Budget 2020 analysis: How it will affect your small business

In-depth coverage of Budget 2020, including expert insight, and analysis of how it will affect UK small businesses.

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Note – This article primarily focuses on the budget 2020 announcements, but where these measures have been subsequently expanded, will also explain the situation at the time of writing.

Every budget is billed as the biggest for a generation, but budget 2020 made headlines for a whole variety of reasons.

The centrepiece announcements were aimed at mitigating the economic impact of the coronavirus crisis, ensuring that the country doesn’t grind to a halt as employees are off sick and the nation tries to stay indoors.

However, there were also some significant changes to tax rules, and a raft of infrastructure investments, all of which are expected to impact small businesses up and down the UK.

With the help of experts and small businesses, we’ll break down what the changes mean and help you to plan for this new economic environment.

We will cover the following sections:

Budget 2020: Coronavirus economic measures

Coronavirus (Budget 2020)

Alongside increased NHS spending and a repeated pledge to do “whatever it takes”, the Chancellor Rishi Sunak announced the following specific measures to help businesses struggling with the impact of coronavirus:

  • A 14-day SSP (Statutory Sick Pay) refund for small businesses paying employees self-isolating in line with government guidelines – this will apply to all businesses with less than 250 employees. SSP will now be paid from day 1 instead of day 4, and employees will be able to self-certify via the 111 NHS phone number. For more information, head to our dedicated page on the SSP refund scheme.
  • A scaling up of the HMRC Time to Pay service, allowing more businesses to defer tax payments over an agreed period of time.
  • A business interruption loan scheme – government-backed loans that will be delivered through the British Business Bank and help support small businesses struggling with cash flow. Initially, up to £1.2m was available per business, but this was later increased to up to £5m per business. The first six months of this finance will be provided interest-free.
  • A 12-month business rate “holiday” for all small businesses operating in the hospitality and leisure sector. This was later extended to all retail, hospitality and leisure businesses. Moreover, all retail, hospitality and leisure companies with a rateable value between £15,000 and £51,000 will be eligible for a £25,000 grant.
  • Cash grants (initially £3,000 but then raised to £10,000) for very small businesses struggling with the impact of the coronavirus crisis. To be eligible, companies must already be claiming business rates relief. For more information, see our dedicated piece on the coronavirus business grant.
  • Ahead of the budget, the Bank of England also announced it was cutting interest rates from 0.75% to 0.25%, a move expected to significantly reduce the overall cost of borrowing for small businesses. Just over a week after the budget, they were then cut to 0.1%.

Broadly, the measures announced were cheered by small businesses.

Mike Cherry, the National Chairman of the Federation for Small Businesses, was particularly positive. Hailing the “unprecedented” package of measures announced thus far, he argued:

“The Government has thankfully today made clear that it will step in and provide small firms with the cash flow they need – whatever it takes. This marks a hugely important intervention. And it’s good to hear the Chancellor pledging to do more in the days ahead.

“Small firms are having their futures threatened in the here and now. They need support in the here and now.”

Sabby Gill, EVP and MD of Sage UK & Ireland, was also optimistic, stating:

“These measures will help businesses manage their cash flow better and help them remain operational during this time of great disruption. We ask that the government keeps its finger on the pulse of the country’s business ecosystem to ensure that as many businesses as possible take advance of the new support measures introduced.”

Others though were more cautious, with Paul Cherpeau, the Chief Executive of the Liverpool Chamber of Commerce underlining that how this support is delivered is crucial:

“It is essential that the accessibility to the support announced is simple, quick and robust to ensure the provision of an adequate safety net to help businesses whose cash flow and prospects have been disrupted due to the impact of coronavirus.”

Focussing on business rates, Rob Hattrell, the vice president of Ebay UK, struck a balanced tone. He praised the action taken thus far, but reinforced that the long-awaited review of the business rates system (now postponed until autumn) must bring real improvement:

“The measures outlined in the chancellor’s budget will bring relief to the smaller retailers that line the high streets up and down our country and is critical for levelling up the economy in favour of small businesses and entrepreneurs in all our nations and regions.

