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Last week, the new Chancellor of the Exchequer - Mr Sunak - was in the unenviable position of delivering his first budget, not only just four weeks into his new job, but also in the middle of unprecedented circumstances with the Coronavirus outbreak.
It wasn’t quite the budget we were expecting post-Brexit, but the measures Mr Sunak talked through in his speech last week, and the subsequent plans that will be put in place to steer the economy through the challenging coming months, should provide some reassurance about the support that will be given to UK businesses.
As the situation continues to evolve, we spoke to our MD, Miguel Calabrese, about the Chancellor’s pledges, and below he shares some practical advice for small business owners in response to them.
Q. Firstly, it’s impossible not to talk about the disruption the Coronavirus is having on businesses. Do you think the pledges the Chancellor made about supporting small businesses through the disruption will be enough?
A. The Government is predicting that there could be up to 20% of the working population off at any one time. For businesses with less than 250 employees, there will be a refund for statutory sick pay from the first day of sick leave, rather than day four, available to those who need to self-isolate, as well as employees with symptoms of Coronavirus.
There will be extra support for the self-employed, making it easier for them to access benefits too.
Business rates have been abolished for many leisure, hospitality and retail businesses, with a rateable value of below £51,000, which could be a significant saving for businesses. This will come at a good time if, as we have seen in other countries, temporary closures of these types of businesses are required. In addition, small businesses eligible for rates relief will receive a £3,000 cash payment.
The Government acknowledged there will be £1bn of working capital available to help protect businesses, as well as committing to scaling up their Time To Pay service, which works with small businesses to help them make tax payments over a period they can afford.
Obviously, it’s good that these measures are being put in place, but for a small, independent business owner, the most useful thing they should be doing is looking at their cashflow forecast and preparing for different scenarios. The likelihood is that cashflow will be a problem for small businesses, through sudden loss of trade or a reduction in work force, so having a plan and being prepared is essential.
We’ve got a cashflow template that could help. Just get in touch and we’ll send one to you straight away.
Q. What will the impact of the increased threshold for National Insurance contribution be?
A. It means that employees can now earn more before paying NI. It’s not a huge difference, but the threshold raising from £8,632 to £9,500 will mean an annual saving of £104 for workers. This will be automatically calculated for employees, and for Directors it will vary based on earnings.
Q. How will the increased Employment Allowance affect businesses?
A. Increasing the allowance from £3,000 to £4,000 means more small businesses will be exempt from national insurance contributions, resulting in a tax cut for nearly half a million small businesses. This measure also supports small, growing businesses by enabling them to employ staff without additional NI liabilities being incurred.
Q. R&D tax credit rates have been increased from 12% to 13%, do enough businesses use, or understand, this tax relief?
A. We come across a lot of businesses that don’t realise this incentive could apply to them. In fact, nine out of ten businesses that could claim, haven’t[1]. R&D tax credit is a legitimate way of reducing a company’s tax liability and this relief can be applied to a much broader range of projects than many believe.
The SME Scheme is for small and medium sized businesses who employ less than 500 people and have a turnover of less than €100 million or €86 million gross asset, who are performing research or development at their own financial risk.
To be eligible for R&D relief, the project must relate to an advance in science or technology, but it’s not just for those in lab coats using test tubes! Every business has an element of R&D, it can include software development work, where there is experimentation, prototyping and testing, or process related improvements, for example.
Q. Will the increase in the Structures and Buildings allowance – from 2% to 3% per annum - make a difference?
A. This is about the Government encouraging businesses to build new premises or renovate old, non-residential structures. It’s not a new thing, but the increase in the allowance will help those that own their own buildings and your accountant will be able to offer advice on how to access it.
Q. Entrepreneur’s relief hasn’t been scrapped completely, but more restrictions have been applied. What do the changes mean for businesses?
A. This scheme means that entrepreneurs who are selling all or part of their business pay a reduced rate of 10% in Capital Gains Tax on profits over the lifetime of their business. Many use the incentive to help with retirement and exit planning.
Last week, the Government reduced the limit from a £10 million lifetime allowance to £1 million, so any proceeds, less the Capital Gains annual exemption, up to £1 million are taxed at the reduced rate of 10% and then the balance taxed at the usual 20%.
Most small businesses owners will still benefit from the scheme, but for some it will mean the tax payable when the business is sold has effectively doubled, so it’s important to work with your accountant to find other rebates elsewhere.
Q. What opportunities could there be from the recent interest rate announcement? Will this increase borrowing?
A. Savers lose, borrowers win! So, it could be a good time to look at refinancing or re-mortgaging if you’re not already. However, as the markets aren’t stable, if you’re cashing in savings or investments it would be worth holding off unless you really need the money.
If you’d like more information about the Budget and how it might impact your business, we’ve put together a factsheet detailing all the changes announced, which can be downloaded below.
Or, if you’d like to talk about any of the changes announced and how we can help you identify the opportunities and limit any impacts, get in touch with our team on 01322 555 442 or email happytohelp@bluerocketaccounting.com.
[1] https://breakthroughfunding.com/
