Budget 2020

What does the Budget mean for entrepreneurs?

Welcome to our latest Policy Update. In these updates, The Entrepreneurs Network focuses on recent policy development and sets out (nearly) everything an entrepreneur needs to know about the topic. If you’re joining us for the first time, you can read our past updates here. 

Rishi Sunak delivered the first budget in a year and a half, and there was a lot for small business owners and entrepreneurs to take in. Understandably, the Government’s response to covid-19 took precedence but the budget contained a lot (good and bad) for entrepreneurs, from the scaling back of Entrepreneurs’ Relief to boosts for the R&D Tax Credit and employment allowance. There were also a few consultations and reviews announced that might be relevant to your business, in areas such as fintech and EMI.

In this update, we’ll cover all three areas and link to information useful to your business.
 

The Budget

Support for SMEs affected by covid-19

Rishi Sunak framed his Budget as ‘Security Today, Prosperity Tomorrow’. The focus was on protecting jobs, by ensuring businesses don’t unnecessarily go bust during the crisis, leaving long-term economic ‘scarring’.

The measures were targeted and temporary. They cost a combined £12bn, which is relatively little in contrast with measures announced elsewhere such as Trump’s $1tn USD payroll tax cut, but on a par with the stimulus package announced in Australia. The measures aren’t designed to prevent a demand shortfall (the Bank of England is expected to do that) but rather to protect at-risk businesses.

Business Rates

At the previous Budget, pubs, shops, restaurants and cafés in England with a rateable value of less than £51,000 received relief worth 30% of the annual rates bill. In January, it was announced to rise to 50%. To address the covid-19 disruption, Sunak has expanded the relief further to 100% for one year. The relief will be expanded further to the leisure and hospitality sectors. In total, 900,000 properties (45% of all properties) will pay zero business rates in 2020-21. For pubs that do not qualify, the special discounted rate for pubs will be temporarily increased to £5,000. 

If you currently pay little or no business rates, because your only property has a rateable value of less than £15,000, you will receive a £3,000 payment. That’s equivalent to three month’s rent.

Business Interruption Loans

The Government is launching a temporary Coronavirus Business Interruption Loan Scheme to support businesses to access bank lending and overdrafts. 

The Government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The Scheme will support loans of up to £1.2 million in value, and you can qualify provided your annual turnover is no more than £41 million and you are not in a restricted sector (most sectors qualify, but EU state aid rules restrict export-related activities).

The full details of the scheme are still being sketched out. You can find more info on the British Business Bank’s website, where they’ll identify the lenders that will partner on the scheme in the coming weeks.

Time to Pay

If your business is in financial distress and has outstanding tax liabilities, you can apply to HMRC for a time-limited deferral period on tax liabilities with a pre-agreed time period to pay these back. They’ve been used in the past to keep businesses afloat during floods. HMRC has made a further 2,000 experienced call handlers available to support firms when needed. If you think you need support due to Coronavirus, you can call the dedicated coronavirus helpline on 0800 015 9559.

Statutory Sick Pay

Statutory Sick Pay (SSP) will start from the first (not fourth) day of absence and will apply to anyone who is unable to work because they have been advised to self-isolate, as well as people caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate.

For SMEs (250 employees or less), the Government has announced it will refund statutory sick pay in some cases. The refund will be limited to two weeks per employee and will allow employers to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19.

As existing systems are not designed to facilitate such employer refunds for SSP, the Government is working to set up a repayment mechanism.

Changes to the tax system

Entrepreneurs’ Relief

The most newsworthy tax change at the Budget was the move to cut Entrepreneurs’ Relief from £10m to £1m. This was trailed ahead of the Budget and changes were discussed in the Conservative manifesto. Around 80% of businesses and most employees with share options will be unaffected by the change. Entrepreneurs who exceed the limit will instead pay Capital Gains Tax at a 20% rate.

It is likely this isn’t the end of tinkering with Entrepreneurs’ Relief. Andy Summers at the London School of Economics notes that many of the most egregious abuses of the relief are unaffected by the change. Expect further anti-avoidance measures in the coming years. Arguably, these should have been the priority instead of the threshold change.

Manifesto Pledges

If you read our last policy update on the election manifestos, you’ll recognise the following measures, which were all pledged in the Conservative Manifesto.

  • The NICs Employment Allowance to £4,000. Businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

  • The rate of Research and Development Tax Credit will increase from 12% to 13% from 1 April 2020.

  • The rate of the Structures and Buildings Allowance will increase from 2% to 3%, benefiting businesses investing in new commercial buildings.

  • Plans to cut Corporation Tax to 17% have been scrapped.

Alongside the pledges, there was also news that the planned SME R&D Tax Credit cap would be delayed for another year. It will be introduced at a level of three times the company’s total PAYE and NIC bill.

Penny for your thoughts?

As is tradition, alongside the tax changes the Budget also announced a number of consultations. They cover:

  • Fintech: Former WorldPay Executive Ron Khalifa OBE will lead a review into the fintech sector. The review will identify what more industry and government can do to support growth and competitiveness, to ensure that the UK maintains its global leadership in this vital sector.

  • EMI: The government will review the EMI scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme. In our Startup Manifesto, we called for the employee cap to be lifted to 500 and the asset cap lifted to £100m.

  • Business Rates: The government is launching a fundamental review of business rates to report in the autumn. In our report for the APPG for Entrepreneurship, we argued for shifting to a commercial landowner levy. You can find the terms of reference here.

  • R&D Tax credit: The government will consult on whether expenditure on data and cloud computing should qualify for R&D tax credits. We called for them to allow such costs to qualify in our Startup Manifesto.


If you follow our regular e-bulletin, we’ll let you know when the calls for evidence are open, we of course will be responding too.

We’ll make sure to keep you up to date on any other policy changes we spot in upcoming newsletters. To receive these, make sure to sign up here.