Today (March 3 2021) the Chancellor of the Exchequer, Rishi Sunak, presented his Budget 2021 in the House of Commons. This was his second and arguably the most anticipated budget for some years. Set against a backdrop of unprecedented peacetime government borrowings with the national debt exceeding annual GDP commentators on all sides were only too eager to offer their opinions on the budgetary response. Much had been leaked in the weeks before the budget but the Chancellor announced some major business friendly measures, and especially so for small businesses.
Here is our summary of the major announcements with an emphasis on how this affects business in general and small businesses in particular. As is usual with budget announcements the devil is always in the detail. This article will be revised in the coming days as more details emerge.
Budget 2021 Covid-19 Recovery Measures
- The Furlough scheme will be extended to the end of September 2021. Businesses will have to contribute 10% of the cost from July and 20% in August and September
- Self Employed Income Support Scheme – there will be a 4th and 5th round of payments to the self employed. Eligibility will also be extended to those new businesses that didn’t qualify for this in the past year. The 5th round of payments will be targeted at those who have been most affected with a turnover impact qualifying criteria
- The additional £20 per week Universal Credit payment will be extended for 6 months to September 2021
- £5bn of Restart Grants available from April. Non essential retailers eligible for up to £6000 and hospitality and leisure businesses will be eligible for up to £18,000 from May & June
- New Recovery Loan Scheme available to all businesses with loans from £25,000 to £10m through to 31 December 2021. 80% government guarantee.
- Business Rates Holiday for retail and leisure businesses extended to 30 June and then a two-thirds reduction for the remainder of the fiscal year
- 5% VAT rate for hospitality and tourism extended for 6 months and then a 12.5% rate for the following 6 months
- Carry back of losses up to £2m for up to 3 years
The headline rate will increase from 19% to 25% on 1 April 2023 …. but there was very welcome news for small businesses with the reintroduction of a small profits rate for businesses (previously abolished in 2015) with profits up to £50,000. The rate of Corporation Tax will remain at 19% for these small businesses.
Where profits exceed £50,000 there will be a tapering increase up to 25% which will only apply to the 10% of companies that make profits in excess of £250,000 pa
The major rabbit pulled from the Chancellor’s hat brings a new phrase into our lives – the “Super Deduction”. This is a 2 year extension of capital allowances aimed at encouraging businesses to spend and help to regenerate our economy. This will allow a write off 130% of the investment in assets against corporation tax bills. This was described as the biggest tax cut in modern history.
Income Tax & National Insurance
Whilst there was the expected maintenance of the headline rates of income tax and national insurance, personal allowances and the higher rate threshold will increase by inflation on 6 April 2021 as planned. But they will then be frozen until April 2026. This will create what is termed “fiscal drag” as more people are drawn into paying higher levels of tax in the years to 2026 and is very much part of the effort to bolster the national finances in order to recover from the impact of Covid-19.
Again the headline rate of VAT remains unchanged at 20%.
As noted above there is an extension of the relief for the hospitality and tourism sectors in two stages over the course of the year ahead.
The VAT registration threshold will remain at its current £85,000 for the next two years instead of increasing in line with inflation
The widely predicted increase in capital gains tax didn’t materialise.
The stamp duty nil rate band for properties up to £500,000 was extended until 30 June 2021 and for up to £250,000 to 30 September before moving back to the previous £125,000 rate on 1 October 2021.
Similarly the fears of a pension raid were absent too. There were no changes to the lifetime or annual pension allowances. This means that pensions will continue to be a very important part of tax planning, especially for small business owners.
The Chancellor also announced an investment in digital skills for business with what he called “Help to Grow Digital”. The details will need to be considered but the headline is a 50% discount on the costs of software up to £5,000 to move businesses into the digital economy. This should be a valuable benefit to small businesses.
And finally …. if you want to either celebrate or drown any sorrows with your drink of choice the duties on alcohol were frozen. The same is true for fuel too.
If you would like to explore any of these matters with us or assess their impact on you and your business please do get in touch by clicking here
If you want to delve into the real detail of the budget you can find them here on Gov.uk