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Budget 2020: Business overview

Business overview

Protect and grow: Supporting SMEs now to enable them to grow in the medium term.

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David Bywater

Office Senior Partner and Head of Tax

KPMG in the UK

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Today’s Budget sought not only to deliver on private enterprise growth but also to assure small and medium sized enterprises (SMEs) that during the uncertain times of the coronavirus outbreak, support will be provided.

In Mr Sunak’s first Budget, the message appeared to be one of ‘‘protect and grow”. In the immediate short term, the Government has stated it will look after SMEs; both with potential working capital support in the form of a loan scheme, and funding where SMEs need to make Statutory Sick Pay payments. Beyond this short term help, the Chancellor announced a range of measures to support private businesses across the UK to grow.  

Protecting the now

With the coronavirus uncertainty circulating global economies, the Government has acted swiftly in pledging its support to private enterprise businesses to help stabilise their activity and to help them be flexible when facing the difficulties which they will undoubtedly encounter in the short term.  

Firstly, there is help for SMEs by covering Statutory Sick Pay in full for the first two weeks. This should put both employees and SMEs at ease in knowing that the Government will look after immediate statutory health and wellbeing costs.

Secondly, the Government is supporting those most at risk by offering Business Interruption Loans of up to £1.2 million to help with the likely disruption to working capital.  

Thirdly, business rates will be temporarily scrapped for a number of SMEs within certain sectors, notably retail, leisure, and hospitality, providing a quick cash stimulus in the short term.  In addition, grant funding of £3,000 will be made available via local authorities to small businesses currently eligible for small business rate relief (SBRR) or Rural Rate Relief. 

Finally, there will also be a scale up of HMRC’s ‘Time to Pay’ service, so businesses and the self-employed can arrange to defer tax payments.

The key for private enterprise businesses is that they should be aware of the various support mechanisms that the Government has put in place to deal with the short term impact of Covid-19.

Growing the future

·         Investment into growth areas

The second part of the Budget focussed on stimulating growth. Largely, this will be done through macro-investment into various projects within specific sectors.  Of particular note is the £5 billion to be spent on getting gigabit-capable broadband into the hardest-to-reach parts of the UK, along with funding to the Science Institute in Weybridge and for research into nuclear fusion, space and electric vehicles.

This shows that the Government is willing to support innovative businesses but is also committing to investment outside of London; hopefully achieving a wider spread of wealth across the country. Assistance for SME global expansion was also cited, which in an ever more complex world economy, should be welcomed.

·         Motivating employees

The chancellor announced an intention to make future national living wage (NLW) increases. This could cost SMEs a little more but alongside the increase to the employees’ national insurance contribution threshold to £9,500, it may motivate the lower paid members of the UK workforce at a time where labour supply is getting tight.  There was also some good news for business in the form of an increase in the Employer Allowance to £4,000 from April 2020 which the Government expects will benefit 510,000 businesses and take 65,000 out of paying NICs entirely.

·         Corporate and shareholder issues

There were no major surprises in the announcements made in relation to corporate and shareholder taxation. 

As expected the corporation tax rate is to be maintained at 19 percent with the Chancellor keen to remind us that this remains the lowest headline rate in the G20.  Keeping it at this level demonstrates the Government’s intention to provide businesses with a stable and competitive corporation tax rate. Equally, the increase in the rate of Structures and Buildings Allowances will also help from a cash-tax perspective.

However, at a shareholder level, expected changes to Entrepreneurs Relief (ER) have been made but the Chancellor resisted calls to abolish the relief entirely. The changes mean that the lifetime limit for ER is brought down to £1 million from £10 million, resulting in the cash-tax benefit being significantly reduced. Additionally, there was an announcement to revisit the Enterprise Management Incentive scheme in the future.

On these areas the Budget signals that the Government will continue to support SMEs as the engine room of the economy, whilst they felt that there was a need to rebalance the benefits that wealthier business owners have obtained in the past.

Final thoughts

Mr Sunak has focused on SME growth and investment. In particular, private enterprises should feel protected in the short term and also buoyed by the level of investment aimed at them.

One of his final remarks was that HMRC will have the funding to challenge and investigate the tax affairs of more taxpayers. SMEs should treat this with some caution and ensure that they implement good governance procedures around their tax affairs. The Government are again reiterating that whilst they are very willing to care for, and invest into private enterprise, there needs to be a buy-in from SMEs too with respect to their tax compliance.

Overall, a Budget with the aim to protect and grow the economy. The Government’s ask of the private enterprise world is to increase output and to do it with good tax governance, so that the investment and tax incentives can remain for the longer term. 

More details on the key measures

Budget 2020: Business rates

Eligible businesses in property with values below £51,000 will get 100 percent relief and pubs with a value below £100,000 will get a £5,000 discount.

Budget 2020: Entrepreneur’s relief

Chancellor reduces the lifetime capital gains limit for Entrepreneurs’ Relief from £10 million to £1 million from 11 March 2020.

Budget 2020: Research and development relief

Good news for innovative businesses with £22 billion of R&D funding and an increase in the R&D Expenditure Credit from 12 percent to 13 percent effective from 1 April 2020.

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