As we thought, Rishi Sunak’s first Budget as Chancellor was dominated by measures to help head off the economic impact of the coronavirus outbreak. And what did we think? Well, first this was un-precedended circumstances, so under those it wasn't bad at all.
Coronavirus stimulus package
The majority of the Chancellor’s £30bn coronavirus stimulus package is targeted to help small to weather the disruption that the pandemic might bring. Here's the relevant pieces to takeaway:
Business interruption loan scheme
£1.2bn of funds have been earmarked for lenders to support businesses accessing lending and overdrafts. This will be delivered by The British Business Bank, with the government guaranteeing 80% of the value of each loan. The scheme is designed to give lenders continuing confidence to lend to SMEs during the pandemic, and it is expected that it will temporarily replace the Enterprise Finance Guarantee (EFG) scheme.
Statutory Sick Pay
Statutory sick pay will be available to everyone advised to self-isolate from the virus. The government will also refund the cost of statutory sick pay for up to 14 days to any businesses with less than 250 employees.
Grants for small businesses
Many small businesses are already exempt from business rates, so these companies are being offered a grant of £3,000 (UPDATE: THIS IS NOW £10,000, read here) to help tide them over during coronavirus. This will be applicable to 700,000 small businesses and represents a cash injection of £2bn.
Tech startup takeaways from Budget 2020.
Rishi Sunak delivered his Budget speech which was significantly altered to the planned Budget to incorporate emergency measures to deal with the emerging threat of Covid-19. Now, the budget seems to aim itself at cushioning the impact felt by employers, employees and public resources alike, as well as on the pressing need to improve our dated infrastructure and transportation networks, and ensure the government play a role in supporting innovation and research.
£200 Million Investment to fund Growth
The government will be providing the British Business Bank with the resources to enable them to make £200 million worth of additional investment into UK venture capital and growth finance in 2020-21.
In addition, as part of the Budget, it was also agreed that the government will invest over £900 million in higher-potential technologies such as nuclear fusion technology, clean energy and electric vehicles.
Enterprise Management Incentive (EMI)
Many in the tech community believe the EMI scheme urgently needs updating to reflect the maturity of the startup ecosystem. Failing to do so risks severely damaging the ability of the UK’s fastest growing startups to attract, reward and retain the best talent.
The government has announced that it will now review the EMI scheme to “examine whether more companies should be able to access the scheme.” Coadec aim to forward proposals which include increasing the current limits of EMI from a £30M asset capitalisation to £100M, and from 250 to 500 employees.
Entrepreneurs' Relief allows certain qualifying individuals to pay Capital Gains Tax (CGT) at a reduced rate when disposing of all or part of a business or certain qualifying stock options. The rate is reduced from 20% to 10%.
Individuals can currently claim Entrepreneurs’ Relief on the sale of shares received from an Enterprise Management Incentive (EMI) scheme. This is where we expect to see the biggest impact for our clients and their employees. A charge to CGT will likely occur when the sale price of the shares exceeds the market value at the date of grant.
In order to manage an individuals’ likely CGT liability at the point of sale, it’s important to understand the likely sale price of the shares. The sale price will most probably be the established “market value” of the shares.
There are numerous tax planning opportunities that may be available in order to reduce an individuals’ CGT liability over a number of tax years. We’d recommend getting in touch with a tax specialist in order to understand how best to use the allowances and reliefs available to you, in order to reduce an individuals’ exposure.
National Insurance (NI) Employment Allowance
The NI Employment Allowance will increase from £3,000 to £4,000, meaning that businesses can deduct this amount from their employer Secondary Class 1 National Insurance Contributions, provided that all the necessary conditions are met.
This increase in the allowance is expected to reduce a further 65,000 businesses National Insurance liability to zero. This is in addition to the 590,000 businesses taking advantage of the scheme.
Research and Development Tax Credits
A commitment has been made by the government to increase spending on Research and Development from £11.4 billion to £22 billion per year by 2024-25. This is coupled with an increase in the Research and Development Expenditure Credit from 12% to 13%.
Some great news also is that the PAYE cap has been put on hold until April 2021. Big thumbs up!
Digital Services Tax
Whilst not a concern for smaller businesses as this time, there is a potential that this may become important for the tech start-up community over the coming years.
The government will introduce a new 2% tax on the revenues of search engines, social media services and online marketplaces which derive value from UK users from 1 April 2020. For the meantime this will only impact businesses when the group’s worldwide revenues are more than £500 million and more than £25 million of these revenues are derived from UK users.
This measure is not likely to impact tech start-ups over the next 12 months but there is a potential that this could “trickle down” to smaller business in the future. We’ll be posting about any updates on our blog, so keep a lookout for new information.
If you have any further queries on how the Budget will affect you and your start-up, please contact us by sending an email to firstname.lastname@example.org, or please contact us.