Rishi Sunak, who has been Chancellor for less than a month, made his first Budget speech on 11 March, and, like most accountants, I was glued to the TV, taking notes.
I’ve also dug through the supporting paperwork to see what was hidden there, because there’s always something.
The questions I’ve got in mind are, first, what will it mean for my clients in the creative industry, technology sector and professional services?
And, secondly, how will it affect the North West of England where most of my clients are based?
Overall, it has to be said, this Budget was a bit of a weird one.
For one thing, considering it was the first full Budget since October 2018, there weren’t many tax announcements.
A change to the terms of entrepreneurs’ relief was probably the biggest of the lot.
Corporation tax stays at 19%, despite having made noises about lowering it to 17% for some time. And the personal allowance remains at £12,500, the higher-rate band still kicks in at £50,000.
Secondly, there were a lot of spending promises. The Office for Budget Responsibility has called it “the largest Budget giveaway since 1992”.
A lot of it was, again, about countering the effects of COVID-19, which is already beginning to cause worry for British businesses, but there were also promises on infrastructure, including roads and rail.
I’m not going to get into the wider politics of public spending, borrowing and investment, but I will say that there are some immediate benefits for the businesses I work with.
The North West of England
In the run-up to this Budget, the rumours were that there’d be a lot more on plans for the North.
This was supposed to be the Government’s opportunity to demonstrate that it meant what it said during December’s election campaign and, to paraphrase the Prime Minister, “repay the trust” put in it by northern voters.
Obviously, though, the coronavirus scuppered that.
For those of us in the North West, the most interesting news was probably around infrastructure investment.
The Chancellor said £4.2 billion would be made available in 2022 for transport investment plans put together by city mayors in places like Liverpool and Manchester. This will cover things like the tram-train pilot in Stockport.
He also said he’d be moving the Northern Powerhouse rail project forward, but there wasn’t any substantial information in the supporting paperwork.
Closer to home for me, there was also confirmation of a £40 million investment in Preston as part of the Transforming Cities Fund.
As well as making it easier to do business in Manchester, Liverpool and across Lancashire, major infrastructure projects should also provide plenty of opportunities for local businesses to pick up lucrative contracts.
Construction projects don’t just generate work for construction firms. They can provide opportunities for architects, specialist contractors and even graphic designers or marketing agencies.
The speech also included a promise to move government functions out of London. In fact, the Chancellor promised to relocate 22,000 civil servants to new offices around the country, starting with the creation of an economic campus here in the North of England. It’s a bit vague for now but Liverpool, Manchester and Leeds are obvious candidates.
Why does this matter? Well, with well paid, stable civil service jobs, the regional economy overall often sees a boost. And there will no doubt be associated opportunities for IT contractors, interim managers, consultants and PR agencies, to name a few.
Finally, although it’s on the wrong side of the Pennines, the announcement that there will be a new elected mayor for West Yorkshire (Leeds and Bradford, basically) is worth noting, too.
I’ll certainly be watching these developments closely and advising my clients on how to make the most of any opportunities arising.
Entrepreneurs’ relief
For those in the creative and technology industries, the headline news was probably the big change made to entrepreneurs’ relief (ER).
ER offers a lower capital gains tax rate to people who sell a business they’ve owned for at least two years, up to a set lifetime limit.
For weeks before the election, the rumour was that ER would be scrapped altogether, in response to lobbying from those who argued it was a tax break benefiting only those who were already wealthy.
When the story first leaked, though, there was a fair bit of push back on the grounds that removing ER would hit exactly the kind of small, dynamic businesses this country needs. Especially, it has to be said, those in the North.
So, the question going into the Chancellor’s speech was, would he scrap it, amend it, or do nothing at all? My money was on a compromise and that’s exactly what we got: ER stays, but the lifetime limit was cut from £10m to £1m.
What he didn’t say in the speech, but those of us who read the supporting documentation noticed, was that this would also apply retrospectively, to any disposals made on or after 11 March 2020.
The Government hopes this change will encourage genuine entrepreneurs and early-stage startups, while discouraging speculative behaviour.
Where this will have an impact is on the retirement plans or exit strategies of people who’ve made their careers running independent businesses. If your intention was to sell your agency or studio for more than £1m and pay capital gains tax at 10% via ER, you’ll now have to think again.
People who were right in the middle of selling their business when this change was announced, with that 11 March backdate, will be particularly affected.
As ever, though, ER was only one of the reliefs available to SME owners and some smart tax planning can probably mitigate the impact in most cases.
Research and development relief
There were a couple of phrases the Chancellor used a lot in his speech. One was “getting it done” which he said something like 26 times.
Another was “levelling up” – seven times, by my count – with research and development (R&D) as a key focus:
“I will increase investment in R&D to £22bn a year. That is the fastest and the largest increase in R&D spend ever. As a percentage of GDP, it will be the highest in nearly 40 years – higher than the US, China, France and Japan. And a major step towards our target of increasing public and private investment in R&D to 2.4% of GDP.”
