The Good, The Bad and The Ugly! Our take on the 2020 Budget...

Despite the best efforts of recent government resignations and Covid-19, Rishi Sunak delivered the Budget for the upcoming fiscal year on Wednesday. Here’s a quick round up of some of the more interesting tax ramifications for UK companies in 2020-21:

The Good

As expected, the Government has increased the R&D expenditure credit rate from 12% to 13% from 1st April 2020. This rate applies to large companies and SMEs who have either received funding for their R&D activities or have been subcontracted to undertake them. This means that companies claiming under this regime will enjoy a net return on R&D activity of more than 10% for the first time.

There was a fear that a PAYE cap would be introduced for SMEs which would affect start-ups and loss-making companies with high levels of subcontracted expenditure or high levels of material write-offs. Although this is still planned the changes have been postponed until April 2021, meaning much needed cash credits will still be available in the short term.

Finally, consultations are to be undertaken regarding the potential inclusion of certain data and cloud computing costs, which could provide a welcome boost to software developers for whom these costs are not insignificant.

The Bad

Rumours that there would be changes to Entrepreneurs’ Relief were confirmed as the lifetime limit upon which individuals could benefit from a 10% tax rate on the sale of business assets or shares was reduced from £10 million to £1 million with immediate effect. This move effectively means that up to an additional £900,000 of capital gains tax will have to be paid by individuals upon the sale of a business.

However, there is still a 10% tax rate out there with no upper limit – the Patent Box tax relief scheme. Companies that make profits from products and processes relating to UK and European patents can enjoy this beneficial tax rate for the foreseeable future, with no changes to the scheme announced by the government.

The “Ugly”

Back in the day, capital allowances used to be available on certain buildings in the form of Industrial Buildings Allowances (IBAs), typically on “ugly grey factories” and older buildings. This was phased out by 2011 but then replaced in 2018 by Structures and Buildings Allowances (SBAs), whereby 2% of certain building costs can be written down each year.

From 1st April 2020 this rate will increase to 3%, again providing additional tax relief to a number of companies.

Overall, the Budget appears to be a positive one for UK companies, with no nasty surprises and some generous incentives to help keep the UK economy thriving.

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