Budget 2020: the bottom line for small businesses

Newly appointed Chancellor of the Exchequer Rishi Sunak has just delivered his first ever budget to the House of Commons. Chief Accountant at FreeAgent, Emily Coltman FCA, digs a little deeper into exactly what today’s Budget means for small businesses - as well as their accountants and bookkeepers.

Coronavirus

The Chancellor began speaking about coronavirus almost as soon as he was on his feet. He introduced various measures to help businesses survive the outbreak. Here are the key points for your small business clients.

For small businesses with staff, including those who work through their own limited companies, where a director or employee has to self-isolate or falls sick with coronavirus, the affected individual can be paid Statutory Sick Pay for up to two weeks and reclaim the cost in full from the government. This relief applies as long as the business had fewer than 250 employees on 28th February 2020. As Statutory Sick Pay cannot normally be reclaimed, this could bring a welcome cash boost, however small, to your clients.

This relief cannot be claimed by sole traders and partners who do not have employees. The rules around claiming certain other state benefits have been relaxed for the duration of the coronavirus outbreak but as not all self-employed individuals claim benefits, this will not help everyone.

Small- and medium-sized businesses affected by coronavirus have the option to apply for a loan under the temporary Coronavirus Business Interruption Loan Scheme. Under this new scheme, banks and other lenders will be able to make loans to affected businesses of up to £1.2million per loan, with up to 80% of each loan backed by a free government guarantee.

Small businesses in the retail, hospitality and leisure industries will pay no business rates for 2020/21 and many will also be eligible for a £3,000 cash grant to help meet their costs.

HMRC’s Time to Pay service will be scaled up to give businesses affected by coronavirus more time to pay their taxes. HMRC will also waive late payment fines and interest where a business is unable to contact HMRC or pay their tax due to coronavirus. Both options are potentially welcome news for your clients.

Increase in Employment Allowance

The Employment Allowance will be increased from £3,000 to £4,000 from April 2020. The Primary Threshold and Lower Profits Limit will also both be increased to £9,500, however the Secondary Threshold remains unchanged. So, some potential headaches ahead when checking payroll calculations.

Reductions in VAT on certain items

As of 1st January 2021, women’s sanitary products, which are currently subject to VAT at 5% (the so-called ‘tampon tax’), will become zero-rated for VAT.

Similarly, from 1st December 2020, the VAT rate on electronic reading material such as e-books, e-magazines and academic journals will be cut from 20% to 0%.

Entrepreneurs’ Relief is restricted rather than abolished

There were rumours that Entrepreneurs’ Relief, which reduces the rate of capital gains tax to 10% on the sale of all or part of a business, would be abolished altogether.

This, thankfully, did not happen. Instead, everyone will be able to claim Entrepreneurs’ Relief on a maximum of £1million worth of eligible gains during their lifetime, down from £10million, with the reduction applying from Budget Day, 11th March 2020.

Working from home rate for employees increased

Clients who are employees (including of their own limited companies) who claim costs for working from home, will be able to claim £6 per week from 6th April 2020, up from £4 per week, without HMRC asking to see proof of how these costs have been worked out.

Corporation Tax rate holds steady

The rate at which limited companies pay Corporation Tax was originally planned to fall from 19% to 17% on 1st April, but these plans have been axed. The rate of Corporation Tax will now remain at 19%.

IR35 changes will go ahead

The planned changes to how IR35 operates, moving the compliance requirements from the contractor to the client for large and medium-sized private sector businesses who engage freelancers, will go ahead from 6th April 2020.

A small business-friendly Budget?

While the measures to support businesses through coronavirus will be welcome, there is little tangible support for those self-employed traders who do not have business premises and for whom self-isolation effectively represents a two-week business shutdown. It is also disappointing to see the IR35 changes go ahead in spite of the ongoing House of Lords review and the questions raised by many contractors and representative organisations.