they are put in place permanently to help stimulate growth, particularly with Brexit on the horizon.”

Entrepreneurs’ relief reduction

“Today’s announcement from the Chancellor on reducing entrepreneurs’ relief is a significant step towards scrapping this policy, and we are pleased that he acknowledged and addressed many of the negative aspects of the so-called 'worst tax break' in Britain. AAT focus groups have consistently found that many of our members’ clients were unaware of entrepreneurs’ relief until the time came to consider selling their businesses. This demonstrates that the relief did little to initially encourage entrepreneurialism and rewards those who would have sold their businesses anyway – with the average age of recipients standing at 57. Ultimately, as we have previously stated, it is expensive, misguided, poorly targeted and ineffective, and we call on the Treasury to go further next time and end the relief entirely."

Stamp duty surcharge for overseas residents

“We welcome the Chancellor’s proposal to introduce a 2% surcharge on stamp duty for overseas residents from 2021. This is in line with the three-quarters of AAT members who responded to our survey in 2017 and who backed a surcharge on overseas residential property investment. As well as limiting house price inflation, a surcharge will reduce property purchases from overseas buyers, give UK residents a better chance of owning a home, make the system fairer, as well as raising funds to tackle the ongoing homelessness crisis in the UK. However, this will raise £40m less than a 3% surcharge would have done, and we would encourage the government to consider increasing the surcharge further in future.”

National Insurance contributions

“Whilst raising the threshold for paying National Insurance contributions (NICs) to £9,500 a year will put more money into UK taxpayers’ pockets, ultimately it doesn’t come cheap. The policy will cost over £2bn a year, projected to rise to £10bn a year if the government achieves its ambition to raise the threshold further to £12,500 a year, in line with income tax. That means that, unless cuts are made, funding will need to be found from tax increases elsewhere, such as abolishing the proposed cut in corporation tax.”

Plastic packaging tax

“Although today's (11 March) announcement from the Chancellor on taxing packaging with less than 30% recycled packaging from 2021 is a welcome step forward, it does not go far enough. We would like to see the tax applied to packaging with 40% or less recycled content, rising to 50% by 2030. Additionally, AAT believes that only organisations operating below the VAT threshold of £85,000 should be excluded from this tax, rather than the £2m initially proposed, to ensure continued progress and innovation, ensure a roadmap for further action and increased government and businesses’ commitment to recycling. These measures would show the strength of the government’s ambition to tackle climate change and be a truly world-leading proposal.”