The Finance Bill 2019-21 completed its tenth Bill Committee stage on June 18, 2020, and entered into the report stage on July 1, 2020. The Bill contains a series of amendments to the draft Finance Bill clauses published in 2019, especially concerning the COVID-19 pandemic.
Old Items in Finance Bill 2020 Affecting Business Owners
Finance Bill 2020 contains several provisions that impact business owners. One significant item in the bill that affects businesses is the annual allowance on pension contributions for tax benefits. According to amendments that came into force on April 6, 2016, the government introduced the concept of the tapered annual allowance, wherein individuals or business owners with threshold income higher than £110,000 and adjusted income exceeding £150,000 are affected by tapered annual allowance. The standard annual allowance of £40,000 is reduced by £1 for every £2 of adjusted income more than £150,000. Moreover, the minimum limit of annual allowance stands at £10,000 with adjusted income of £210,000 and above and cannot taper further down, according to the old items in the Finance Bill 2020.
Additionally, according to the treatment of taxes in Finance Bill 2020, if a business enters into insolvency, most of the taxes paid by its employees and customers and temporarily held by the firm, will go to fund public services rather than being paid to other creditors. The Finance Bill 2020 also contains a provision for a reduced capital gains tax of 10%, on the disposal of all or part of a business. The lifetime limit on qualifying gains was also brought down from £10 million to £1 million to provide tax relief to entrepreneurs.
Amendments to the 2019-21 Finance Bill that affect businesses
Finance Bill 2019-21 calls for amendments to some of these items and the addition of new clauses. The changes will have both positive and negative impacts on business owners and have their own benefits and drawbacks.
- Revisions to Threshold Income, Adjusted Income, and Tapered Annual Allowance: First and foremost, the Finance Bill 2019-21 calls for an amendment of threshold income to £200,000 and adjusted income to £240,000. The Bill also proposes for revision of tapered annual allowance from the current £10,000 to a minimum of £4,000.
- Taxation of Coronavirus Support Scheme Payments: The Finance Bill 2019-21 requests addition of a new clause related to the grants issued to support businesses and employers during COVID-19. The new provision states that any payments made under the support schemes, including the Coronavirus Job Retention Scheme, Self-Employment Income Support Scheme, Coronavirus Statutory Sick Pay rebate Scheme, and others, will be considered as taxable income. Such grants will be included as revenue for income tax and other tax purposes. The new clause and new Schedule also give HMRC the powers to recover payments from businesses that received the grants that they were not entitled to, by imposing a 100% tax charge.
- Interest on Unpaid Tax In Case of National Disaster: The new clause 23 of Finance Bill 2019-21 amends Section 135 of the Finance Act 2008 regarding interest on unpaid tax during disasters of national significance. The clause allows HMRC to define which tax payments deferred during national emergency situations will not attract interest or surcharges. The new clause comes in support of the government’s announcement of deferral of traders’ VAT until the end of the financial year. Such changes made in direct response to the COVID-19 pandemic will begin to fall under Section 135 of the Finance Act and will allow for interest-free deferrals of sums due to HMRC. The section can also be applied retrospectively and will enable HMRC to disapply interests and surcharges for the periods impacted by the coronavirus.
- Tax in Insolvency: The Finance Bill 2019-21 also calls for the amendment of Section 386 of Finance Bill 2020 referring to businesses entering insolvency. The change will alter the status of HMRC in insolvency proceedings, move it up the creditor hierarchy, and make it a secondary preferential creditor instead of an unsecured creditor. The amendment will ensure more of the taxes paid in good faith go to public services rather than other creditors and banks.
As a bottom line, the Finance Bill 2019-21 focuses on amending the rules and regulations in line with the current economic circumstances owing to the coronavirus pandemic. The changes will lead to a few benefits to the business owners, including modifications to threshold income and tapered annual allowance or deferral of interest on unpaid taxes and surcharges. However, the amendment also supports the UK government and ensures that the support payments made by the government during the COVID-19 pandemic are fair, taxable, and rightful.