This is partly about filling a gap left by the loss of EU funding and could potentially be really good news not only for the technology sector but also, less obviously, for the creative industries.
Remember, it’s not just the obvious that counts as R&D. Software development often qualifies, for example, as does work in visual effects, publishing and film and TV production.
IR35
The off-payroll working rules known as IR35 got no mention at all in this Budget speech, but the supporting documents confirmed what we knew already – that the planned private-sector reforms to these rules were going ahead in April 2020.
Except that yesterday, on 17 March, almost a week after the Budget, Chief Treasury Secretary Steve Barclay confirmed that the changes would be delayed after all, until 2021.
The change is still coming, but this gives us all more time to prepare, and the Government more time to produce decent, clear guidance.
The changes, when they do come into effect, will mean that medium-sized and large businesses will need to determine whether any contractors they hire fall outside of the rules, as genuinely self-employed workers, or whether they are working in essentially the same way as an employee.
If you’re providing services to another business through a limited company, before April 2021, you might want to review your working practices and speak to your clients to find out whether you’ll be affected by the change.
I’ve explained what IR35 is in more detail, and how it’s changing this year, in this guide.
National Insurance
The creative freelancers I work with might be interested to know of a small boost coming their way: the Chancellor increased the National Insurance threshold for employees and the self-employed to £9,500.
This kicks in from April and could put an extra £100 a year into the pocket of most people.
It’s not much, but every little counts.
Coronavirus support, grants and loans
As supermarket shelves get stripped, I see a lot of independent businesses in the North West of England expressing anxiety about what the coming weeks and months might mean for them.
Log on to Twitter or LinkedIn and you’ll see the owners of bars, cafes and restaurants reporting quiet Friday and Saturday nights and no-shows for table bookings.
Festivals and events are getting cancelled or postponed left, right and centre, too.
And I just saw statistics on hospitality footfall for the weekend of 13-15 March which show Manchester down 30% on Saturday and 37% on Sunday.
Potentially, the Government might decide to follow the example of Belgium, Ireland and other European countries and order a shutdown of hospitality businesses. It might have happened while I’m writing this.
As of right now, Tuesday lunchtime, what they’ve done instead is advise people not to go to restaurants and pubs but without ordering them to close.
I have some clients in this sector and I’m worried for them. But I’m also concerned about the longer term knock-on effects for those in the creative and tech sectors.
If you specialise in providing or installing EPOS or cashless payment systems, for example, you could feel the hit.
And if you’re one of those firms that specialises in marketing for nightclubs, gig venues or festivals, this summer might be tough.
The Spring Budget did contain some specific measures designed to address this, though, and keep the retail and hospitality sectors afloat.
First, there was the announcement that firms with rateable values of less than £51,000 operating in retail, leisure and hospitality won’t have to pay business rates at all, for a full year, from April 2020.
For pubs in particular, the Chancellor also declared that the £1,000 relief on business rates for pubs with rateable value of up to £100,000 will increase to £5,000.
Sunak also set out a plan for cash grants of £3,000 for businesses with rateable values of less than £15,000 and that are already eligible for small business rates or rural rate relief.
There is also a new temporary loan scheme, the Coronavirus Business Interruption Loan, which could potentially benefit quite a few of my clients if they need a bit of help in 2020/21.
It’s going to be run by the British Business Bank, which has said it will set out the details of how to access the fund in the next few weeks.
Finally, Sunak also said the Government would cover the cost of statutory sick pay for businesses with less than 250 staff. It will cover any employee off work due to the coronavirus for up to 14 days.
As of yesterday, 17 March, a further £330 billion package of support had been announced. It extended the business rates holiday to all businesses in the retail, leisure and hospitality sectors, and included a promise of grants of up to £25,000 for retailers affected by a dramatic drop in customers.
As the scale of the issue becomes clearer, we’ll probably see more measures like this.
I’ll also add that, in my experience, in times of genuine crisis, there is often some flex to be found in dealing with the tax authorities. HMRC now has a dedicated coronavirus helpline with staff who can authorise deferral of payments for limited companies and sole traders.
VAT
There weren’t any major changes to VAT rates but a couple of specific changes made headlines, notably the removal of the so-called ‘tampon tax’.
The one that might interest some of my clients, though, is the removal of VAT for digital books, newspapers and magazines, from 1 December 2020.
If you’re involved in digital publishing, this could make quite a difference to your ability to compete in the market, and potentially stimulate the media industry here in the North West.
And, once again, a healthy publishing sector is good news for designers, marketing agencies, photographers, writers and anyone else who makes a living through their creativity.
Planning matters
I can’t think of a time when budget planning and forecasting have ever been more important.
It’s also going to be important to find efficiencies – adopt cloud accounting systems if you haven’t already, for example, as part of being ready to do business online.
To talk about what this Budget might mean for you and how Alchemy can help your business cope with what looks set to be a tough year all round, get in touch.
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