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 in the UK.
Statutory Sick Pay
Coronavirus was, understandably, a noticeable theme throughout today’s Budget announcements. The Chancellor has introduced various measures to help businesses in this unpredictable time for the economy, but here are the key takeaways for small businesses.
If you operate through your own limited company and you or your employees either become ill or have to self-isolate due to coronavirus, the company can pay the affected employee(s) Statutory Sick Pay for up to two weeks and you can reclaim that cost in full from the government. This relief applies as long as your 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 business.
If you’re a sole trader or your business is a partnership, you unfortunately won’t be able to claim Statutory Sick Pay for yourself. You can claim for your employees, if you have any. If it’s you who becomes ill or has to self-isolate, then rules around certain other state benefits have been relaxed but this won’t be hugely helpful to small business owners who do not claim benefits.
Coronavirus Business Interruption Loan Scheme
Small and medium-sized businesses affected by coronavirus will 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.
Retail, hospitality and leisure industry business aid
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.
Certain late payments and fines waived
HMRC’s Time to Pay service, for businesses who are struggling to pay their tax liabilities, 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.
Increase in Employment Allowance
The Employment Allowance will be increased from £3,000 to £4,000 from April 2020. The Primary Threshold (the level of wages at which National Insurance starts) will also be increased to £9,500, and the same will apply to the Lower Profits Limit (the level of self-employed profit at which Class 4 National Insurance kicks in).
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 digital reading material such as e-books, e-magazines and academic journals will be cut from 20% to 0%.
Entrepreneurs’ Relief lives to fight another day
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 although the relief has been severely curtailed. Instead, individuals will now be able to claim Entrepreneurs’ Relief on a maximum of £1 million worth of eligible gains during their lifetime, down from £10 million. This reduction has taken immediate effect as of 11th March 2020.
Working from home rate for employees increased
If you operate your business through your own limited company and claim costs for working from home, HMRC used to ask for proof of any working from home costs over £4 a week. As of 6th April 2020, this will rise from £4 per week to £6 per week.
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
Changes to how IR35 operates for large and medium-sized private sector businesses who engage freelancers, where the compliance requirements will move from the contractor to the client, will go ahead as planned from 6th April 2020.
A small business-friendly Budget?
To put it bluntly - no, not really. 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 concerns raised by many contractors and representative organisations.
To learn more about what the coronavirus crisis could mean for your business and to stay up to date with the latest news, take a look at our small business coronavirus hub.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.