A Business Owners Guide to the 2021 Budget
Last week, Rishi Sunak set out his first Budget as Chancellor. Given how much we’ve heard from him over the last year that delay seems remarkable but given the unprecedented context (yes, yes I did use the ‘U’ word already) there was even more interest than usual. Would taxes be increased? What spending would be announced?
As Rishi stood up, many of the answers had already been leaked, so as the main media outlets blurted out the summaries (and some misinterpretations) on the day, we’ve been diving into the substance of what was announced.
We’ve now distilled it into a few key areas explaining how these changes will affect our clients and other small business owners.
The big picture
The big picture
- The Chancellor confirmed that the UK economy contracted by 10% in 2020 but also that a ‘swifter and more sustained’ recovery was now expected
- 700,000 people have lost their jobs since the COVID-19 pandemic began and unemployment is expected to peak at 6.5% next year, lower than 11.9% previously predicted
- The economy is set to rebound in 2021 with projected annual growth of 4%
Coronavirus (COVID-19) support measures
The Coronavirus Job Retention Scheme (CJRS) is extended until the end of September. Whilst the government are aiming for all restrictions to be lifted by the 21st of June, this overrun of CJRS was a surprise. It is however welcome news for employers where it takes longer for activity to pick up and where certainty is particularly important.
Employers will be asked to contribute 10% in July, 20% in August and 20% in September, towards the salary costs of furloughed employees.
Support for the self-employed is also extended until September under the SEISS.
Rishi has however ignored this final opportunity to support limited company owner/directors where most of their income was by way of dividend.
The big news (and the one that most of us anticipated) is that Corporation Tax on company profits is set to rise from 19% to 25% in April 2023.
The rate of Corporation Tax for companies with profits of less than £50,000 will stay at the current rate of 19%. This is good news for the vast majority of small businesses and provides some tax planning opportunities. It also signals that those Ltd company owner/directors who received no support, won’t suffer the double-injustice of having to also pay increased taxes (for now).
Only companies with profits above £250,000 will pay the full 25% and there will be a mechanism announced at a later date for how the increase is phased in between £50,000 and £250,000
There was also the announcement that firms will be able ‘deduct’ investment costs from tax bills, reducing taxable profits by 130% – a so-called new ‘super-tax deduction’. Delay the purchase of equipment until 1st April if you can as you will save an extra 5.7% through this measure. Not quite as ‘super’ as it’s made out to be but not to be sniffed at either. In essence Rishi has looked at what the tax deduction would be for capital investment in 2023 and brought it forward two years to encourage investments to be made sooner rather than later.
Helping businesses to recover and grow
A new loan scheme was announced that will help businesses gain access to finance and support their recovery. The new ‘Recovery’ loan scheme will replace CBILS and Bounce Back Loans, both of which end on 31 March 2021.
UK businesses of any size can apply for a loan or overdraft between £25,000 and £10m until the end of 2021. Asset and invoice finance between £1,000 and £10m will also be available. All will have a Government guarantee of 80 per cent.
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance, terms will be up to three years.
No personal guarantees will be taken on facilities up to £250,000. A borrower’s main home cannot be taken as security.
The Recovery Loan Scheme opens April 6 and will run until December 31, subject to review. Once you receive it, the finance can be used for any legitimate business purpose, including growth and investment.
Help to grow scheme
There was also an announcement of the new, ‘Help to Grow scheme’ which will offer up to 130,000 companies across the UK a digital and management boost. There are two elements to the scheme – ‘Help to Grow Management’ and ‘Help to Grow Digital’.
We’re particularly interested in the digital aspect. Small businesses will be able to get free impartial advice on how technology can boost their performance through a new online platform.
Eligible businesses will also be able to get a discount of up to 50% on the costs of approved software, worth up to £5,000. Vouchers are initially expected to be available for software that helps businesses:
- Build customer relationships and increase sales
- Make the most of selling online
- Manage their accounts and finances digitally
The voucher is expected to be available to UK business that:
- Employ between 5 and 249 employees and are registered at Companies House
- Trading for more than 12 months
- Purchasing the discounted software for the first time
Full details on the businesses and software eligible for the voucher will be published this summer.
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.
The VAT rate for hospitality firms will be kept at the reduced 5% rate until September 2021. This will help improve cash-flow for the hardest hit sector of our economy.
An interim 12.5% VAT rate will apply for the following six months (up to March 2022).
Grants, reliefs and other business news
The sector-specific business rates holiday will continue until June 2021 followed by a 75% discount thereafter.
The Chancellor also announced a £6,000 grant for premises for nonessential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses.
To help encourage customer spending in retail and hospitality and to improve efficiencies, the contactless payment limit will now rise to £100 later this year.
Personal taxation, investments and pensions
There will be no changes to the rates of Income Tax and National Insurance. This is good news on the face of it, but needs to be considered alongside the announcement that the personal Income Tax allowance is to be frozen at £12,570 from April 2022 to 2026.
Also, the Higher Rate Income Tax threshold is to be frozen at £50,270 from 2022 to 2026.
With concern around inflation rising in the years ahead this amounts to a potentially significant real-terms tax increase.
There will be no changes to Inheritance Tax or Lifetime Pension Allowance or Capital Gains Tax allowances until April 2026.
Some good news in terms of the property market – the Stamp Duty Land Tax (SDLT) holiday on property purchases in England and Northern Ireland is extended to June, with no tax liability on sales costing less than £500,000. Many buyers were rushing to complete before the original deadline of 31st March 2021. This gives people a bit more time to buy their first home and should provide a welcome boost to the property market.
The government moved quickly at the outset of the pandemic to release lots of support measures for businesses. Unfortunately, not everyone plays by the rules. With that in mind, the Treasury have allocated a £100 million fund to set up an HMRC taskforce with 1,265 investigators to tackle fraud in COVID support schemes.
For businesses, short-term support continues. For the economy, the roaring success of the vaccination programme paints a rosier picture. For taxpayers, the bill is set to be paid over a double-digit number of years. Rishi has played it cautiously for now. Setting out measures in the years ahead to appease those that can’t stomach a deficit and some financial certainty for the months to come for all but a few of the very worst hit sectors. It’s notable that the debate has swiftly moved on to other areas.
Overall, as business owners, we’ve been given the framework to work within and our focus now must be on the things that we can control. U-turns happen (especially with this government) and new variants are the storm on the horizon. We need to ensure we have built the resilience to protect us from what we can’t control and use our agility to seize the opportunities inherent in a period of economic growth.