The Spring Budget is full of firsts. It’s the first Budget of a new government, the first of a new decade, and the first since the UK left the EU. It’s also Chancellor Rishi Sunak’s first-ever Budget, prepared just four weeks into his new job. But most notably, it’s the first Budget to battle the far-reaching implications of an escalating global pandemic.
Here are five key takeaways from the UK Budget, which was announced on 11 March, including actions on business rates, tax credits, and VAT accounting.1
1. Measures announced to protect businesses from the impact of Covid-19
Up to one-fifth of employees may be absent from work due to Covid-19 during peak weeks. The Prime Minister has also urged the public to work from home and avoid public spaces. These developments could disrupt the cashflow and supply chains of British businesses. To help companies preserve cash, the Budget outlined the following measures.
- Business Rate Reliefs - In addition to the government’s previous announcement that the Business Rates retail discount will be increased to 50% in 2020-21, the discount will be further increased to 100% for the same period to support small businesses affected by Covid-19. This means the government won’t charge business rates in the retail, leisure and hospitality sectors in 2020-21, including hotels, restaurants and coffee shops.
- There will also be £2.2 billion in funding for local authorities to support small businesses that pay little or no business rates because of Small Business Rate Relief (SBBR). This will provide a one-off grant of £3,000 for companies that are currently eligible for SBRR or Rural Rate Relief, to help meet their ongoing business costs.
- Time to Pay, with dedicated support - HMRC has created a special Covid-19 helpline to help businesses that experience financial distress and that have outstanding tax liabilities, and they may be able to agree a bespoke Time to Pay arrangement.
- Coronavirus Business Interruption Loan Scheme - A new temporary scheme, delivered by the British Business Bank, will help businesses access bank lending and overdrafts. The government will provide lenders with a guarantee of 80% on each loan (up to £1.2 million each) to give lenders more confidence in continuing to provide finance to small businesses.
- Statutory Sick Pay (SSP) - The government will help small businesses cope with the extra costs of paying Covid-19 related Statutory Sick Pay by refunding eligible costs. Businesses with fewer than 250 employees will be eligible, and the refund will be limited to two weeks per employee.
2. The Employment Allowance for national insurance contributions will be increased by £1,000 to £4,000 from April 2020
The Budget aims to help small businesses take on extra staff by increasing the Employment Allowance to £4,000. This means companies will be able to employ four full-time employees on the National Living Wage without any employer National Insurance Contributions (NICs). The measure should benefit around half a million businesses, and around 65,000 will be free from paying NICs entirely.
3. A significant boost to R&D investment and tax credits
The Budget announced that public Research & Development investment will be increased to £22 billion per year by 2024-25 to support the development of high-tech, high-skill jobs of the future. To achieve the government’s ambitions, the Budget notes that R&D will require investment from the private sector. In order to boost that investment, the government will increase the rate of R&D tax credits and consider how to widen the definition of qualifying expenditure to include data and cloud computing.
4. The UK Export Finance (UKEF) direct lending facility is increased to £8 billion
The UKEF provides overseas buyers of UK goods and services with financing support through long-term, fixed-rate lending. The Budget confirmed that the one-off £2 billion direct lending increase announced in the 2018 autumn Budget is now permanently available to make UKEF’s total permanent lending facility £8 billion.
UKEF’s Chief Executive Officer said: “This is a huge increase to our capacity to support UK exports. Enhancing direct lending... from UK Export Finance will encourage overseas companies to source from the UK and help exporters across the country succeed abroad.”
5. VAT rates remain unchanged, with postponed accounting for VAT from January 2021
The government confirmed that the current VAT threshold of £85,000 will remain unchanged for 2021-22, and rates will remain unchanged (except the removal of VAT on sanitary products from 1 January 2020).
The Budget also confirmed that postponed VAT accounting will be introduced from 1 January 2021, to change the time that import VAT is due to HMRC. This will apply to all imports of goods, including from the EU, and should give businesses with international supply chains an important cashflow advantage as they adapt to the UK’s new status as an independent trading nation.