Changes to tax planning post-budget

After a couple of days to consider the impact of the Budget we look at how this will affect the planning we do for our clients in the year ahead.

It has to be said that the major changes in tax planning which are about to happen did not arise out of the 2020 Budget but last year’s changes to Capital Gains Tax which are coming into effect from 6th April 2020. See Andrew Walls    CGT Blog on this and the need for keeping records up-to-date of the cost of assets - and the restriction of lettings relief. This will be likely to increase capital gains for clients. 

Entrepreneurs Relief

The good news is that the 10% CGT rate will still apply to the sale of a business or shares in family trading company. This will be a relief to a couple of our clients whose business sale could not be pushed through in time for the Budget. However, less good news for the more successful in that the relief will be reduced to the first £1m of gains. The excess will now be charged at 20% - still significantly below income tax rates. We are pleased for one client who successfully sold just in time to take advantage of the old limit.

The change could well lead to increased use of EIS and related schemes to defer capital gains for the successful entrepreneur who is selling a significant business. In recent years they became seen almost exclusively as an Income Tax planning strategy. The attraction of EIS as a capital gains only planning is that the investor is not limited to investing for less than 30% of the business.

Pension Relief

For many the best news was that despite many rumours, the main £40,000 annual contribution was not reduced – nor the number of earlier years that can be caught up with a large single payment. 

Higher earners will have an additional benefit in the increase in the threshold for the reduction of the pension allowance to £200,000. So anyone earning up to £200,000 will qualify for the full £40,000 annual contribution limit. 

R & D Tax Credits

Larger companies will benefit from an increase in the R&D expenditure credit (RDEC) from 12% to 13% but there is now change to the regime for SMEs.

There will be a consultation to try to tackle the number of fraudulent claims which are causing concerns. This will be with a view to introducing new rules from 2021. There are a growing number of specialist firms making claims on behalf of SMEs. Some do have niche expertise - but others rely on taking an aggressive approach - and hoping it will not be challenged

Aggressive Pre-packaged Tax Avoidance

HMRC to target firms who promote aggressive tax planning strategies and put them out of business. Thankfully websters have never sold these schemes but we have had clients over the years who have bought into them – in some cases without realising that they were particularly clever. We will still be looking to help clients realise their plans in a tax efficient way – but schemes where you invest in an unrealistic venture just to save tax are going to be tackled even more aggressively. 

Automated Penalties

Some people have successfully challenged HMRC for late filing penalties on the basis that they were clearly issued automatically be a computer. Some have been successful. The euphoria is short lived as new legislation now explicitly allows HMRC to send automatic penalties without requiring an Officer of the Board to decide it.

Andrew Webster