Budget 2020 For Start-Ups: Everything You Need To Know

Advice, News and Tax

March 16, 2020

In this report we outline the most relevant points from the 2020 Budget for UK start-ups & SMEs like Entrepreneurs' Relief cap, COVID-19 measures and more.

Last week was an eventful one, to say the least. With coronavirus and an oil crisis triggering a worldwide market crash while Chancellor Rishi Sunak delivered his first ever Budget speech last Tuesday.

The Budget itself was packed with news for UK businesses, some expected, some more surprising, plus a whole £12bn plan to respond to the COVID-19 emergency.

Below we outline the most relevant points for UK start-ups and SMEs.

1. Coronavirus Response

Let’s start with the more pressing matters.

The Chancellor announced a £12bn package to help the country face the threat posed by the new coronavirus, £5bn of which will be destined to the NHS and the remaining £7bn divided among the following measures aimed at businesses and employees.

Business Rates Abolishment

The chancellor announced that businesses with a rateable value (this is the open market rental value of non-domestic properties, like shops or offices) under £51,000 will be exempt from Business Rates for the tax year 2020-21.

Cash Grants For Small Businesses

Since many Small Businesses (those with a rateable value under £15,000) already benefit from Business Rate Relief, the Government is going to provide these companies with a £3,000 cash grant.

HMRC Time To Pay

Businesses affected by the coronavirus that have outstanding tax bills they cannot pay because of the outbreak may be able to agree bespoke payment terms through the HMRC Coronavirus Helpline.

Coronavirus Interruption Loan Scheme

The British Business Bank will deliver a Loan Scheme that will allow companies with a turnover up to £41m to borrow up to £1.2m. The Government will back 80% of any losses, allowing companies affected by the emergency to access extra liquidity in a time of need.

Statutory Sick Pay Refund

For businesses with fewer than 250 employees, the cost of providing 14 days of statutory sick pay per employee will be refunded by the government in full. This will provide 2 million businesses with up to £2 billion to cover the costs of large-scale sick leave.

2. Reduction in the Entrepreneurs’ Relief lifetime limit

As was rumoured for some time before the Budget announcement, Entrepreneurs’ Relief is being revised, reducing its lifetime limit from £10m to £1m. This change is aimed at making sure that the Relief benefits small entrepreneurs and employees holding shares while not providing a “tax break for the rich”, as the Relief has been called by its critics.

According to the full Budget transcript, 80% of those who benefit from the relief won’t be affected by the change. Among these are most employees who were granted share options under an EMI Scheme.

3. R&D Tax Credits

While a PAYE cap on R&D Tax Credits was expected to be introduced this April. As announced in the 2018 Budget, the cap was supposed to prevent loss-making companies to claim back more than three times their total PAYE and NIC liability as a tax relief.

Following inconclusive consultations on how to apply and enforce this cap, the new Chancellor decided to delay the introduction of the measure until April 2021.

4. Employment Allowance Increase

Starting April 2020, Employment Allowance will be increased from £3,000 to £4,000. This means that 65,000 additional businesses won’t be due Class 1 NIC at all as they don’t meet the new £4,000 threshold within a full tax year.

5. NLW To Increase To £10.50 per hour by 2024

While increases to the National Living Wage are coming into effect this April, the Chancellor announced that further increases are expected to bring the NLW to two thirds of median earnings by 2024.

According to the Government’s projections, that would mean that by 2024 the National Living Wage will amount to £10.50 per hour at least.

6. Review of EMI Share Option Scheme

The Budget keeps it vague on this one, but we do know that the Government will be reviewing the EMI scheme, hopefully considering the loosening of the eligibility requirements.

7. Other measures that could benefit tech start-ups

While the following measures don’t constitute direct benefits, reliefs or tax breaks for innovative SMEs, these policies could benefit businesses operating in the tech sector indirectly, by favouring an economic environment that values innovation and sustainability.

  • Manufacturers and importers will be taxed £200 per ton of packaging that include less than 30% recycled plastic, good news for sustainable packaging start-ups;
  • The Government will invest £500m to support the introduction of rapid charging hubs for electric vehicle, signalling support for businesses operating in the EV space;
  • VAT on digital publications will be abolished, following years of campaigning from News UK;
  • A Digital Services Tax (DST) of 2% of revenue will be applied to “certain digital businesses”, mainly big tech earning revenues on ads and user data;
  • £5bn will be invested to bring high-speed broadband to rural areas of the UK, benefitting both small digital businesses operating in locally and digital companies targeting users in these areas;
  • Alcohol and fuel duties will be frozen for the next tax year;
  • Gas tax to increase from April 2022 to encourage the use of electricity.

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