Budget 2020: Sticking a plaster on businesses

Budget 2020: Sticking a plaster on businesses

Chancellor Rishi Sunak promises surge in R&D investment along with a drastic cut in Entrepreneur’s Relief

Budget 2020: Sticking a plaster on businesses

Expected to come with a rise in borrowed funds, this year’s Budget pledges significant investment in innovation and technology – a new approach that some suggest lacks focus on SMEs.

“What the government needs to do is work out whether R&D investment gets value for money from spending that £22bn. SMEs will need to grasp that opportunity, and make sure they’re in a position to be recipients of that money,” says Laurence Field, corporate tax partner at Crowe.

“Many small businesses will be grateful for any help they receive because the majority is struggling with the business rate system. All it is doing is sticking a plaster. It will be interesting to see whether, using the Chancellor’s own words, the government can ‘get it done’,” he says.

Referring to it as the “highest for some time,” the government’s R&D investment comes at a crucial time for businesses struggling amid the Coronavirus uncertainty.

“It is quite an extraordinary Budget against the background of Coronavirus. It is a budget that combined populism with pragmatism, in which the government was keen to show that things can get done,” says Field. “It was also keen to show it was taking back control after leaving the EU. Certain legislations such as the abolition of the tampon tax and the reading tax – all of which were governed by European law – showed that they were trying to make a point.”

Despite a number of policies initiated to encourage growth among SMEs, some suggest the Budget still falls short for many businesses.

“I was anticipating the reintroduction of PAYE cap for SME tax credits and that PAYE cap introduction has been delayed by 12 months until first of April 2020. Advisors have lobbied suggesting what measures need to be achieved to counter abuse – the real risk is that it will disadvantage genuine claimants, including small businesses with low payroll bills,” says James Tetley, national head of R&D at RSM.

“The big opportunity missed was there was no increase to the SME scheme. There’s an increase to R&D investment, which is great – certainly great for large businesses, but considering the disproportionate number of R&D Expenditure Credit (RDEC) claimants, and as opposed to our debt claimants, I think that for the majority of those businesses they won’t see any immediate benefit.”

The Chancellor also announced the government will be cutting the Entrepreneur’s Relief lifetime, from £10m to £1m, as it suggested the funding could be used in other sectors.

“There is some confusion about what entrepreneurs’ relief does and how it works. That confusion gives the Chancellor the political cover to be able to reduce the limits quite a bit, because it’s not really well understood. Equally, if all the academic research says it doesn’t really work, it could be argued it is not an effective relief.”

The government is also issuing a £3,000 cash grant for businesses, aimed at small businesses rate relief, as part of its key initiative in supporting businesses in times of low working capital.

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