Budget 2021 Commentary: Business support

The Chancellor has set a cliff edge

Milan Pandya, Head of Audit, Assurance & Advisory

“A further extension to the furlough scheme is really welcomed but the Chancellor has yet again set a date-based cliff edge of 30 September. The economy will not open up evenly and the hardest hit sectors of hospitality, leisure and tourism will continue to be impacted by social distancing rules. The Chancellor should have set a road map for it to be phased out and recognise the varying impacts across different sectors and also based on data which emerges on the pace of economic recovery. Businesses need to be able to plan, including protecting jobs.”

“Allowing businesses to apply for the new recovery loan scheme to the end of 2021 is welcome news. However, businesses are crying out for long-term funding support. Hopefully the repayment terms of the new loan scheme will clearly show that the Government is actually supporting businesses. Repayment terms should be flexible, at least initially, to provide essential cashflow support, and allow for repayment over a 10-year period to allow businesses the time to recover.”

Supply chains forgotten

Milan Pandya, Head of Audit, Assurance & Advisory

“Extending the period of the main support schemes – including furlough, business rates, and VAT – is welcome news. But the Chancellor needs to consider the following, all of which appear to have been forgotten:

• Setting a plan which phases out the support measures and is dependent upon the fortunes of different business/sector recovery. This will happen at different times.
• Looking at what support is there for supply chains, particularly those supporting the hardest hit sectors? Many of these companies are SMEs and are very dependent on one or two key customer contracts.
• Introducing a wage subsidy or National Insurance Contributions holiday for the hardest hit sectors to those employers who are investing in training or creating new employment opportunities.
• Considering seasonal businesses. While the Chancellor has announced the outline of a new Recovery Loan Scheme, there was no mention of how those businesses which have seasonality will be catered for. More than 25% of SMEs, the backbone of our economy, operate in seasonal sectors such as hospitality and manufacturing. It is essential that the terms of the new loan scheme align to those businesses which have such seasonality to prevent business closure – cash flow remains critical for most SMEs which have seen their bank balances eliminated and debt levels rise.”

Seasonal businesses will not be able to sustain full time employment

Andrew Sanford, Partner

“Seasonal businesses who are unable to have a normal summer period will not be able to sustain full time employment once furlough ends in September. These businesses may have to make some very difficult decisions, especially with additional contributions due in July to September.

“£5bn of grants available for retail, hospitality and leisure, but no equivalent support for those companies who supply these businesses.”

The path out of Lockdown will be long

Daniel Burke, Partner

“While there is light at the end of the tunnel in terms of reopening for non-essential retail, the path out of lockdown will be long, as it will take time for consumers to hit the high streets in the same way as they did before the pandemic.

“It is great news that the Chancellor has extended the furlough scheme until the end of September, so that businesses can grow their way out of recession. This will protect jobs and provide businesses with much needed cashflow support.”

The Chancellor continues to shun the small director shareholder businesses

Richard Churchill, Partner

“Chancellor continues to shun the small director shareholder businesses which account for over 700,000 businesses in the UK by offering no support. However, the 200,000 previously excluded self-employed who set up their business after 6 April 2019 will rejoice and be able to use their filed 2019/20 tax return to access support via the fourth and fifth grants between April and September 2021. Director/shareholder businesses who previously received the majority of their remuneration through dividends continue to receive no support.

“The Chancellor has done little to stave off the cash-flow crisis which is hitting businesses as they seek to commence trading again. While the extension to furlough is welcomed, the over 90,000 businesses with Coronavirus Business Interruption Loan Scheme (CBILS) borrowings urgently need flexibility to spread and delay the repayments and should be afforded the same treatment that borrowers of Bounce Back Loans have under the ‘Pay as you Grow’ proposals.

“The Chancellor’s announced Recovery Loan Scheme could provide the required access to finance that businesses so desperately need. However, what will the qualifying criteria be and is the infrastructure in place to administer these new loans effectively? Clearly a repeat of the possible high level of default of the Bounce Back Loan scheme needs to be avoided and support needs to be focused on viable businesses.

“The Chancellor has also announced further access to debt funding for businesses but has not acknowledged the already very high levels of debt that some businesses have taken on to simply survive the pandemic. These companies are at risk of becoming ‘zombie companies’ which exist to pay debt but do not grow or invest in their future. It had been hoped that the Chancellor would announce measures to support these businesses which could have included converting some of this debt to equity to be held by Government or a newly formed fund for private investors. This would have allowed the borrowing businesses to grow and ultimately create a greater return for Government.”

