Yesterday marked the first Budget since Prime Minister Boris Johnson won a Parliamentary majority in December 2019 and came quickly for Rishi Sunak who only became Chancellor last month.
Chancellor Rishi Sunak has promised to do “whatever it takes to support the economy” in his first Budget as the economic fallout of the coronavirus grows. The view is that the fallout will have a significant impact on the UK economy but will be temporary. The budget is designed to protect the vast majority of businesses through the worst of the crisis and pitched as one that will “unleash the power of business”.
Let’s take a look at the big picture and key takeaways from Budget 2020 for SMEs, including:
Sunak acknowledged that a fifth of the working population may be off sick at any one time this year and that consumer spending would fall. This means, the UK will see a fall in demand and the country’s productive capacity will take a hit.
With this in mind, The Office for Budget Responsibility slashed its forecasts for the UK economy, warning that growth will slow to 1.1% in 2020, down from 1.4% prediction earlier this month. The OBR’s forecasts didn’t account for the rapid spread of coronavirus, meaning growth is likely to be much weaker than those predictions. However, growth will be higher than expected in 2021 at 1.8%, up from 1.6%.
The Government’s Time to Pay service will be scaled up, allowing businesses and the self-employed to defer tax payments. This will create greater leg room for businesses concerned about cash flow pressure due to the impact of absent employees and supply shortages. Also, R&D tax credits will be increased from 12% to 15% this year.
Sunak took the exceptional step to abolish business rates for tens of thousands of retail, leisure and hospitality businesses in the coming year. The tax holiday will apply to companies with a rateable value of less than £51,000. The measure applies to firms including shops, cinemas, restaurants and hotels.
Moreover, smaller businesses that pay no business rates (because they operate from premises that have a rateable value of less than £15,000) will receive a £3,000 cash grant! The Chancellor also promised a formal review of the business rates scheme this autumn.
Sunak said he’ll change entrepreneurs’ tax relief, rather than abolish it, saying he’s sympathetic to the argument that it is the UK’s “worst tax break”. He’ll reduce the lifetime limit for relief from £10m to £1m. About 80% of small businesses will remain unaffected but it will save £6bn over the next five years.
This is Sunak’s first tax-raising measure in the budget, with the rest giveaways. Entrepreneurs’ relief has been heavily criticised by think tanks for costing far more than it did when it was introduced by Alistair Darling and extended by George Osborne. Targeted at bigger businesses, it’s unlikely to attract much criticism.
A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £1.2m to support small and medium businesses. The government will cover their losses of up to 80%, to provide confidence to financial institutions so they can lend. The idea is that this will unlock up to £1bn of attractive working capital loans to support small businesses
Moreover, The Chancellor also announced £130m of new funding for business loans and a £200m of additional funding for the British Business Bank to invest in scale-ups. He also earmarked a £5bn for new export loans for businesses.
Workers and sick pay
The government will cover sick pay for small businesses hit by coronavirus. Statutory Sick Pay costs for businesses with fewer than 250 employees will be met by the government in full for up to 14 days per employee.
Statutory sick pay will be provided for anyone who is advised to self-isolate while it will be quicker and easier for those not covered to access benefits.
The national insurance threshold will be raised to £9,500 from £8,632, providing a tax cut for 31m people. And the National Living Wage to be raised to over £10.50 per hour.
Businesses have been extremely anxious about the possible impact of cash flow difficulties if trading slows or staff are off sick because of coronavirus. The Budget looks quite comprehensive and generous for the smallest struggling businesses, but the small print will be important.