Budget 2021: more financial support needed for start-up businesses
Following the Chancellor's announcement, Dr Keith Arundale discusses the need for more financial support for start-up businesses as part of the pandemic recovery.
The big shock to UK businesses from the Chancellor's Spring Budget is of course the huge jump in corporation tax to 25% in 2023, the upper end of what had been expected. Fortunately, small businesses with profits of £50,000 or less will continue to pay tax at 19%. Businesses will be keen to see the detail on the new super deduction whereby they can reduce their tax bill by 130% of cost of investment.
The anticipated and feared capital gains tax reform did not materialise, at least not for now, much to the relief of entrepreneurs and to private equity firms who dread their carried interest being taxed as income. The Chancellor is to be applauded for focusing on getting Britain working again as we hopefully come out of the lockdown.
What we also need is more financial support for start-up businesses, not just government matching funding for companies that have already received third party investment. Whilst the Future Fund has invested £1 billion in 1,000 start-ups this had to be made on the back of third party investment already received. SME businesses raising money for the first time have seen a 44% decrease in finance in the period since March 2020 compared to the prior year and 20% fewer deals*. VCs and business angels are avoiding this space.
Furlough must end eventually; we need support for the many people expected to be made redundant and encouragement to start their own businesses. The new recovery loan scheme to replace the bounce back loans and Coronavirus Business Interruption Loan Scheme, continuing business rates relief to end of June, and the 5% reduced rate of VAT for hospitality businesses to end of September are certainly welcomed. As is the first ever UK Infrastructure Bank which will support some £40 billion of green, innovative, fast growing businesses.
Going forward, if and when the Chancellor does eventually raise capital gains tax rates, this could result in entrepreneurs moving overseas and private equity firms also relocating to avoid their carried interest being taxed as income. A recent report from Beauhurst revealed that 85% of founders would consider moving their companies abroad and 72% of business angels would be less likely to continue investing in UK companies if capital gains tax reform came in – scary figures!
Clearly the Chancellor is clearly determined to make big inroads into reducing the national debt and restoring the economy before the next election in May 2024.
*according to the Plexal Start-Up Tracker
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