Budget 2020: Key Points for Businesses

Chancellor of the Exchequer Rishi Sunak announced his hotly anticipated first Budget yesterday. As coronavirus continued to cast its shadow over the British economy, with growth predicted to be at its lowest since 2009, he pledged to support businesses and pour funding into the NHS, “whatever it takes, whatever it costs”.

Day-to-day spending on public services will be £100 billion higher in cash terms, with the Chancellor reaffirming the government’s commitment to providing the NHS with an additional £33.9 billion per year by 2024. The Office for Budget Responsibility notes that this is the largest economic stimulus the UK has seen in nearly 30 years, seemingly marking the end of austerity. The Chancellor also announced additional investment into businesses, R&D and life sciences.

We’ve taken a look at the full Budget and some of its implications for businesses.

Key Talking Points of Budget 2020:

• £30 billion stimulus package, including £12 billion to offset the economic impact of the coronavirus outbreak;
• IR35 changes will go ahead;
• Corporation Tax to remain at 19%, cancelling a decrease to 17%;
• Business rates set to undergo a major overhaul; public-facing businesses will receive a tax holiday as coronavirus hits;
• A major increase in funding for R&D;
• Entrepreneurs’ Relief allowance cut to £1 million;
• National Living Wage targeted to hit £10.50/hour in 2024;
• Digital Services Tax to come into effect next month;
• Plastic packaging tax to come into effect in 2022.

Coronavirus (COVID-19) Response

Unsurprisingly, the 2020 Budget places heavy importance on the COVID-19 pandemic and its effect on public health and the economy. £12 billion of the £30 billion stimulus package is specifically targeted at coronavirus measures.

• Statutory sick pay: in addition to being available from day one, statutory sick pay will be available to for all those advised to self-isolate–even if they have not presented with symptoms.
• Self-employed workers will be able to claim contributory Employment Support Allowance from day one, rather than after a week.
• Firms with fewer than 250 staff will be refunded for sick pay payments for two weeks.
• Small firms will be able to access business interruption loans of up to £1.2 million.
• Businesses likely to be hit hard by the outbreak, including cafés, shops, restaurants, cinemas and hotels, will pay no business rates in the coming tax year.

Business Rates to Undergo Review

The Chancellor announced that the entire business rates system will undergo a major review, to report this autumn. For now, special measures have been introduced to help businesses to survive reduced business in the wake of coronavirus.

• A business rates holiday for retail, leisure and hospitality firms with a ratable value under £51,000 this coming tax year.
• Pubs will still have to pay business rates, but discounts will rise from £1,000 to £5,000 on pubs with a ratable value under £100,000.
• Firms eligible for small business rates relief will get a £3,000 cash grant.

IR35 Changes Will Go Ahead

Controversial changes to IR35 legislation are set to go ahead, much to the disappointment of the self-employed people it affects. Though Sunak did not address the issue in his speech to Parliament, the full Budget document confirms that self-employed individuals working through a company will have to pay the same amount of tax as permanent members of staff. This is in a bid to crack down on ‘disguised employees’ who are held to the same responsibilities as permanent staff.

At present, freelancers working through a company pay lower income tax and don’t have to pay National Insurance. From 6 April 2020, larger companies in the private sector will have to decide the status of their contractors. Smaller businesses—those with a turnover of less than £10.2 million a year, balance sheet assets of less than £51 million, or fewer than 50 employees—will not be affected.

• Large private companies will have to decide whether their contractors qualify for IR35, joining the public sector.
• On the other hand, the National Insurance threshold is to be raised to £9,500 from £8,632, providing a tax cut for 31 million people.

Corporation Tax and Entrepreneurs’ Relief

A planned 2% reduction in Corporation Tax has been scrapped, but the rate will hold steady at 19%.

One key area of speculation this year was Entrepreneurs’ Relief, which allows entrepreneurs to pay just 10% tax when selling a business. While the scheme will stay in place, the lifetime allowance has been slashed from £10 million to £1 million.

Explaining the change, Sunak said that the existing allowance was “ineffective and unfair, with nearly three-quarters of the cost going to 5,000 individuals”. With the new allowance in place, 80% of entrepreneurs who want to sell their business will be unaffected.

• Corporation Tax is to be frozen at 19%, reversing the previous plan to cut it to 17%.
• The Structures and Buildings Allowance for Corporation Tax will be increased from 2% to 3%.
• Entrepreneurs’ Relief will remain, but the lifetime allowance will be reduced from £10 million to £1 million.

Greater Investment in Businesses

The chancellor made a number of pledges to boost funding for startups and scale-ups, as well as announcing an impressive £22 billion to be invested in R&D, a £4 billion increase from the Conservatives’ manifesto pledge of £18 billion.

“That is the fastest and largest increase in R&D spend ever,” said Sunak, adding that the percentage of GDP for research will be “the highest in 40 years” and a greater proportion of spending than that of China, the USA, France, or Japan.

• £130 million of new funding will extend startup loans.
• £200 million will fund the British Business Bank to invest in scale-ups.
• £22 billion will be invested in R&D by 2024-25.
• £200 million will be invested into life sciences.
• £5 billion in increased lending will be available for exporters.
• Dedicated trade envoys will represent the north, midlands, west of England and Wales.

Employment and National Insurance

Business owners and employees alike will see a higher threshold before they pay National Insurance. An ambitious target of £10.50 for the National Living Wage (formerly National Minimum Wage) was announced for 2024.

• The Employment Allowance for Employer National Insurance Contributions is increasing from £3,000 to £4,000.
• The National Insurance threshold for employees is to be raised to £9,500 from £8,632.
• National Living Wage will rise to £8.72 from £8.21 for over-25s on 1 April. It is targeted to hit £10.50 per hour and be extended to over-21s by 2024.

Changes to VAT and Duties

Little change in this area, although as some predicted, VAT on sanitary products and digital publications will be scrapped following Brexit. A new Digital Services Tax will be introduced next month, gleaning 2% of revenue from online businesses that derive value from UK users.

• Tampon tax will be abolished from January 2021.
• VAT will be scrapped on digital publications such as newspapers, academic journals and e-books from 1 December.
• The increase in alcohol duties has been scrapped.
• Fuel duty has also been frozen.
• A Digital Services Tax of 2% on revenues of search engines, social media services and online marketplaces will be rolled out on 1 April.

New Sustainability Measures

Sustainability was another key talking point for this budget. Following calls to ban or tax packaging that cannot be recycled, manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne.

• The new ‘plastic packaging tax’ will come into effect in April 2022.
• A new £100 million scheme will help households and small businesses invest in low carbon heating systems.
• The levy on gas will rise but is frozen on electricity.
• Diesel subsidies will be scrapped “for most sectors” in two years’ time but will remain for farmers and rail operators.
• An investment of £500 million into the rollout of rapid charging hubs will ensure that e-vehicle drivers are never more than 30 miles from a hub.
• There will be a consultation on plans to change Vehicle Excise Duty, better known as road tax, in an effort to link more closely with carbon emissions.

A Major Boost in Infrastructure

Record amounts will be invested in Britain’s roads, railways, broadband, housing and research—more than half a trillion pounds (£640 billion) will be invested over the next five years. While much of this focuses on public needs, including a £1 billion fund to replace flammable cladding on buildings, businesses are set to benefit from improved transport routes.

• £27 billion will be invested between now and 2025 to improve vital transport routes.
• £5 billion will be invested in broadband to help expand rural connectivity.
• £2.5 billion will fix potholes and resurface roads over the next five years.