The Spring Budget arrived last week, setting out a plan for the UK’s economic recovery from the COVID-19 pandemic.
With the crisis still very much ongoing for the time being and significant restrictions in place for the next few months, business owners at the UK’s SMEs will have been keen to hear what kind of aid the government will provide for what are, hopefully, the final few weeks of lockdown.
Financial support continues
SME owners will have been glad to hear that the furlough scheme, under which the government pays 80 per cent of the wages of employees for hours not worked, has been extended. However, the scheme’s new end date of September has been criticised by some as being too soon, with businesses unlikely to have recovered from the impact of COVID-19 by then.
As initiatives like the Bounce Back scheme and Coronavirus Business Interruption Loan Scheme (CBILS) come to an end this month, the budget also brought with it some new financial stimulus for businesses impacted by the pandemic. The new £5 billion Restart Grant scheme will deliver valuable aid to many businesses, with grants of up to £18,000 available to leisure and hospitality firms and up to £6,000 for non-essential retailers.
Another new scheme, the Recovery Loan Scheme, was also introduced and will run until at least December 31 2021. This new scheme offers loans of between £25,000 and £10 million to businesses of any size. As with CBILS, these will be 80 per cent government-backed and, in addition to loans, will be available as overdrafts, invoice finance and asset finance facilities.
VAT reduction and business rates holiday extended
Chancellor Rishi Sunak also announced the extension of the reduced VAT rate of 5 per cent for tourism and hospitality businesses to September 30 2021, this will be followed by a reduced 12.5 per cent rate until March 31 2022. According to the Chancellor, this will support 150,000 tourism and hospitality firms, protecting around 2.4 million jobs in the sectors.
This was accompanied by the extension of the business rates holiday for retail, hospitality and leisure firms for a further three months. SMEs in these sectors will also be able to benefit from Small Business Rates Relief alongside this.
Innovative SMEs to benefit from new fund
Following months of warnings that the UK’s most promising SMEs could see their potential squandered due to an ever-widening funding shortfall, the Chancellor used the budget to formally announce the launch of the Future Fund: Breakthrough scheme.
This scheme will target SMEs in cutting edge tech sectors who are looking to raise funding of at least £20 million towards their future growth. The fund will see up to £375 million of government funding, matched by private venture capital.
This will doubtless be good news for many, but the focused scope of the new fund means that many more UK SMEs will be ineligible.
Help to Grow scheme to boost digital
The Help to Grow scheme will offer small businesses grants of £5,000 to be invested in software (approved by the government) to improve productivity. This is designed to help about 130,000 small companies gain the digital tools and training they need to improve productivity.
However, some have questioned the necessity of this scheme, given the ready availability and cost-efficiency of technology such as cloud computing, which is already used by many SMEs in the UK.
Super deduction aims to supercharge investment
Companies investing in new equipment from April 2021-onwards will now benefit from the super deduction tax cut. The super deduction will enable companies to cut their tax bill by 25 pence for every pound invested in new equipment, equating to taxable profits being reduced by 130 per cent of the cost.
Small businesses to avoid corporation tax increase
Finally, in the run up to the budget, much of the talk was focused on a potential hike in corporation tax. Sure enough, Sunak announced that corporation tax would rise from its current level of 19 per cent to 25 per cent from April 2023.
While the new top rate will only apply to companies with turnover of £250 million or more (roughly 10 per cent of UK firms), small businesses with turnover of up to £50,000 will be exempted from any increase entirely. This means that around 70 per cent of UK companies won’t be affected by rising corporation tax.