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Budget 2020: What does this mean for UK’s small and medium businesses?

Written by Latifa Yedroudj on Thursday, 12 March 2020. Posted in Politics, Analysis

Business rates will be cut for thousands of small UK firms in retail, leisure and hospitality industries along with policies to reduce the pressures of coronavirus on businesses

Budget 2020: What does this mean for UK’s small and medium businesses?

Business rates will be cut for thousands of small UK firms in retail, leisure and hospitality industries along with policies to reduce the pressures of coronavirus on businesses

Chancellor Rishi Sunak unveiled the UK’s £30 billion spending package in a series of measures to relieve the pressures of coronavirus on the economy and to save small businesses with a temporary exemption on business rates, ensuring the government is “doing everything” to keep the UK “healthy and financially secure”.

In a major milestone, thousands of small firms in the retail, leisure and hospitality sectors will be exempted from paying tax for a year, but only those with a rateable value of below £51,000. Business rates have been a major concern for small enterprises who have faced massive closures across Britain’s high streets, and the new scheme hopes to boost the UK’s economy amid the coronavirus outbreak. The chancellor has also extended the 100 percent discount to all eligible retail and leisure businesses, including museums, galleries, gyms, nightclubs and guesthouses. 

To further aid businesses who already pay no business rates, a £3,000 cash grant will also be given to companies eligible for small business rates relief. Firms with less than 250 employees will be refunded for providing statutory sick pay to workers self-isolating because of the coronavirus in a £2 billion government initiative. Business and those self-employed will be able to defer their tax payments in times of financial distress in the “Time to Pay” scheme to extend the time limit for paying tax back to HMRC.

Jonathan Richards, CEO and Founder of Breathe believes the new budget announcements will provide much-needed support to small and medium businesses, allowing them to thrive and prosper in a time of uncertainty. “It was fantastic to see over £7bn committed by the government to protect and support small businesses during the disruption caused by coronavirus,” Mr Richards said. “As a small business owner, it’s reassuring that the government will cover the strain caused by sick pay, as well as offering significant loans and cash injections to UK small businesses. Many small and medium-sized businesses valued under £51,000 in the retail and leisure sector will also welcome the abolition of business rates until the end of the year. These measures take the pressures off businesses and allow them to continue as normal throughout the disruption.”  

Despite government initiatives, some business leaders believe UK SMEs will still face serious pressure and challenges in the long-term due to coronavirus and relying on international trade and suppliers, making it a major concern for thousands businesses.

Oliver Prill, CEO of Tide, said: “Our research reveals that UK SMEs are lacking confidence in the UK economy and their ability to grow their businesses in the short term. More than half (52%) are concerned their business income will decrease over the next quarter and 57% are unlikely to be able to invest in growing their business in the coming months. Respondents highlighted Coronavirus as a key concern, with the impact on imports (particularly from Asia), limits on travel, the resulting impact on global political stability, and the market volatility being regularly cited issues.... However, with UK SMEs being ever-more exposed to the global economy, our concern is the long-term impact the Coronavirus could have. The reliance many businesses have on international suppliers and trade is significant and is likely to have a devastating effect.”

Addressing rising concerns over coronavirus, small firms will now be able to borrow loans of up to £1.2m through the “Coronavirus Business Interruption Loan Scheme”. The scheme will provide the British Business Bank with an additional £1bn in guaranteed lending to small businesses, granting them more access to loans and overdrafts during the coronavirus outbreak.

Speaking about the new funding, Mr Sunak said: “The government will offer a generous guarantee on those loans, covering up to 80 per cent of losses, with no fees, so that banks can lend with confidence,” said Sunak, “This will unlock up to £1bn of attractive working capital loans to support small businesses, with more as needed.”

The British Business Bank announced it is now working closely with its partners for the scheme to be available in the oncoming weeks.

“The Coronavirus Business Interruption Loan Scheme, delivered via the British Business Bank to support the continued provision of finance to UK businesses during the Covid-19 outbreak, will temporarily replace the Bank’s well-established Enterprise Finance Guarantee (EFG) scheme with an additional £1bn being made available on top of existing support offered through the programme,” Keith Morgan, Chief Executive, British Business Bank, said. “It will operate in much the same way as EFG but on more attractive terms for both businesses and lenders. We will be working closely with our current EFG delivery partners and government to implement the package of enhancements so that the new scheme is available in the coming weeks.”