“I often meet with some of the 300,000 small and medium-sized businesses that use the eBay platform, and many of these entrepreneurs tell me that business rates are one of their biggest day-to-day concerns, representing one of the largest bills they pay.

“As almost half of the SMEs on the platform also have a physical presence, a large proportion of our eBay SMEs will benefit from the changes that were announced in last week’s budget.

“In this current environment, we need to support British businesses. The government’s announcement of 12-month business rates holidays will have alleviated some of the pressure put on businesses in the wake of the coronavirus.

“That said, consistent and permanent improvement to the business rates system is vital to promote entrepreneurial activity in our country for the future. I hope that the business rate review due later this year builds on the Chancellor’s actions from last week and leads to a long term shift for the better for small businesses.”

And many small businesses were critical that the majority of the support was provided through loans that would eventually need to be paid back with interest. 

Giles Moody, the Head of Strategy at food and beverage brand consultancy Young Foodies, noted that young FCMG brands are in a particularly difficult position:

“I’m relieved to see that Hospitality, Leisure and Retail are major focuses, but I do worry about many of the entrepreneurial food and drink brands who supply them falling between the cracks of these policies. By virtue of being new businesses, their lack of business history or stability makes it notoriously hard for them to get bank business loans. It’s unclear if this level of detail has been addressed, so it’s an immediate concern. And even if so, I’m concerned that the relief options come in the form of debt which will not only affect longer term business confidence and motivation, but will no doubt start to impact on mental health.”

Finally, research from business bank Tide made clear how vital these measures are, and indicated that further support will likely be needed.

Tide CEO Oliver Prill noted:

“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.

“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.”

Overall, while the impact of the measures will vary by sector and small business maturity, they certainly felt like steps in the right direction.

However, further support is required to avoid many UK small businesses experiencing serious financial difficulties and potentially going bankrupt.

<>Budget 2020: Tax changes</>Tax (Budget 2020)

Alongside the coronavirus measures, the 2020 budget included a variety of tax changes, including a change to entrepreneurs’ relief, and an increase in the employment allowance.

Budget 2020: Entrepreneurs’ relief

The most contentious tax issue to emerge from Rishi Sunak’s debut budget was the changes to entrepreneurs’ relief.

While the new chancellor stopped short of scrapping the relief altogether, he made the following alteration.

  • The lifetime limit for entrepreneurs’ relief – which allows business owners to pay a lower rate of capital gains tax when they sell their business – has been cut from £10m to £1m.

So, the relief essentially works the same way as it did before, with the crucial difference that it only applies to a maximum of £1m profit during a business owner’s lifetime.

The change wasn’t a big surprise, with the Institute for Fiscal Studies concluding that the tax break does not boost investment in the UK economy.

Moreover, the change is expected to raise £6.3bn for the treasury over the next five years.

Announcing the change, Mr Sunak namechecked the Federation of Small Businesses (FSB) – so it wasn’t surprising when FSB Chairman Mike Cherry hailed the new approach as “a sensible compromise that we have proposed and championed”.

Some small business owners were even more positive, with Brian James, the CEO of Digital Clipboard arguing that:

“Most entrepreneurs don’t consider the tax implications of sale before they start. So it won’t diminish our ambitions, and this plan should allow increased investment into the sectors that need it the most.”

However, not everyone was so complimentary, with Darren Fell, the CEO of online accountancy company Crunch concerned about the impact the change could have on the UK’s culture of entrepreneurship:

“Reducing the lifetime allowance on entrepreneurs’ relief from £10m to £1m will push talented people and their business ideas away from the UK. It also perpetuates the polarising judgement that individual success and wealth creation is somehow morally undesirable.”

