The new Chancellor of the Exchequer, Rishi Sunak, delivered his first Budget speech on 11 March 2020. The Budget was understandably overshadowed by news coverage of the COVID-19 pandemic. It also seems that many people missed the Chancellor’s speech due to stocking up on toilet rolls at their local supermarkets and shops!
As always, there was plenty of pre-Budget speculation about what changes might be introduced. Most of the predictions were completely wide of the mark. For example, some commentators predicted an announcement that there would be major changes to inheritance tax, following two recent reports by the Office of Tax Simplification.
On the other hand, pre-Budget rumours about a restriction in capital gains tax (CGT) entrepreneurs’ relief (ER) proved to be well-founded (see below).
Wait for it…
Of course, the devil will be in the detail. This article was written prior to the publication of Finance Bill 2020, which is scheduled for 19 March 2020. The short gap between the Budget and publication of the Finance Bill provides the opportunity to gain an overview of the information and documents published on Budget day, most notably the Budget Red Book and Budget tax-related documents.
This article does not attempt to cover all the Budget tax measures; there are already plenty of good summaries of the Budget announcements available on the internet. Instead, it highlights a few points of potential interest to practitioners.
The good: Pensions changes to annual allowance tapering limits
The tapered pensions annual allowance provisions have been a major disincentive for individuals such as medical consultants to undertake additional work and increase their earnings.
However, for 2020/21 and subsequent tax years, the income threshold (i.e. the point at which an individual is assessed for tapering purposes) increases from £110,000 to £200,000, and the adjusted income limit (i.e. the point at which the annual allowance starts to be reduced) increases from £150,000 to £240,000.
Whilst this change is obviously good news for many taxpayers, it should be noted that, from 6 April 2020, the minimum tapered annual allowance will be reduced from £10,000 to £4,000. This means that those individuals earning more than £300,000 will see a reduction in their annual allowance.
The bad: Entrepreneurs’ relief lifetime limit
Several commentators had predicted the complete abolition of ER. This prompted some taxpayers who were disposing of their business or trading company shares, etc to accelerate their disposals; others considered taking planning measures to effectively ‘bank’ the relief.
In the end, the predicted repeal of ER was wide of the mark. However, the maximum value of the relief was significantly scaled back. The ER lifetime limit is reduced from £10 million to £1 million for qualifying disposals on or after 11 March 2020.
On the face of it, this change seems simple and straightforward. Unfortunately, it is hedged with some relatively difficult anti-forestalling provisions, which are aimed at attempts to lock in the £10 million lifetime limit. These provisions relate to unconditional contracts entered into before 11 March 2020, and also to certain exchanges of shares for those in another company (under TCGA 1992, s 135) between 6 April 2019 and 10 March 2020 inclusive, where an ER election is made under TCGA 1992, s 169Q (‘Reorganisations: disapplication of section 127’) on or after 11 March 2020.
Furthermore, the lifetime limit must also take account of the value of ER claimed in the past. This means that some people will be prevented from claiming further relief.
The indifferent: Computer says ‘yes’
One of the more obscure Budget announcements was ‘Income tax/automation challenges’. This measure broadly provides that functions conferred on an HMRC officer (e.g. issuing notices to file self-assessment returns, late filing penalty notices, etc.) may be carried out by HMRC using an automated process or other means.
This measure has been introduced following several tax tribunal cases in which HMRC’s computerised processes have been held to be insufficient evidence that notices have been issued to taxpayers. For example, in Qureshi v Revenue and Customs  UKFTT 115 (TC), the taxpayer appealed against the alleged late filing of two tax returns, stating that she had not received any notices to file tax returns. HMRC needed to prove that a tax return filing notice (under TMA 1970, s 8) had been sent. HMRC told the First-tier Tribunal that because a document headed ‘Return Summary’ contained an entry ‘Return Issued Date’ and a date alongside, it could conclude that a notice to file “must have been” sent on that date, and that the ‘Return Summary’ page would only come into existence if HMRC had sent out a notice to file. However, the tribunal held that those documents were inadequate proof that any notice to file was sent to the taxpayer.
HMRC considers that the current statute already supports its policy and practice regarding automated notices but has stated that the changes will “make it clear” HMRC’s automated processes are within the statute. Interestingly, the new legislation applies both prospectively and retrospectively.
Not to mention…
The Budget was labelled by some as the ‘giveaway Budget’ due to its relative generosity in certain areas. For example:
- The annual rate of structures and buildings allowances increases from 2% to 3%, with effect from 1 April 2020 (corporation tax) or 6 April 2020 (income tax);
- The employment allowance maximum for secondary Class1 National Insurance contributions purposes increases from £3,000 to £4,000 from 6 April 2020; and
- The rate of research and development expenditure credit increases from 12% to 13%, with effect from 1 April 2020.
Tax advisers: Are you up to it?
Last but by no means least, an announcement tucked away in the Chancellor’s ‘red book’ of measures in Budget 2020 (at paragraph 2.258: ‘Raising standards in the market for tax advice’) and in the ‘Overview of tax legislation and rates’ (at paragraph 2.52) state that the government will be publishing a ‘call for evidence’ on raising standards for tax advice. This will seek evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the government’s efforts to support those standards.
The precise scope of this call for evidence is not known at the time of writing. However, it is worth noting that tax advisers who are members of professional bodies are already generally subject to regulation by those bodies. For example, ‘Professional conduct in relation to taxation’ (PCTRT) was produced by seven major professional bodies (e.g. ICAEW, CIOT) ‘…to assist and advise members on their professional conduct in relation to taxation’. PCRT has been acknowledged by HMRC as an acceptable basis for dealings between members of the above professional bodies and HMRC.
It therefore seems likely that the standards to which the announcement refers relate to tax advisers without a relevant professional qualification. However, confirmation is awaited on this point.
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