Blogs/Vlogs

Budget 2020: What tech companies need to know

12 March 2020

On 11 March 2020, the Chancellor presented his 2020 Budget. Here’s what tech companies need to know.

Entrepreneurs Relief

The relief is not being scrapped but the lifetime limit is being reduced from £10m to £1m, effective immediately.

What this means

Most tech startups will exit for proceeds above £1m, so this is an important, but not unexpected, change in the tax legislation. Where founders generate a qualifying chargeable gain that exceeds £1m, they will need to pay the normal rate of capital gains tax (normally 20%). The amount up to £1m will be taxed at 10%.

It should be noted that this is the lifetime limit so if you’ve previously exited with a gain over £1m, no ER will be available.

There are special provisions for disposals entered into before 11 March 2020 that have not been completed.

Research and development

The RDEC rate will be set at 13% rather than 12%. This is effective from 1 April 2020.

What this means

This will only benefit large companies, with more than 500 staff and either more than €100 million turnover or €86 million gross assets, or SMEs that are unable to claim the SME R&D tax relief. The change in percentage means large companies will receive a slightly higher tax credit.

The 2018 Budget announced that from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can received in any tax year will be restricted based on the company’s PAYE and NIC liability. This has been postponed until 1 April 2021. 

National Insurance Employment Allowance

The employment allowance will increase from £3,000 to £4,000 effective from April 2020.

What this means

For employers, this means they’ll be able to get a £4,000 deduction from their current year national insurance cost rather than the normal £3,000. The Government have however announced that they will restrict access to employers whose National Insurance Contributions liability in the previous tax year was under £100,000.

EMI share option schemes

The Government will review the EMI scheme to ensure it provides support for high growth companies.

What this means

We will need to await the outcome of this review before knowing what impact any proposed changes will have.

Digital services tax

The Government has confirmed a new 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users. The tax will apply from 1 April 2020.

What this means

The tax only applies when the group’s worldwide revenues from these digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users, so will only impact the larger tech companies. 

Coronavirus Business Interruption Loan Scheme

The Government will launch a new, temporary Coronavirus Business Interruption Loan Scheme to support businesses to access bank lending and overdrafts. The scheme will support loans of up to £1.2 million in value.

What this means

The loans are being provided through the British Business Bank and will temporarily replace the existing Enterprise Finance Guarantee Scheme. There is little in the way of detail around this at the moment, but the following web page is being updated as more information becomes available:

https://www.british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/

The Government will be injecting more cash into startups through the British Business Bank so it’s well worth checking out their website to see if you can qualify.

SSP and Coronavirus

The Government will support small and medium sized businesses and employers to cope with the extra costs of paying COVID-19 related SSP by refunding eligible SSP costs (limited to two weeks per employee).

What this means

While existing systems are not designed to facilitate these employer refunds for SSP, the Government will work with employers over the coming months to set up a repayment mechanism for employers as soon as possible.

The eligibility criteria for the scheme include:

  • Employers with fewer than 250 employees will be eligible. The size of an employer will be determined by the number of people they employed as of 28 February 2020
  • employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19
  • employers should maintain records of staff absences, but should not require employees to provide a GP fit note
  • the eligible period for the scheme will commence from the day on which the regulations extending SSP to self-isolators come into force.

Time To Pay helpline

For businesses that are concerned about not being able to pay their tax liabilities because of coronavirus, they can contact HMRC for ‘practical help and advice’. This can include:

  • Agreeing an instalment arrangement
  • Suspending debt collection proceedings
  • Cancelling penalties and interest

The contact number for this helpline is 0800 0159 559

VAT ON E-publications

The Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, to make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts.

The general reaction to this budget seems to have been relatively positive, and the Government are certainly saying the right things when it comes to supporting technology and high growth businesses.

For more information on the other aspects of the budget that are not covered above, please see our Budget Summary. 

If any of the above relates to your circumstances and you’d like to find out more, please contact Rob Collings or your local UHY adviser. 

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