Entrepreneurs Relief significantly scaled back (and other news from the budget)
In the first Budget since Brexit, the new Chancellor laid out his plans for the future of the UK economy. With the background of Brexit and the Coronavirus crisis, the Chancellor announced several measures relevant to small businesses. More could have been done to provide some much-needed relief and support to small businesses through these times – but here’s what you need to know:
- Entrepreneurs Relief has been significantly scaled back, which means that if you sell your business for more than £1m, you’ll receive less of the proceeds;
- There are some measures in place to cushion the impact of the Coronavirus outbreak targeted at those industries most likely to be affected – although not much of note for other businesses (such as the creative industries);
- The National Insurance threshold has increased to £9,500 from April;
- Employers allowance is up to £4,000;
- Pension Annual Allowance increased by £90,000
- Corporation Tax rate stays at 19%
We’ve written a bit more on all of the above below……
Entrepreneurs Relief significantly scaled back
For many small business owners, Entrepreneurs Relief has been a key part of their retirement planning. The opportunity to pay just 10% tax (rather than 20%) on the sale of their business up to a lifetime allowance of £10m has been a real incentive. This will now be limited to £1m. This change comes into effect immediately.
The changes to Entrepreneurs Relief will increase the amount of tax paid by businesses sold at a profit of over £1m. The Government claims that this will leave over 80% of those using the relief unaffected while making the tax system fairer and more sustainable.
Measures to cushion the impact of the Coronavirus crisis
Deferral of tax payments
A dedicated helpline will be set up for those who need a deferral period on their tax liabilities to help give them some cash flow relief over this period of time. HMRC’s Time to Pay service will be scaled up with an extra 2,000 call handlers available to support businesses. You can reach the helpline on 0800 024 1222.
Temporary loan scheme if your business is interrupted from the Coronavirus
For those businesses who are struggling due to the Coronavirus, they can apply for bank loans of up £1.2 million under the temporary Coronavirus Business Interruption Loan Scheme. The Government will provide lenders with a guarantee of 80% on each loan and businesses, or banks will not be charged for the guarantee.
Support for some retail, leisure, or hospitality business
If you’re a retail, leisure, or hospitality business and have premises with a rateable value of up to £51,000, your business rates are scrapped until the end of the year. This provides much relief for these businesses that will suffer as the effects of the Coronavirus outbreak start to hit.
The Government says these temporary measures, combined with existing small business rates relief, mean that 45% of all properties in England will not pay business rates in 2020-21.
The business rates discount for pubs will be temporarily increased from £1,000 to £5,000 for pubs with a rateable value below £100,000. Small businesses that fall just over that threshold will get no support. We think a sliding scale of relief would’ve been a more appropriate and fair way to provide relief.
Good news for small businesses that pay no business rates
Small businesses in England that already qualify for 100% Small Business Rate Relief, and therefore pay little or no business rates, will be eligible for a £3,000 Coronavirus grant. Those in Scotland, Wales and Northern Ireland have their grants set by the devolved administration.
Have any staff that have had to self-isolate? You could get their sick pay refunded
Statutory sick pay will be available to all those advised to self-isolate from the Coronavirus. It’s reassuring and alleviates some pressure that the Government will refund the cost of statutory sick pay for up to 14 days for small and medium-sized businesses. This will apply to businesses with less than 250 team members.
We have discovered that payroll software providers currently don’t have a way to facilitate these refunds. The Government will be working with them to set up a repayment mechanism as soon as possible. We will provide a further update when we know more.
Increased Employment Allowance
The Employment Allowance currently gives small employers £3,000 off their National Insurance bill to encourage them to take on employees. From April 2020, this will be increased to £4,000 which means businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions. However, this will be limited to employers with an employer NICs bill below £100,000 in the previous tax year.
National Insurance threshold increase
The national insurance primary threshold for employees will increase from £8,632 to £9,500 from April 2020. This will save a typical employee around £104 in the 2020/21 tax year.
Tapered annual allowance threshold for pensions increased by £90,000
Under current rules, taxpayers have an annual allowance of £40,000 of pension contributions each year. This reduces on a sliding scale down to a minimum annual allowance of £10,000 for those with threshold income above £110,000 and adjusted income above £150,000.
Going forward, these thresholds are increasing to £200,000 for the threshold income and £240,000 for the adjusted income with the minimum annual allowance now reduced to £4,000. This will substantially reduce the number of people affected by the tapered annual allowance allowing increases in pension contributions for retirement.
Corporation tax rate kept at 19%
Originally, the plan was to cut corporation tax by 2% from April 2020. This was ruled out after the election last December, meaning the corporation tax main rate remains at 19% for the financial year beginning 1 April 2020.
The Chancellor announced £130m in new funding to extend the Start-Up Loans scheme to up to 10,000 more entrepreneurs between 2021 and 2022.
It is also providing the British Business Bank with the resources to make up to £200m of additional investment in UK venture capital and growth finance in 2020-21 to support scaling companies.
Despite moves elsewhere to help people make the switch, small print in the Budget saw the maximum grant for motorists moving to an electric car cut by £500 to £3,000 from Thursday. It also excludes cars costing £50,000 or more.
Positively, the Government will invest £500 million over the next five years to support the roll-out of new rapid charging hubs for electric cars, so drivers are never more than 30 miles away from a rapid charging station. We still believe electric cars are a great investment to help you reduce your environmental impact, ongoing costs, and save you tax.
As more things come to light over the coming days, we’ll keep updating our blog. As always, if you have any questions on any of the above, please get in touch. We’d love to help.