The lifetime limit for claiming Entrepreneurs' Relief has been cut by 90 per cent, reducing from £10m to £1m, which has been praised by Mike Cherry, the chairman of the Federation of Small Businesses as a “sensible compromise”.

Cutting the lifetime limit will enable start-ups to continue to attract talent, but reduce the incentive for some foreign-born founders to base their companies in Britain, according to Philip Salter, founder of The Entrepreneurs Network.

The government will also be adding £130 million of new funding to extend start-up loans for businesses, along with £5 billion of new export loans. The chancellor also announced plans to provide £200 million to the British Business Bank to make equity investments in health and life sciences.

With higher access to bigger loans, Simon Cureton, CEO of Funding Options, has warned small businesses to act responsibly and be careful not to borrow beyond their means.

He said: “The outlook for small businesses is certainly brighter after this budget. The government’s pledge to offer loans of up to £1.2m to small businesses affected by the coronavirus is one that will be welcomed by those who are concerned about their cash flow during this difficult time.  

"However, it’s important that businesses eligible for these loans act responsibly; affordable finance is important at a time like this, but the government needs to be clear about what the terms of their guarantees actually are. What we don’t want to see is a situation where businesses borrow beyond their means and struggle to stick to the terms of their loan agreements in the months to come. In this case, we’d simply be delaying their hardships. We’ve already seen an increase in applications for working capital loans, so it’s clear that this is something that’s being demanded by small businesses. We are only at the very beginning of this health crisis, and the effects of COVID-19 on businesses are only just beginning to emerge. It is very likely that the worst is yet to come, and organisations large and small need to plan for every contingency.”

Despite all the seemingly positive news for small and medium businesses in the UK, corporation tax continues will continue to freeze at 19% for the financial year beginning 1 April 2020 despite previous talks to reduce it by 2%.

Alex Henderson, tax partner at PwC, said: “While not unexpected, freezing the rate of corporation tax at 19% will be a significant tax measure and is forecast to raise £33bn for the Chancellor by 2024/25. The announcement of a consultation on ‘tax conditionality’ suggests a theme of the UK being available to be ‘good corporate citizens’. It will be important, however, that there will be a similar focus on ease of interaction with government and HMRC including a focus on simplicity and certainty, to make the UK comparatively one of the very best places to do business.”

Some business leaders believe the budget reforms are not enough to help small and medium enterprises, particularly with the coronavirus outbreak. Martin Taylor, Deputy CEO at Content Guru believes more should be invested in cloud technology to facilitate remote working, boost productivity in the workforce and modernise business operations.

“An astute move from Chancellor Rishi Sunak would be to extend the purview of the annual investment allowance to the purchase of cloud services – this is a great way to boost productivity and generally stimulate innovation,” Mr Taylor said. “As the current Coronavirus situation shows, moving services up to the cloud also supports home working and distributed working, boosting safety, business continuity and competitiveness.  

“In the past, many of the things you would need to purchase as capital items are now much more useful when purchased as a service. Including qualifying cloud services in the annual investment allowance – for example, in a similar format to the G-Cloud Framework – could speed the move to a more productive way of working for British businesses. We don’t want British companies dragging their feet in the subscription and service economy; we want them leading the charge. Our competitors are global companies and cloud is key in this race. By encouraging businesses to modernise processes, the Government would be taking a truly progressive approach to the fundamental issue of productivity.”

Some believe the government has failed to take necessary steps in preparing the workforce for a shift to digital, despite former Chancellor of the Exchequer, Sajid Javid’s promise to “level up” the country and focus on a skilled workforce. It is vital that companies are equipped with the skills to transition their business into the digital age, Steve Wainwright, Managing Director EMEA at Skillsoft said.

“Before his recent dramatic departure, the previous Chancellor of the Exchequer, Sajid Javid, promised that he would make skills a central theme of his March budget to deliver on the government’s post-Brexit plan to “level up” the country,” Mr Wainwright said. “Furthermore, the Conservative manifesto promised a £3bn “skills fund” to be disbursed over five years. One of the most significant challenges facing companies today is preparing their talent base for the shift to digital. And as digital transformation becomes a reality, organisations must equip their employees with the skills they need to deliver in this ‘new normal’ economy. Reskilling employees to better understand and leverage new technologies, processes and ways of thinking could very well mean the difference between success and failure. 

