Budget 2020: Full of promises, but is it enough?

Industry shake-up

The chancellor also announced a review of the financial technology (fintech) sector, with the aim of supporting fintech firms to grow and increase competitiveness in the market. The review will be chaired by Ron Kalifa OBE, and will look to identify what industry and government can do to improve, and ensure the UK remains a leader in the sector.

Charlotte Crosswell, CEO of Innovate Finance, said the review will underpin “the future growth and prosperity of the sector across the whole of the UK”.

“The last decade has seen fintech emerge as one of the most important parts of our economy,” she said. “It is attracting record levels of investment, and as a result helping to bring new services, increased choice and value in the market, and more jobs to the UK.”

Crosswell said the review will help identify how to remain competitive on the global stage, adding: “By better understanding the needs, requirements and key focus areas for the sector, we will put ourselves in a strong position to boost the fintech industry, and in turn support the economy as a whole.”

But it’s not just the fintech industry due for a shake-up. The government also announced changes to the Entrepreneurs’ Relief, which currently gives entrepreneurs a tax break, allowing them to pay 10% capital gains tax, instead of 20%.

The changes means the lifetime limit on the relief has been reduced from £10m to £1m. While some have been calling for the relief fund to be scrapped completely, others saw the reduction as a huge step in the wrong direction.

The policy has been called “expensive”, “ineffective” and “unfair”, but there are also those who would prefer to keep it.

Mike Cherry, chairman of the Federation of Small Business, which has lobbied for changes to be made, said the changes to Entrepeneurs’ Relief were “encouraging”, whereas Martin Taylor, deputy CEO at Content Guru, found it disappointing.

“At a time when the UK economy is under huge pressure, reducing entrepreneurs’ relief doesn’t send a strong signal to businesses and the individuals behind them that they have the government’s full support,” said Taylor. “It’s dangerous to put a ceiling on entrepreneurs’ ambitions.”

Tax changes

The digital services tax also left some with unanswered questions. The tax, first mentioned by then chancellor Philip Hammond in 2018, will, from 1 April, see tax giants such as Facebook, Amazon and Google hit with a 2% tax on revenues, to ensure those companies that benefit from the UK economy also pay back into it.

When Hammond first announced the tax, it was with the understanding that if an agreement could be reached on an international level, that would be the best way forward, but if such an agreement couldn’t be reached in time, “the UK will go at it alone”.

In October 2019, the Organisation for Economic Co-operation and Development (OECD) said it aimed to have an international agreement in place on a digital services tax by 2020. However, as one is not yet in place, the UK has gone ahead with its own tax.

“The government remains committed to developing a multilateral solution to the challenges digitisation has created for the corporate tax system and will repeal the digital services tax once an appropriate global solution is in place,” the Budget Red Book said.

TechUK’s David said going ahead with the tax “despite clear question marks remaining on scope, cuts against the grain”.

He added: “TechUK calls on government to pause the introduction of a UK digital services tax and refocus its energies and efforts on finding a solution at OECD level.”

The chancellor was also criticised for failing to mention one of the most contentious topics at the moment – IR35. Although the Budget Red Book confirmed the government’s plans to continue with the IR35 reforms by extending them to cover the private sector from 6 April, Sunak did not even allude to it in his speech.

The reform itself is controversial, but some found the chancellor’s omission even more so. As previously reported by Computer Weekly, Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), said she was “shocked” there was no mention of the IR35 reforms.

“The omission is insulting, to say the least for our sector, not just to the many thousands of professional contractors who will be affected by the off-payroll reforms, but also to the House of Lords, trade bodies, and the many MPs who have raised their concerns about these reforms to the government,” she said.

Nicole Forbes, deputy general counsel at Globalisation Partners, is also uneasy about the tax reforms, saying the potential impact on companies and contractors is unclear.

“There has been a lot of nervous anticipation around the IR35 changes scheduled for early April from companies and contractors alike,” she said. “One aspect that is not immediately obvious is the impact it will have on internationally headquartered companies that work with contractors in the UK.

“When an international company takes its first steps to expanding in the UK, it will typically hire a small team in the region – primarily sales, technical and sometimes marketing folks. In the firm’s early days, this local team usually comprises contractors. It’s easy for the hiring company, requires no complex understanding of local contract law and is entirely flexible. All that changes under the new rules of IR35.”