Changes in the 2020 Budget which might affect your clients

17th March 2020

Entrepreneur’s Relief 

The headline change was the reduction in the lifetime allowance of Entrepreneur’s Relief from £10million to £1million.  However, this is a still a valuable allowance and if you have any clients considering winding up their company to extract the funds in it then we would be very pleased to have a chat with them and/or yourselves about how it can be structured in the most beneficial manner.

But there were other, more hidden away, changes that might also impact on your clients:

The return of Crown Preferential status

Crown preferential status for unpaid employee PAYE and NIC, VAT and CIS  will be re-introduced (after a 17 year absence) for any insolvencies effective 1 December 2020.  This will effectively mean that a new tier of (often significant) creditor will rank ahead of lenders with a floating charge, so this could affect how lenders value their security and possibly affect how much they are willing to advance to companies.

Prescribed Part

Allied to this, the Prescribed Part (the ringfenced fund for unsecured creditors carved out of the return to a lender under its floating charge in a formal insolvency) will be increased from a maximum of £600,000 to £800,000 with effect from 6 April 2020.  Once again, this could affect how lenders value their security. Lenders and their representatives have described the return of HMRC’s preferential status and the increase in the Prescribed Part as a ‘double-whammy’.

Government backed loans

Announcement of a new Coronavirus Business Interruption Loan Scheme which will see loans of up to £1.2m supported by an 80% Government guarantee.  Details on how it will work in practice are vague at the moment but expect further announcements shortly. The aim is to give additional comfort to lenders lending to small and medium sized businesses.  There has also been mention of additional support to businesses from HMRC, perhaps by way of deferment of payment of tax.  Once again, it will be interesting to see if HMRC adopts a coordinated blanket approach or whether local HMRC offices look at requests on a case by base basis.

HMRC investigative power

Measures are likely to be introduced to allow HMRC to bring claims against directors in situations where they are suspected of abusing the insolvency framework in order to avoid paying taxes. When applying this new power, HMRC will be focusing on ‘phoenix’ situations or where those linked to a company have a ‘track record’ of insolvency. The liability notice may be applied pre- or post-insolvency.  This seems to offer up a way of “piercing the corporate veil” and once again it will be interesting to see how this works in practice but it is clearly a marker that HMRC will be looking very closely at the conduct of directors in the run up to a formal insolvency.

We fully appreciate the difficulties businesses will face over the next few months and all we can do is offer to assist and advise in any way possible.  We are always prepared to have an informal conversation/meeting with you and/or any of your clients if you think any of the above points might be of relevance.  Please feel free to give any one of us a call.

If you require any further information please don’t hesitate to call one of us on the numbers below;

Gareth Roberts                 07979 706 392
Robert Keyes                    07500 933 022
Paul Ellison                       07967 471 211
David Taylor                     07855 231 103
Lee Lloyd                          07773 346 057