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Budget 2021: What it means for SMEs (& no changes to SEIS/EIS)

While no one could have foreseen the effects of Covid-19 on the economic climate, the UK government has been one of the leaders in providing support to businesses and individuals through schemes like CBILs, the Future Fund and the furlough scheme. As we prepare a roadmap to recovery and normality, this financial support must continue to assist those worst affected by the pandemic and those SME’s whose business models and growth metrics were stopped in their tracks.

While the Budget outlines the wider economic plans for the Bank of England and the government during the coming financial year, I summarise the schemes and grants which will assist start-ups and early-stage companies given their relation to SEIS and EIS. While there are no changes to the schemes, this vital sector of our economy has not been forgotten.

The Budget outlined two key initiatives to assist in the growth of SMEs, namely:

  1. Help to Grow: Management – Focused on the upskilling of c.30,000 SMEs based in the UK over the next three years. This scheme will see industries working with academia to deliver a national curriculum to be taught in business schools thus providing a combination of practical case studies and mentoring from industry professionals with relevant experience. This is to be taught over 12 weeks and will see 90% of the cost subsidised by the government; and
  2. Help to Grow: Digital – This UK wide initiative aims to help c.100,000 SME’s in the inevitable transition to digital product offerings. This will come in the format of subsidising up to 50% of approved software costs up to a maximum cap of £5,000. Online free and impartial advice will also be available through an online platform.

Further capital of £375 million has been made available to the Future Fund, which aims to provide direct co-investment funding to support the scale-up of R&D-intensive businesses (knowledge-intensive). This has looked to build upon the initial and subsequent funding, which has allowed the government to provide much-needed capital to the next generation of businesses.

While the aforementioned schemes have widely been met with praise, there are some other changes to corporate governance and tax implications as the government aims to recoup some of the (post-war) record spending which the pandemic response has incurred. A maximum amount of R&D tax credits has been outlined within the Budget, which sees businesses capped at £20,000 plus three times the company’s total PAYE and NICs liability annually. This was introduced to deter and limit the abuse of R&D tax credits given by the government. The government plans to raise corporation tax to a rate of 25% for businesses generating over £250,000 in profits in 2023 while taking aim at some of the largest and profitable businesses in the near future to ensure all companies are contributing to the repayment of COVID spending and plan to crack down on tax avoidance and evasion. It should be noted that for earlier stage companies which generate profits of less than £50,000 will be subject to a rate of 19%, while undefined rates will be applicable to the middle-ground companies.

Lastly, this Budget has looked to focus upon the green recovery of the economy and shows a gradual and progressive shift in attitude from the government. Sapphire, as a PRI signatory, is very pleased to hear this renewed commitment from the government to developing and incentivising the next generation of sustainable businesses. It has outlined these intentions through the announcement of the first UK sovereign green bond (or gilt) this summer, with further issuance to follow throughout the year. This will total to a minimum of £15 billion, which will look to finance the infrastructure and technologies to allow us to meet the government target of net-zero emission by 2050.

The discussion continues concerning the UK’s future energy needs and several entities’ commitment to constructing gigafactories producing battery cells. There is a £68 million UK-wide competition to implement several ‘first-of-a-kind’ energy storage prototypes. The UK must remain mindful and vigilant of the supply chain constraints and issues caused by the pandemic as it looks to bring manufacturing back to the UK after many years of globalisation and adequately assess the benefits of doing so. These incentives, alongside schemes to develop biomass fuel sources and hydrogen production, show the diverse scope of considerations within the Budget and highlight the greener approach, which so many are calling for.

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Ben McMeekin
Ben McMeekin
Ben is responsible for setting up venture capital funds and on-going management, specialising in EIS, SEIS and property funds. Ben has also successfully completed the EISA Organisation's EIS diploma, is a member of Green shoots (EISA) and an EIS Affiliate. Ben is also certified in anti-money laundering and financial crime regulations.

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