The Chancellor’s first budget was very much delivered on the premise of “getting it done”. But what does this mean for small businesses and employers? In particular, what support has been made available to help small businesses survive the economic impact of the coronavirus?
Rishi Sunak certainly opened the taps on government spending but much of it appeared specific to particular regions, industries and projects. Outside of these how much of it actually benefits business?
As an accountant working with small businesses in St Albans, Welwyn Garden City and Watford, this is one of the most complex, business-centric budgets that I have ever reviewed.
The Chancellor acknowledged that Coronavirus was a major challenge but clearly a “known unknown”. With this in mind and potentially a fifth of the workforce being off sick as a result, the Chancellor announced a package of measures to help both individuals and employers.
The Bank of England’s measures to mitigate the impact were announced earlier and are:
- 50 basis point reduction to bank rate back to 0.25%
- Freeing up of £100bn of extra lending power to help banks support SMEs
- Relax financial regulations to help lenders put an extra £200bn of credit into the economy
The Chancellor announced that grants of £3,000 will be made available to the 700,000 businesses that currently qualify for Small Business Rates Relief, whilst committing £130 million to the British Business Bank’s Start-Up Loans programme, £1.2 billion worth of funding for targeted loans to smaller firms affected by coronavirus, and £5 billion worth of new export finance.
These are the headlines but, in reality, the big question is; how can SMEs access it?
In a future article, once details have been released, I will review how the £3,000 grant will affect small businesses in St Albans, Welwyn Garden City and Watford. I will also review how the grant can be accessed, any restrictions and any repayment terms.
NICs and the Employment Allowance
The Chancellor delivered on the Tory manifesto pledge to increase the threshold for Employees’ National Insurance payments to £9,500, which impacts more than 31 million workers across the UK. Having delivered on this promise today there was no commitment to raise it further in the future.
The Employment Allowance is a rebate against the ‘employment tax’ (Employers’ NIC) and has already been significantly restricted in recent years. However, the Chancellor increased the reduction on national insurance contributions that small firms can receive through the Employment Allowance from £3,000 to £4,000 in this Budget. This is welcome but employers need to ensure that they are eligible and that they actively claim it through their payroll, as it is not a default tax credit.
Mr Sunak also delivered on a pledge to introduce a one-year national insurance holiday for small employers that take on a member of staff from the ex-forces community.
Statutory Sick Pay
The Chancellor announced that employees who self-isolate will be eligible to claim SSP from Day one, rather than Day four, irrespective of symptoms. Employees with be able to obtain a sick note via the NHS 111 phone service. For businesses with fewer than 250 employees, the cost of providing SSP for up to 14 days due to coronavirus, will be refunded by the Government in full.
Sounds generous but SSP is currently £94.25 per week; not exactly a living wage! In reality, employers will still be expected to make up the difference for self-isolating employees or risk losing staff. There is also a danger that this measure will contribute to greater employee absence.
There was some good news for the retail, leisure and hospitality sectors as the Chancellor abolished business rates for businesses within those sectors with an annual rateable value below £51,000. Also extending the Retail Discount on business rates to a wider set of small businesses and exempting those who qualify for the discount from rates entirely for one year, increasing the pubs discount to £5,000, and committing to a fundamental review of the rates system.
Rather strangely, small businesses that don’t pay rates will get a £3,000 cash grant per business whilst those that are just above the Small Business Rates relief level (a rateable value of less than £15,000) receive no relief or support. This is likely to impact 700,000 small businesses across the UK. Business rates discounts for pubs to rise from £1,000 to £5,000.
Unfortunately for those thousands of small businesses that don’t fall into any of these categories there is no relief or support from this dysfunctional tax.
The Conservative Party had pledged to reform Entrepreneurs’ Relief, but rather than abolishing it, Mr Sunak took measures to cut back on the tax relief by reducing the lifetime limit from £10m to £1m, creating a £6bn saving for the Government over 3 years. This takes the rate back to where it was 12 years ago when it was introduced.
Whilst this doesn’t affect 80% of business owners, the impact will be keenly felt, particularly by businesses with sole shareholders. Once again, the logic is questionable if the government is trying to create an enterprise nation.
Pension Tax Changes
The adverse effect of recent pension changes on some high earners, such as doctors, has resulted in their having to refuse overtime in order to preserve their take home pay. This has arisen as a result of the tapering of the pensions annual allowance.
The annual allowance limits the maximum amount which individuals can contribute to their pension pots and for those with income, excluding pension contributions, of over £110,000, it is currently reduced by £1 for every £2 of adjusted income (income plus pension accrual) over £150,000 earned. From 2020/21 the income threshold is increased from £110,000 to £200,000 and the adjusted income threshold is increased from £150,000 to £240,000. In addition, the minimum tapered annual allowance will be reduced from £10,000 to £4,000.
Enterprise Management Incentive (EMI) Scheme
Although the Chancellor didn’t mention the EMI scheme in his speech, according to the Red Book the scheme will be under review. Although there is no detail currently this is one to watch.
Research & Development (R&D)
Research and Development Expenditure Credit (RDEC) will be increased from 12% to 13% for expenditure incurred on or after 1st April 2020. This will only affect larger businesses or those who can’t take advantage of the SME scheme.
Under the SME R&D scheme, the re-introduction of the PAYE cap has been delayed until April 2021. This will benefit those businesses with smaller wage bills by allowing them to continue to claim the repayable credit.
Mr Sunak was expected to end the freeze on fuel duty in a bid to get the country on track for its carbon emission goals, but instead he kept the freeze in place, which is good news for businesses with large fuel bills. There were strong signals from the Chancellor that this will be removed in the future so businesses should plan for this.
Time to Pay
Mr Sunak announced a scale up for the time to pay service to defer tax payments, however, in our experience this continues to be difficult to access and HMRC call handlers can be less than sympathetic. Whether the additional 2,000 helpline staff makes it more accessible, remains to be seen.
The Chancellor also announced the creation of a £500 million hardship fund for the vulnerable – including the self-employed who cannot claim SSP – to access through local authorities, and temporarily relaxing Minimum Income Floor rules – which hurt those with fluctuating incomes – from the Universal Credit system.
How easily accessed this support is, again, remains to be seen.
By 2024 the national living wage will increase to over £10.50 per hour, however, there was already a planned rise to £8.72 an hour from April 2020.
This is good news for employees, however, for certain sectors it will mean a large increase in wage bills with a need to pass on the cost to the consumer. Once again this is a squeeze on cash flows for smaller employers at a time when they need it the least.
Overall it was a bold budget on a macro-economic scale but without the economic and social effects of the coronavirus being factored in, it is still a worry as to whether these measures will be enough. It would have been encouraging to see broader measures brought in; such as a reduction to or abolition of Corporation Tax for micro and small businesses or an increase in the tax-free dividend allowance for example.
Chris Wallace, Accountant and Director, Visionary Accountants, St Albans