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Budget Predictions 2021: Owner-Managed Businesses

Milan Pandya and Richard Churchill outline what the Chancellor should do to incentivise the entrepreneur community in his Budget announcement.

Milan Pandya, Partner: Head of Audit, Assurance & Advisory

In order to incentivise the entrepreneur community to participate fully in supporting the economic recovery, the Chancellor needs to reinstate the Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) lifetime limit to £10m. Entrepreneurs are the backbone of the UK economy and take considerable risk and SMEs generate significant tax revenues. The Chancellor must fairly reward those who make such a contribution.

The Chancellor needs to taper off the furlough scheme and provide continued support in a targeted manner particularly to the hardest hit sectors, beyond the current end date of 30 April 2021 in order to give businesses a lifeline for recovery otherwise unemployment will rise.

Mr. Sunak should enhance the personal tax reliefs associated with investing in UK businesses under the Enterprise Investment Scheme or Venture Capital Trust regime. Currently, these schemes offer a 30% Income Tax credit, and this should be increased for investments made over the next 12 months. Furthermore, the tax reliefs should be extended for investment through loans (and not just shares) to facilitate more immediate cash to UK businesses from private lenders.

He should also introduce a temporary ‘holiday’ on employers’ National Insurance Contributions (NIC) on salaries up to £25,000. The employers’ NIC regime has long been considered an employment deterrent as the cost (13.8% of the worker’s salary) is seen as prohibitive. Offering a temporary ‘holiday’ should get more individuals back into the workforce in a quicker timeframe.

Finally, the Chancellor should extend the 5% reduced rate of VAT which is due to expire on 31 March 2021 for the hospitality, hotel, and tourist accommodation sector for another 12 months. This will provide a necessary cashflow support measure for this hard-hit sector while it seeks to recover.

Entrepreneurs are the backbone of the UK economy and take considerable risk and SMEs generate significant tax revenues.

Richard Churchill, Partner: Audit, Assurance & Advisory

The Government should provide the borrowers of Coronavirus Business Interruption Loan Scheme lending with the same flexibility that has been granted to the borrowers of Bounce Back loans under ‘pay as you grow’. This would mean extending the repayment profile to 10 years, allowing payment holidays and periods when interest-only payments can be made. This will ease the cashflow pressures on the horizon for these companies, giving them time to get back on their feet.

The Government needs to provide details of the announced ‘successor loan scheme’. It is hoped this will allow flexibility to companies who have taken on large amounts of debt to refinance, potentially with Government or a private sector fund taking an equity slice. This would allow an equitable split of future success should the business grow and help avoid a swathe of zombie companies.

How creative is the Chancellor prepared to be? Repaying both Bounce Back and Coronavirus Business Interruption Loans could be accelerated for those businesses that perform really well with a Corporation Tax surcharge for businesses that have accessed the funding. This could result in faster repayments for Government of some of the support measures provided to UK business.

Cashflow remains a key concern for many businesses and the Chancellor has the tools at his disposal to ease this for the hardest hit businesses. He could further extend the existing tax deferrals and payment plans by a further 12 months reflecting the fact that the impact of the pandemic is lasting much longer than he initially envisaged.

A creative Chancellor would ease cashflows concerns for the hardest hit businesses by allowing them to offset their current trading losses against the previous three years’ profits resulting in cash recovery of previously paid taxes. This allows the business to receive a cash receipt and allows the Government to accelerate their tax revenues as future profits will be more quickly charged to Corporation Tax.

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