“The good news for learning and development teams is that there is a huge range of training courses on offer, and for the most part, they’re available online. E-learning means that wherever employees are, and whatever device they’re using, they can access the training needed to prepare them for the digital economy. As the UK creates its path post-Brexit, and we navigate this rapidly changing digital environment, let’s hope Rishi Sunak delivers on his predecessor’s promise to prioritise skills in his inaugural budget. If he doesn’t do this – the negative impact could be felt for years to come.”

With small business rates abolished, the government has taken great steps to support SMEs in a time of economic uncertainty and as Mike Cherry, the FSB’s national chairman, said: “We hope it is the start of things to come.”

“The announcement of a consultation on ‘tax conditionality’ suggests a theme of the UK being available to be “good corporate citizens”.

“It will be important, however, that there will be a similar focus on ease of interaction with government and HMRC including a focus on simplicity and certainty, to make the UK comparatively one of the very best places to do business.”

Some business leaders believe the budget reforms are not enough to help small and medium enterprises particularly with the coronavirus outbreak. Martin Taylor, Deputy CEO at Content Guru believes more should be invested in cloud technology to facilitate remote working, boost productivity in the workforce and modernise business operations.

“An astute move from Chancellor Rishi Sunak would be to extend the purview of the annual investment allowance to the purchase of cloud services – this is a great way to boost productivity and generally stimulate innovation,” Mr Taylor said. “As the current Coronavirus situation shows, moving services up to the cloud also supports home working and distributed working, boosting safety, business continuity and competitiveness. 

“In the past, many of the things you would need to purchase as capital items are now much more useful when purchased as a service. Including qualifying cloud services in the annual investment allowance – for example, in a similar format to the G-Cloud Framework – could speed the move to a more productive way of working for British businesses. We don’t want British companies dragging their feet in the subscription and service economy; we want them leading the charge. Our competitors are global companies and cloud is key in this race. By encouraging businesses to modernise processes, the Government would be taking a truly progressive approach to the fundamental issue of productivity.”

Some believe the government has failed to take necessary steps in preparing the workforce for a shift to digital, despite former Chancellor of the Exchequer, Sajid Javid’s promise to “level up” the country and focus on a skilled workforce. Steve Wainwright, Managing Director EMEA at Skillsoft insisted it is vital that companies are equipped with the skills in order to transition their business into the digital age.

“Before his recent dramatic departure, the previous Chancellor of the Exchequer, Sajid Javid, promised that he would make skills a central theme of his March budget in order to deliver on the government’s post-Brexit plan to “level up” the country,” Mr Wainwright said. “Furthermore, the Conservative manifesto promised a £3bn “skills fund” to be disbursed over five years. One of the most significant challenges facing companies today is preparing their talent base for the shift to digital. And as digital transformation becomes a reality, organisations must equip their employees with the skills they need to deliver in this ‘new normal’ economy. Reskilling employees to better understand and leverage new technologies, processes and ways of thinking could very well mean the difference between success and failure.

“The good news for learning and development teams is that there is a huge range of training courses on offer, and for the most part, they’re available online. E-learning means that wherever employees are, and whatever device they’re using, they can access the training needed to prepare them for the digital economy. As the UK creates its own path post-Brexit, and we navigate this rapidly changing digital environment, let’s hope Rishi Sunak delivers on his predecessor’s promise to prioritise skills in his inaugural budget. If he doesn’t do this – the negative impact could be felt for years to come.”

With small business rates abolished, the government has taken great steps to support SMEs in a time of economic uncertainty and as Mike Cherry, the FSB’s national chairman, said: “We hope it is the start of things to come.”

About the Author

Latifa Yedroudj

Latifa Yedroudj

Latifa Yedroudj has joined the Elite team to fully immerse herself in the business side of journalism, a strong passion of hers cultivated from young having co-run her mother's start up business since she was 18. Her interests lie in a wide range of subjects, including start ups, business, travel, and anything entrepreneurial she can get her hands on. She has worked for some of the biggest names in journalism including The Guardian and The Mirror. Follow her on @latifayed on Twitter for her latest journo rants.

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