Sunak Budget overshadowed by coronavirus

The Chancellor is set to deliver the UK’s first Budget since 2018 on Wednesday with entrepreneurs' relief likely to be slashed and talk of rises in second home stamp duty, all against a backdrop of cashflow worries for businesses over impact of covid-19

When asked over the weekend how coronavirus would shape the Budget, Rishi Sunak, who was appointed as Chancellor less than a month ago in the cabinet reshuffle, said: ‘We are well prepared from an economic point of view to come at this from a very strong position. We stand ready to give anything to the NHS they need.’

He also hinted that the Budget would set out measures for businesses to deal with the current crisis.

‘This could be a challenging period for businesses. If one in five of the workforce cannot work, we will need to ease the burden for businesses. There are policy levers we can take to ease cashflow for businesses,’ Sunak added.

With Brexit trade negotiations also on the horizon, some tax experts have indicated that the March Budget will be a precursor to a full Budget this autumn, in effect reverting to the old Spring Statement approach. Finance Bill 2019-20, now renamed Finance Bill 2020, will be published on 19 March. This Bill has been endlessly delayed and was originally due to be passed last autumn following draft legislation in July 2019. Any measures announced this week will likely go into a new Bill.

Blick Rothenberg partner David Hough said: ‘It is interesting to see a Budget so close to a manifesto, that has not happened for a while. We’ve got a new Chancellor and effectively he has to give a new Budget within four weeks. And there is not a lot of scope, the Budget needs to be revenue neutral.’

The priority for the Chancellor will be to raise taxes to cover costs, while trying to fulfil the government’s levelling out pledges to rebalance wealth across the country, refocusing away from London and the south, and putting significant investment in to northern seats which voted Tory in the last election, many for the first time ever.

‘There is a bit of money in the bank after postponing the corporation tax cut to 17%, and the Chancellor could probably do something on his fiscal rules to give himself scope to spend a bit more,’ said Daniel Lyons, head of tax policy at Deloitte.

In the election manifesto, the Conservatives again committed to a triple lock on income tax, VAT and state pensions, effectively limiting its ability to raise taxes quickly.

Entrepreneurs’ relief

It also committed to a review of entrepreneurs’ relief (ER) as the government could save a significant £2.7bn a year by abolishing entrepreneurs’ relief which fails to stimulate start-up businesses and is used primarily as a pension nest egg for a small number of beneficiaries.

‘The main concern is around the £2.7bn a year entrepreneurs’ relief costs with the capital gains tax rate of 10%, and it is down from its peak of £4bn,’ said Patricia Mock, tax director at Deloitte. ‘Around 6,000 people are getting around half a million pounds in tax relief each; it is very concentrated among a small number of people.

‘It is not encouraging start-ups and there are all the other reliefs – EIS, SEIS, investors relief – they are all slightly different.

‘It would be proper to do a root and branch review, they could look at a retirement relief for those selling their business, we used to have that for years. Now we have ER and that’s entrenched in the legislation, but it does not stimulate businesses.’ 

Property taxes

Property tax is likely to be raised, with talk of a hike in the second home stamp duty land tax (SDLT) rate, currently charged at a 3% levy and a possible doubling of annual tax on enveloped dwellings (ATED), while overseas-based property buyers are likely to see further hikes in non-resident stamp duty rates. However, an overhaul of SDLT with a reversal of liability for stamp duty on property sales and purchases is unlikely to float.

‘The reversal of SDLT would be crazy, the level of disruption would be huge,’ said Blick Rothenberg partner Sean Randall. ‘Economically if he was to reduce SDLT by 1% it could increase transactions.

‘The surcharge on additional properties might be considered a bit low at 3% so that could be increased – it already raises £4bn - and it would fit in with the move to curb buy to let, which has been policy for quite a while. And the complexity of SDLT needs to be addressed.’

Pension tax

An overhaul of the pensions tapered annual allowances, the abolition of entrepreneurs’ relief and a hike in stamp duty land tax for second property owners and buy-to-letters all look like strong contenders for the Budget.

‘On pensions I’d be really surprised it they removed tax relief for higher rate taxpayers, you do get taxed later and it would affect some of their core voters,’ said Hough. ‘But they could think about changing employers’ NICs on salary sacrifice for pensions – that would raise a reasonable amount. At the moment employers do not pay that if the scheme is a salary sacrifice.

‘He could also look at the £40,000 annual allowance, if you were to reduce that hypothetically to £20,000, that would not impact most pension savers, for example. But pension tax is a mess with the lifetime allowance and the annual allowance, and over complication,’ said Hough.

But the longer term issue of pension saving and funding the ageing demographic could also prevent the Chancellor from making changes to tax relief for higher rate pension savers.

Mock added: ‘Pensions are a long-term investment for people and you expect that what you put in you can continue to put in, so if they start messing around with the reliefs it would give a different investment environment and changes to the higher rate would affect anyone paid over £50,000. Those people are already hit by the £40,000 annual allowance.

‘They could also be very radical, for example by removing the lifetime allowance. With all the allowances, it’s so complicated so anything that makes it simpler and gets rid of the cliff edge would be great. Also in the future with people building up auto enrolment pensions it will become more of an issue.’

On wider tax measures, there is a sense that the digital services tax will go through but could be used as a bargaining chip with US trade talks. That is due to come into effect from April, affecting the biggest US tech multinationals.

The Chancellor could also look to increase some of the allowances, for example for the kick-in for higher rate child benefit, which affects earners over £50,000 and is perceived as an unfair tax as it penalises families earning over the threshold but with only one earner, for example.  This figure has never changed since it was introduced by George Osborne in 2015.

Another area requiring reform is inheritance tax (IHT) and the government has indicated that it will seriously consider the Office for tax Simplification (OTS) review of lifetime giving, which called for a wholesale simplification of the hugely complicated tax rules. The allowances are also never reviewed; the current £3,000 a year IHT exemption on gifts has not changed since 1981. Mock said: ‘If the £3,000 figure had increased in line with inflation since it was introduced, it would be worth £12,000 and the £250 individual annual gift limit would be £1,000.’

Other measures to watch out for are the removal of the fuel duty limit, which would see duty on petrol and diesel once again rising, which could fit with the government’s environmental credentials. Another option is tax breaks for purchases of greener vehicles, particularly the latest ULEV cars, while the government did suggest it would review airline passenger duty for domestic flights.

Pre-announced Budget measures

The government has already confirmed that the employees’ national insurance contribution (NIC) threshold will increase from the new tax year, 6 April, to £9,500.

The flood defences budget will also be increased to £5.2bn from April 2021, with an immediate £200m to fund flood resilience in particular communities where there has been repeated flooding.

The tampon tax will also be passed, with effect 1 January 2021, when the UK leaves the EU and is no longer governed by the EU VAT Directive which prevented zero rating sanitary products.

The Budget will be delivered on Wednesday 11 March at 12.30. Follow our live coverage on Twitter @accountancylive and full analysis available at

Conservatives' policies on tax announced in the general election:

Election 2019: how party tax policies stack up


Coronavirus Toolkit

Croner-i produces a special Coronavirus Toolkit with step-by-step guidance for employers including tips on emergency management, recovery planning, self-isolation and sick pay


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