And John Bell, the founder and director of insolvency firm Clarke Bell criticised the sudden implementation of the measure:

“The announcement is not fair for an entrepreneur who has built up reserves of over £1m, only to find out that their entrepreneurs’ relief lifetime allowance has immediately been limited to £1m. A fairer approach would have been to say that this new lifetime allowance is eligible for a company that starts trading from today – i.e. the date the new measure comes into place.”

Budget 2020: Other tax changes

Other tax changes that small business owners should be aware of included:

  • The employment allowance will increase to £4,000 from April, reducing the cost of national insurance for employers.
  • Both alcohol and fuel duty were frozen for 12 months.
  • The tax on gas will be increased from 2022 – this is intended to encourage the use of electricity over gas and therefore reduce pollution.
  • A new plastic packaging tax was announced – packaging that includes less than 30% recycled plastic will be taxed, costing manufacturers and importers £200 per ton.
  • In order to help service leavers return to work, small businesses who employ armed services veterans will be given a 12-month national insurance holiday.

Of these measures, it’s likely to be the increase in the employment allowance that has the biggest impact on small businesses.

This was another change cheered by the Federation of Small Businesses (FSB), with FSB Chairman Mike Cherry describing it as a “pro-growth, pro-employment measure”.

Indeed, this is arguably the measure in the budget that benefits the largest number of small businesses.

For example, AJ Sharp, the managing director of specialist food and drinks PR agency Sharp Relations criticised much of the budget but did acknowledge that this increase would help the business:

“We will inevitably feel the benefit of the increase in the employment allowance, especially as we are looking to take on new staff in the coming months.”

The freeze in fuel duty was also warmly received, with both experts and small business owners noting that the price of fuel has a significant impact on day-to-day business expenses.

Angela Love, director at Active Workplace Solutions, emphasised the beneficial knock-on impact of the freeze:

“Another freeze on fuel duty, particularly after strong rumours that it would rise, is welcome relief for industries that rely on the roads to operate. Not only does this impact these industries positively, but it does, in turn, enhance the industries they serve. Whilst a cut would massively stimulate the UK economy, we support the ongoing fuel duty freeze.

There is a positive domino effect when it comes to ensuring fuel duty costs remain low; it increases business investment and it also results in lower production costs. For too long, drivers have been hit from all angles with taxes and then put under the microscope for having to use vehicles. Keeping fuel duty prices low is a common sense move for both businesses and the consumer.”

And Graeme Hills, tax director at accountancy company Duncan & Toplis, noted the positive impact of the freeze, but warned business that there’s a good chance fuel duty may increase after this year:

“While freezing fuel duty may not seem to be in line with the targets of reducing greenhouse emissions and pollution, fuel duty is a major cost for businesses whose employees cover long distances, or which rely on haulage and logistics.

“However, the future for the duty is still in doubt as I noticed the chancellor stressed the words “this year” in his speech, implying that the freeze may not last much longer.”

<>Budget 2020: National Living Wage increase</>Living Wage (Budget 2020)

Another major measure in the 2020 budget was an increase to the National Living Wage (what used to be the National Minimum Wage).

The chancellor announced that, “as long as economic conditions allow, by 2024 the National Living Wage will reach two third of median earnings”.

At current rates, this would mean a National Living Wage of £10.50 per hour by 2024.

This announcement prompted a mixed response from the small business community, with some concerned that companies may have to pass the increase on to their customers.

Hannah Carter, the founder of ethical cake producer OGGs, praised the planned increase despite it having the potential to slow the growth of her business:

“Whilst this will increase our cost of goods, it is crucial that we ensure every individual in our entire supply chain is protected and paid fairly. As a small business, it will potentially mean we grow a little slower as a result, but it is the right thing to do, so we welcome this new measure.”

By contrast, Stuart Wilson, the managing director and founder of Lost Sheep Coffee, warned that companies like his may have to raise prices to cope with the proposed rise:

“The Living Wage being increased is fantastic for employees but not so much for the customers. As an employer, this will cost the company thousands and thousands over the course of the year, which we will need to recoup by increasing our prices.

