There’s plenty to pick out of the 2020 Budget announced today. Not least that it included the biggest rise in borrowing for 30 years and laid out a £12bn emergency stimulus plan to soften the blow from coronavirus.
And how exactly will small and medium-sized businesses be affected by the measures announced today? Well, industry bodies were certainly pleased. The Federation of Small Businesses (FSB) and the Institute of Directors were quick to release statements praising the new Chancellor.
“This is a pro-small business Budget, which has delivered a high streets bonus, a series of Conservative manifesto promises to small businesses, and emergency steps to support small firms through the coronavirus outbreak.
- Mike Cherry, National Chairman of the Federation of Small Businesses
“This was a box-office Budget. Given the circumstances, the Chancellor had to be bold, and he came through for business today. With the coronavirus outbreak threatening a cashflow crunch, measures to cut costs and support loans to businesses are on the money. Wider reliefs around business rates and job taxes will also buoy firms as they look to weather Covid-19’s implications.
- Jonathan Geldart, Director General of the Institute of Directors
So what are the main changes for small and medium-sized businesses?
- A business rates holiday
Business rates relief will increase to 100% across retail, leisure and hospitality in 2020-21 for firms with rateable value below £51,000. This means that, together with the existing Small Business Rates Relief, around 900,000 properties will receive relief in 2020-21. A review to the business rates system will be carried out in the autumn.
- Refunding sick pay for coronavirus
Any business with fewer than 250 employees will be refunded by the government for up to 14 days of sick pay for each employee who has to take time off due to coronavirus.
- Grants to small businesses
Any business that is currently eligible for small business rates relief will receive a £3,000 cash grant. Around 700,000 businesses will benefit, costing around £2.2 billion.
- Breathing space with tax payments
Businesses struggling with tax affairs will get support through Time to Pay – a time-limited deferral period on HMRC liabilities and an agreed repayment time. A further 2,000 call handlers have been made ready to support firms.
- Guarantees to banks for SME loans
The government will provide lenders with a guarantee of 80% on loans up to £1.2 million to ensure that they keep lending to SMEs. Delivered by the British Business Bank, these guarantees will support up to £1 billion of lending on top of what is already offered.
- More start-up loans
Funding for the British Business Bank’s Start-up Loans programme has been extended to the end of 2012-22.
- R&D tax credit increased from 12% to 13%
The rate of Research & Development tax credit has been lifted by one percentage point. This sits alongside a planned increase in R&D investment to £22bn per year by 2024-25.
- A lifetime limit on entrepreneurs relief reduced to £1m
The government fell short of scrapping the relief as mooted earlier this year, instead
choosing to reduce the lifetime limit on gains eligible for relief to £1 million. This move was dubbed a ‘sensible compromise’ by the Federation of Small Businesses.
- An upgrade in Employment Allowance to £4,000 per small business
From April 2020, the Employment Allowance increases from £3,000 to £4,000. Employers who hire veterans will also benefit from lower national insurance payments.
The full budget is over 120 pages long and can be found here.
Not to be outdone…
Earlier in the day, the Bank of England announced a set of emergency measures designed to help combat the effects of coronavirus. Among these is the Term Funding scheme with additional incentives for Small and Medium-sized Enterprises – or TFSME, for short.
The purpose of TFSME is to incentivize banks to provide credit to businesses and households during the virus-related upheaval. It works by enabling lenders to access Bank of England funds equivalent to 5% of their lending to the real economy at an interest rate that is very close to the new bank rate of 0.25%.
It’s too early to predict the success of the scheme, but the Bank’s own figures suggest it could provide £100 billion in term funding.