Budget 2018 – What it means for Founders, Start-Ups and Scale-Ups

Earlier this week, Chancellor Philip Hammond presented the Budget 2018.

There were many changes, and the Chancellor underlined how crucial business and investment is for UK’s post-Brexit strategy.

Let’s walk through the main points of the Budget which are relevant to entrepreneurs, founders, SMEs, start-ups and scale-ups.

Tightened rules for Entrepreneurs Relief

Hammond announced that, as entrepreneurship remains central to the country’s dynamic economy, he will retain the relief. However, the minimum qualifying period will be extended from one to two years.

Announcing the changes, Hammond said: “So, the expected tightening has happened. From 6 April 2019, you will need to have owned an asset for at least two years to qualify. But there’s an immediate restriction from today – he added – shareholders have to be entitled to at least 5 per cent of the net profits and distributable profits and net assets of a company to be able to claim a relief as well as five per cent of the ordinary share capital. This counters some tax planning.”

Capped R&D Tax Credits from 2020

In an attempt to prevent fraudulent claims, HMRC will cap R&D payable credit for loss-making business to three times the company’s total PAYE and NICs liability for that year.

This will be in effect from April 2020.

EIS funds for Knowledge Intensive Businesses coming in 2020

The Chancellor announced the launch of these funds in 2020. This aims to increase investment in innovation and knowledge-intensive businesses, by providing investors with the benefits of EIS tax reliefs.

One of the key requirements is that at least 80% of funds raised is invested in knowledge-intensive companies. The EIS funds must make their investments within two years (increased from one). Funds will have to invest half of each raise within the first 12 months and keep the capital not yet invested in cash.

A carry-back rule will apply to allow investors to obtain reliefs from investments made in the prior year.

It will be compulsory for approved funds to submit annual accounts to HMRC to demonstrate that they continue to meet the conditions.

£200m funding for the British Business Bank

The Chancellor announced £200m of BBB funding to replace the loss of the European Investment Funds. It is estimated that EIF have supported around 40% of VC funds across the country.

Moreover, £115m will go to increase the number of digital catapults around the UK. This aims at fuelling new innovation centres in the North East, South East and Northern Ireland, as well as a new Medicines Discovery Catapult in the North West.

Other important points

Annual Investment Allowance for businesses increases from £200k to £1m for the next two years.

Business rates for all small retailers with rateable value up to £51k will be cut by 30% for the next two years.

Apprenticeship levy for small companies is reduced from 10% to 5%.

Employment Allowance will continue for firms with an employer NI bill below £100k/year from April 2020.

Starting next tax year, the personal allowance will be increased to £12,000. The higher rate threshold will also rise to £50,000.

Despite being at risk of being lowered, the VAT threshold remains unchanged.

Facebook / Google / Amazon hit! – Finally, the government will introduce a UK Digital Services Tax, aimed at the big tech giants. This won’t affect Start-Ups or Scale-Ups. The tax targets those companies with global revenues above £500m/year.