This will be the same across the high street, so by raising the wage bill overall prices have to increase, which in turn reduces the benefit of the new pay packet. Like many other companies, we have absorbed the £ph increases so far over the past few years, and not passed that cost on to the consumer but, with the way things are heading, these future costs will result in consumers facing higher costs or smaller product sizes.”

<>Budget 2020: Infrastructure investment</>Infastructure investment (Budget 2020)

Finally, the chancellor announced three key pieces of infrastructure investment that small business owners should be aware of:

  • A £500m investment to support the rollout of rapid charging hubs for electric vehicles – the intention is for drivers to never be more than 30 miles from being able to charge their car.
  • A £5bn investment to bring “gigabit-capable broadband” to rural parts of the UK
  • A £12.2bn investment in affordable housing

The electric vehicle charging commitment further demonstrates that this is an area small businesses really need to be looking at – especially with the pledge to ban sales of petrol and diesel cars by 2035. Now is the perfect time to start planning how to transition your business to an electric fleet.

In terms of the rural broadband investment, Mark Pocock, home communications expert at Broadband Choices, argues that this spending is long overdue and should help millions of homes and businesses in rural areas:

“The £5 billion investment into ensuring gigabit-capable broadband is available in the most hard-to-reach places of the UK is said to happen by 2025. If the Government reaches this target, it will help more than five million homes and businesses, but there will still be a lot of new housing estates in hard-to-reach areas, and a lot of new homeowners will have to struggle with limited signal within this time.

However, the reality is that broadband should be up to standards before anyone moves in – both in terms of availability and in terms of speed.

Finally, the housing crisis is nothing new, but this new wave of investment should lead to more opportunities for SMEs involved in the construction industry.

Just want the facts? Here are the key budget 2020 commitments for SMEs (some commitments were expanded following the budget).

  • A 14-day SSP (Statutory Sick Pay) refund for small businesses paying employees self-isolating in line with government guidelines
  • A scaling up of the HMRC Time to Pay service
  • A business interruption loan scheme worth up to £5m per small business – government-backed loans that will be delivered through the British Business Bank and help support small businesses struggling with cash flow.
  • A 12-month business rate “holiday” for all businesses operating in the hospitality and leisure sector.
  • All retail, hospitality and leisure companies with a rateable value between £15,000 and £51,000 will be eligible for a £25,000 grant.
  • £10,000 cash grants for very small businesses – those claiming business rates relief – struggling with the impact of the coronavirus crisis.
  • Ahead of the budget, the Bank of England also announced it was cutting interest rates from 0.75% to 0.25%, with a further cut then announced to 0.1%.
  • The lifetime limit for entrepreneurs’ relief was cut from £10m to £1m.
  • The employment allowance will increase to £4,000 from April.
  • Both alcohol and fuel duty were frozen for 12 months.
  • The tax on gas will be increased from 2022.
  • A new plastic packaging tax was announced – packaging that includes less than 30% recycled plastic will be taxed, costing manufacturers and importers £200 per ton.
  • In order to help service leavers return to work, small businesses who employ armed services veterans will be given a 12-month national insurance holiday.
  • The National Living Wage will increase to £10.50 per hour by 2024.
  • A £500m investment will support the rollout of rapid charging hubs for electric vehicles.
  • A £5bn investment will bring “gigabit-capable broadband” to rural parts of the UK.
  • £12.2bn will be invested in the construction of affordable housing.

As ever, there’s a lot to take in here – so make sure you carefully consider which measures are likely to affect your business, and plan accordingly.

Written by:
Alec is Startups’ resident expert on politics and finance. He’s provided live updates on the budget, written guides on investing and property development, and demystified topics like corporation tax, accounting software, and invoice discounting. Before joining, he worked in the media for over a decade, conducting media analysis at Kantar Media and YouGov, and writing a wide variety of freelance pieces.
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