Budget 2020 – What will it hold for SME’s?

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Rick Martignetti, a Corporate Finance expert at Shaw & Co look’s ahead to next week’s Budget and ponders how the Chancellor could support SME’s.

The first Budget of any new Parliament is normally the one where the Chancellor has the political capital to make some major reforms – particularly if the new government has a strong majority.

With austerity now said to be in the past, Brexit underway, and with Sajid Javid’s fiscal policies out of the way, the need to ‘kickstart’ the economy may signal widespread changes.

If the impact of coronavirus on economic forecasts doesn’t completely remove the Chancellor’s room for manoeuvre, the eagerly awaited Budget 2020 could be one of the most adventurous for many years.

Boosting Economic Growth

Although the Prime Minister has already announced that the long-proposed cut in corporation tax will not now take place (the rate for 2020/21 will stay at 19%), there are other changes afoot.

The Government has confirmed it will devolve rate setting power for Corporation Tax in Northern Ireland to the NI Assembly, allowing rates to go down to 12% if they wish.

It has also planned to create 10 free ports across the UK to help manufacturers importing, processing and exporting goods.

Encouraging Infrastructure, Housing & Research

Encouraging business investment will be high on the Chancellor’s agenda and it has already been announced that the rate of Research and Development expenditure credit (RDEC) will increase from 12% to 13%. Equally, the Structures and Buildings allowance will be increased from 2% to 3% to encourage businesses to start building new business facilities.

We had expected that funding for several infrastructure projects would be announced, from small scale schemes to major projects such as HS2. However, the long-awaited National Infrastructure Strategy is set to be further delayed, and not released next week as expected. 

The detailed 30-year plan was to be published “alongside” the Budget, the government said at the Queen’s Speech in December. Three weeks ago, the former chancellor Sajid Javid confirmed the timetable. The strategy is seen as crucial to the government’s plan to “level up” regional disparities.

The delay will allow the new chancellor, Rishi Sunak, to refocus the strategy, to reflect potentially larger resources available, and to incorporate the challenge of achieving “net zero” carbon emissions over the same 30-year timescale.

Few would now argue against more support for the development of battery technology, boosting the use of low carbon vehicles in the UK – will the Chancellor finally make large scale investments in green technology?

Traditionally, the housing sector has been a major driver of economic growth in the UK. It is quite possible that the Chancellor will cut the rates of stamp duty land tax to help boost the housing market – perhaps at the lower end to help first time buyers.

Helping Businesses

As always, the Chancellor will also seek to help struggling businesses. Short term cuts to business rates have already been promised for smaller businesses (including specific help for pubs) pending a more radical long-term review of the levy and this should help the struggling high street.

Entrepreneurs Relief

A momentum of opinion suggests that entrepreneur’s relief will be scrapped. The relief allows company owners to sell up and pay a reduced rate of 10% (against 20%) of capital gains tax on up to £10m of gains, the cost to the Treasury is circa £3bn a year.

There’s little evidence it encourages entrepreneurs to get started in the first place, with 84% of those who claim the relief were unaware of it before they started their companies. On the other hand, with Britain telling the world it is open for business, this doesn’t look great. 

IR35 in the Private Sector

Expect some commentary from the Chancellor on IR35, the government’s policy of extending the IR35 reforms to the private sector from April 2020.

This means that if you engage workers who are paid off payroll, via a Personal Services Company or other intermediary, you will have to assess if the IR35 rules apply. If so, a tax/NIC deduction may be required on payments made to the PSC and there will be an employer’s NIC liability for the paying party.

With major new spending commitments to be paid for, it will be interesting to see how the Chancellor proposes to fund the budget. He will come under scrutiny from the Office for Budget Responsibility which might forecast a widening public sector borrowing requirement, which was contrary to Javid’s fiscal plan of balancing the budget in the next few years.

With interest rates tumbling around the planet in-light of coronavirus, will this open the budget to larger spending plans? We’ll wait and see.

Rick Martignetti – Associate, Shaw & Co

Rick is an entrepreneurially focused corporate finance expert with a passion to help businesses to manage risk. Over the last 20 years, he has advised on debt hedging instruments over £3bn+ in client debt portfolios and arranged over £5bn+ in client foreign currency hedging transactions. He has held senior roles at Royal Bank of Scotland, National Australia Bank and Lloyds Financial Markets. At Shaw & Co, he advises clients in a range of sectors including Hospitality, Energy & Renewables, Engineering, FMCH, Healthcare, Human Capital, Leisure & Manufacturing.