Budget 2021 – What it means for your business

After much speculation and spoilers, the chancellor has made his Budget 2021 statement. Below is our take on what it means for business owners across the UK.

Some of the major announcements include (further details on each below):

• An extension of the furlough scheme to the end of September this year
• A planned hike in Corporation Tax to 25% in two years
• A cap on the amount of R&D tax relief a business can claim in a single year

What’s also notable from this Budget is what didn’t happen. There are:

• No changes to Capital Gains Tax rates, including the Business Asset Disposal relief (formerly known as Entrepreneurs’ Relief)
• No change to Personal Tax rates, although the thresholds have been frozen, meaning that everyone’s take-home pay will be less in real terms after this year
• No change to Inheritance Tax rates
• No mention of Brexit
• No extra money for education or the NHS
• Still no support for owners of limited companies who have historically paid themselves dividends

What was announced?

Furlough 3.0

The furlough scheme has been extended until the 30th of September this year. People on furlough will continue to receive 80% of their wages for hours they don’t work until the scheme’s end. As the economy re-opens, employers will contribute 10% of wages in July and 20% in August and September.

Change in Corporation Tax rate from April 2023

Corporation Tax will rise from 19% to 25% from April 2023 for companies with profits of over £250k. For companies with profits under £50k, it will remain at 19%. If your profits are between £50k and £250k, it will be tapered, meaning you will pay at a rate somewhere between 19% and 25%.

From April this year, to stimulate investment in the short-term, it has been announced that purchases of machinery or other qualifying assets will receive 130% tax relief. The chancellor is calling this a Super Deduction. For example, if you buy a machine for £10k, you’ll get a deduction of £13k from your taxable profits. So if you’re thinking about purchasing an asset this month, it may be worth waiting a couple of weeks – come and talk to us.

Another related point is that otherwise-viable businesses that have been pushed into a loss-making position by COVID will now be able to carry back losses three years. This is a rather technical point – if you think this may apply to you, please talk to us about it.

Income tax thresholds to be frozen

The income tax Personal Allowance will rise with inflation as planned to £12,570 from April 2021 and will remain at this level until April 2026. The income tax Higher Rate Threshold (HRT) will rise as planned to £50,270 from April 2021 and will remain at this level until April 2026.

The Personal Allowance applies across the UK, and the HRT for savings and dividend income will also apply UK-wide.

The HRT for non-savings and non-dividend income will only apply to taxpayers in England, Wales, and Northern Ireland.

This will mean after this year, everyone’s take-home pay will be less in real terms as the thresholds will not rise with inflation.

Changes to Research and Development (R&D) relief

From 1 April 2021, the amount of a payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times its total PAYE and NIC liability. This is more likely to affect those businesses that use external resources (not on their payroll) to carry out R&D. We’re looking into the details of exactly what this means.

New Recovery Loan scheme

The new scheme will replace CBILS and Bounce Back loan schemes that come to an end this month. The new scheme, open from April until the end of 2021, will offer loans of £25k to £10m with government guarantees for 80% of the loan. We’re awaiting further information on this scheme, such as whether or not you can apply for one of these loans if you have previously had a CBILS/Bounce Back loan. Watch this space.

Employment changes

There were a few announcements related to employing people:

• The National Living Wage will increase from £8.72 to £8.91 and will be extended to 23 and 24-year-olds for the first time from April 2021
• Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will now receive £3,000 per new hire, compared with £1,500 previously.
• If you pay for your employees COVID antigen tests and/or reimburse expenses covering the cost of home office equipment, you can get tax relief on these costs until April 2022.
• Introduction of a Help to Grow programme which will provide access to management training, technology advice and discounted software to improve productivity for you and your team. You can find out more information and register here.

Self Employed Income Support Scheme (SEISS)

There will be a fourth and fifth Self Employed Income Support Scheme grant. The fourth is due in late April and will cover the period February to April 2021. The fifth is due in July and will cover May to September. The fifth comes with restrictions based on the loss of turnover felt. There’s a bit of detail to this one; we’ve covered it here.

Support for the hardest-hit industries

Business Rates freeze (for qualifying businesses)

The Business Rates holiday will be extended for another three months until the end of June. This will be followed by a further nine-month period where rates will be discounted by two-thirds, up to a maximum of £2m for closed businesses. This applies to gyms and other non-essential retail businesses. If you previously qualified, it’s likely your local authority will liaise with you on this.

‘Restart Grants’

Restart Grants will be available in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality and other sectors that are opening later.

5% VAT rate extension

The reduced 5% rate of VAT for hospitality, accommodation and attractions is extended to the 30th September 2021 then will then rise to 12.5% until the 31st March 2022. It will return to 20% from the 1st April 2022

For prospective home-buyers:

• A Mortgage Guarantee scheme has been introduced to provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600k. Under the scheme, all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to. The scheme will be available for new mortgages up to the 31st December 2022.
• Stamp Duty holiday extended. As predicted, the government has extended the Stamp Duty holiday on the first £500k on property transactions in England and Northern Ireland until the 30th June 2021. From the 1st July 2021, the limit will reduce to £250k until 30 September 2021. From the 1st of October 2021, it will return to £125k.

Finally, to keep us on our toes, the government is investing £100m in what they’re calling a ‘Taxpayer protection task force’, basically 1,000 additional tax inspectors!

Our advice

There is lots to consume! There may be some things worth immediate consideration for your specific situation, such as the furlough extension, asset purchases, or home-buying. However, our headline advice remains to:

• Plan as far ahead as you can whilst keeping a close eye on your day to day performance. This may include looking at your resourcing and how you use the furlough scheme.
• Protect your cash
• Keep looking for opportunities. They are there!

If there are any points here that you would like to discuss further, we’re only too happy to help.