Lack of support for suppliers

Heather Powell, Head of Property & Construction

“£5bn of grants available for retail, hospitality, and leisure, but no equivalent support for those companies who supply these businesses.”

Not clear how valuable SEISS scheme will be in practice.

Robert Salter, Senior Advisor, Global Mobility

“It is good to hear that the Government is extending the Self-Employed Income Support Scheme (SEISS) to provide support for those individuals who became self-employed in 2019/20 (and in many cases in 2018/19). Prior to the most recent announcements, such individuals were simply not eligible for any grant support under this scheme and this is a change that advisors have been calling for since the start of the SEISS.

“However, as it appears that the grant for these individuals would be based on their tax return for the 2019/20 tax year, it is not actually clear how valuable this scheme will be in practice. Many individuals who will now be eligible for this grant would – having only started their business in 2019/20 – have had a relatively low level of profit innately and therefore would only be eligible for relatively low grants under the scheme.

“While clearly any grant is better than nothing and will be welcome by the self-employment, one needs to realise that many self-employed individuals have often suffered an absolute loss of income for the last 12 months and this grant, does come close to treating the ‘newly self-employed’ the same as those who have been in business for a number of years. Though this difference is – to some extent – inevitable, one needs to realise that these newly self-employed individuals will inevitably be suffering the higher taxes which will be charged on profits over the coming years, as the Government seeks to recover its Covid debts.”

Chancellor taking a wait and see approach

Milan Pandya, Head of Audit, Assurance & Advisory

“Today’s announcement by the Chancellor has not really announced anything we did not know. It appears that the Chancellor is taking a ‘wait and see’ approach on how best to balance the national books. While it appears reasonable to increase Corporation Tax as it will only affect those businesses which are profitable, most of the key announcements are in relation to extending support for business and households. It is clear that he has allowed himself the luxury to tell us how he will tax us at a later date. While this provides a well-needed cash-flow boost now, does it support long-term confidence?

“If business, households and entrepreneurs don’t have a better road map on what taxes to expect in the future, will they really have the confidence to invest with a long-term view? The Chancellor should have done more to sign post how he may look to balance the books, albeit at a future date.”

Will the Chancellor be able to counteract falls in productivity?

Simon Rothenberg, Director

“The Chancellor was not hiding that there will be challenges ahead. He has delivered a clear vision of a high tech, high productivity economy – but will he be able to counteract the falls in productivity which have been seen over the last decade?

“The future changes to Corporation Tax by reintroducing the small profits band goes against the efforts of tax simplification.

“The super deduction will look very appealing to business with cash to invest but the devil will be in the detail. What assets will qualify? What sort of investment do the Government want – Green investments already get enhanced deductions and will those be lost?”

What is needed is a mechanism to get cash to business quickly

Mark Hart, Partner

“The announcement that retail companies will be able to carry back losses of up to £2 million for three years is welcome, but what is needed is a mechanism to get the cash to those businesses quickly so that it can be used for working capital rather than waiting until after the year end. What is needed is an ability to make a claim based on estimated losses so that the cash can be utilised to finance growth now which can then be clawed back if needed when businesses file their tax returns.”

IR35 changes could have been made

Robert Salter, Senior Advisor, Global Mobility

“It is sad to see that the Chancellor has not taken the chance offered by today’s budget to cancel the IR35 changes which are scheduled to come into effect from the 6th April. The changes to the IR35 regulations will result in freelance contractors working through personal service companies being treated as deemed employees from April 2021 onwards for tax and National Insurance Contributions (NIC) purposes, while not benefiting from any of the genuine ‘perks’ of employment including employer pension contributions, sick pay and paid vacations. This undermines the UK’s flexible labour market and are the last thing that the UK economy needs at the present time.

“With the UK economy significantly weakened because of both Covid and Brexit, the Government should have actively encouraged self-employment and freelance working, as a legitimate way of increasing the flexibility and dynamism within the overall economy as part of a coherent ‘global Britain’ strategy. However, instead they have taken a step which disincentivises the risk takers and entrepreneurs. This isn’t a move encouraging an entrepreneurial, risk-supporting economy but a move that one would expect from the more statist and less flexible economies of the EU.”

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