A practical guide to the 2020 Budget for startups and scale-ups

Post by
Alistair Franke
A practical guide to the 2020 Budget for startups and scale-ups

We’ve summarised below the key plans and incentives most likely to impact SMEs as a result of Wednesday’s announcement:


Executive summary:


  • R&D slightly extended and enhanced: No action required.
  • Coronavirus statutory sick pay reclaim: Keep full records of employee time spent off sick or in self isolation.
  • Entrepreneur’s relief:  Tax paid by founders on exits over £1m will be higher from today.


Coronavirus


The timing of this year’s budget meant that Coronavirus was always going to be a hot topic…


Most notably the cost of statutory sick pay (SSP) for coronavirus-related absence will be fully covered for businesses with fewer than 250 employees for up to 14 days.


Under the usual scheme SSP provides employees with £94.25 per week and starts after four full days of absence.  Since 2014 this cost has been borne by the employer with no relief from the government.


Going forward SSP will apply from day one of absence, and employers with under 250 staff will be able to reclaim the cost back from HMRC for up to 14 days.


As the mechanism for collecting back the SSP via payroll systems is not yet clear we are advising all of our clients to keep full records of all staff interruptions caused by Coronavirus, including time spent working from home due to self-isolation.


The Chancellor has set aside £2bn to cover SSP across two million businesses.  However as the future extent of the virus is so uncertain it feels a lot like writing a blank cheque...


Further extending their exposure, the government plans to underwrite 80% of up to £1.2bn of "business interruption" loans to small and medium sized businesses. As these loans will be provided via commercial lenders the practical matters of the rate of interest and credit checks remain uncertain.


Research and development tax credits


Perhaps the most important incentives business owners will be listening out for is R&D tax relief.


After a reduction in the size of the overall pot in the last budget, there had been rumours that the government would further scale back their R&D scheme, which is comparatively generous by international standards.


However instead the Conservative government stuck to their 2019 election promise to expand the tax credits for large companies from 12% to 13%.  This change will come into effect from 1 April 2020.


Those eligible for SME R&D relief will be pleased to hear there are no plans to change the current scheme.


What is eligible for R&D relief?


At Quantico we’ve seen a fair amount of confusion caused over the last few years over exactly what expenditure is and isn’t eligible for R&D.  The official guidelines of “technical uncertainty” have resulted in a lot of speculative claims and accusations of inconsistent treatment.


We are therefore pleased to hear that the government is consulting on whether a few items of technical expenditure should or should not be included, for example data and cloud computing.  The outcome of this choice will have a significant impact on the amount our clients can expect to claim.


In the 2018 Autumn Budget a proposal was made to reintroduce a cap on the total R&D amount claimed.  However in a move that will please knowledge intensive businesses this has been delayed until at least 2021.


For more information on how these changes will impact your scale-ups R&D claim you should speak in the first instance to your Quantico Finance Business Partner.


Tax on exiting your startup


When founders exit their business they are current entitled to a lower rate of income tax under a scheme call Entrepreneur's Relief.  


In the budget this relief was reduced in scope.  It was previously to £10m of gains but now that's been brought down to just £1m.  This cap is applied per founder not per business, and it lasts for life.


Business rates


Business rates in England will be scrapped for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000. This move will provide much needed relief for struggling high streets during the Coronavirus scare but will not benefit the majority of London startups as office buildings are unaffected.


A small ray of good news though is that small businesses currently eligible for the small business rate relief will be eligible for an additional £3k of relief.  It’s not going to give you another 18 months runway but every little helps, as they say.


National insurance (NICs)


NICs Employment Allowance will increase from 3k to £4k, meaning firms will not have to pay Employer NICs (also known as the ‘jobs tax’) on the first £4,000 of their annual bill. To be classed as an eligible employer the NIC liability in the previous tax year must not have exceeded £100,000.


Corporation tax


For those companies lucky enough to be making a profit, plans have been scrapped to cut corporation tax. The rate of tax will remain at 19% rather than falling to 17%.


The Treasury will push ahead with a 2% tax on the revenues of digital technology giants, such as Google and Facebook, from the beginning of April this year. Perhaps this ‘digital services tax’ will be one for our clients to consider for the future.


Other measures


The chancellor has allegedly asked HMRC to scale up its “Time to Pay agreement, which allows businesses and the self-employed to defer tax payments over an agreed period of time; usually 6-12 months. Also, the promise to increase the number of call handlers at HMRC will be welcome news for many.


Funding has also been extended for the British Business Bank’s Start-Up Loans programme, which has lent £500 million to UK small businesses since it was set up in 2012. The extent of the increase is unclear at this stage, but the current scheme enables new businesses to borrow up to £25,000 at a rate of interest of 6%.


Going green


On the topic of the environment, the chancellor spoke of creating a “high skill, high wage, low carbon economy” which will include increasing “taxes on pollution.”


Plans were confirmed to freeze fuel duty for another year as well as an announcement of a 900m investment into nuclear fusion, space and electric vehicles.


Introduction of a new plastic packaging tax from April 2022, which will charge manufacturers and importers £200 per tonne of packaging made from less than 30 percent of recycled plastic.


And anyone planning to enter the increasingly popular alcohol distillery market may benefit from a £10m budget aimed specifically at distilleries to help them in going green.


A popular note to end on


Finally, those who like to ease the pain of tax and accounting by heading down the pub after work, will be pleased to hear of a raise to the business rates discount for pubs from £1,000 to £5,000, with duties on beer, cider and wine temporarily frozen.