Summary of 2021 Spring Budget – what are the implications for Business?

In today’s blog you can find a Summary of the Key Aspects relevant to Business of the 2021 Spring Budget, announced by the Chancellor of the Exchequer, Rishi Sunak, on 3 March 2021.

KEY BUDGET HIGHLIGHTS FOR BUSINESS

CJRS FURLOUGH SCHEME EXTENDED TO 30 SEPTEMBER

The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2021. In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September.

This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours. In addition to the 10% and 20% contributions employers will continue to be responsible for paying employers national insurance and pension contributions on the full amount being paid to employees.

SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED

In line with the further extension of the CJRS furlough scheme for employees the chancellor has also set out further support for the self-employed. The Fourth grant will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.

The chancellor has extended the scheme to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 2 March 2021. This is potentially a further 600,000 traders.

Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.

CORPORATION TAX RATES TO INCREASE TO 25% BUT NOT FOR ALL COMPANIES

The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.

SUPER-DEDUCTION FOR INVESTMENT IN NEW EQUIPMENT

In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year.

THREE YEAR CARRY BACK OF TRADING LOSSES

Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment. Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses. This has now been extended to three years.

NATIONAL INSURANCE RATES

The national insurance contribution (NIC) rates and bandings were announced 16 December 2020 to take effect from 6 April 2021. Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.

5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED

In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021. The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK. From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.

VAT REGISTRATION LIMIT FROZEN AT £85,000 UNTIL 1 APRIL 2024

The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.

MAKING TAX DIGITAL EXTENDED TO ALL VAT REGISTERED BUSINESSES FROM 1 APRIL 2022

The government has confirmed that the requirement to maintain accounting records in a digital format and submit the data to HMRC electronically will be extended to all VAT registered businesses from 1 April 2022 regardless of the level of taxable supplies.

NEW GRANTS FOR HIGH STREET BUSINESSES AND HOSPITALITY SECTOR

Businesses forced to close due to the Coronavirus lockdown will be eligible to apply for grants depending upon the rateable value of their business premises. This will apply to pubs, restaurants, hotels, gyms and hairdressers as well as non essential retail businesses. The grants are intended to be a contribution towards the fixed costs of the business during the period that they have been unable to trade normally. Staff costs continue to be covered by the CJRS furlough scheme. Scottish Government has not yet confirmed how these new grants will be implemented.

NEW RECOVERY LOAN SCHEME

The government have already announced a longer repayment period for “Bounce-back” and CBIL loans. From 6 April 2021 a new Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.

NO CHANGES TO INCOME TAX RATES AND PERSONAL ALLOWANCE FROZEN

The personal allowance has been increased in line with inflation to £12,570 for 2021/22. This threshold will then be frozen until 2025/26. Scottish Tax rates are set by the Scottish Parliament and were announced on 28 January so announced increases to Higher Rate threshold will not apply in Scotland.

There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.

So whilst some tax increasing measures were announced in the budget, no major changes to the basis of taxation were announced. However it has now been announced that on 23 March important consultation documents will be issued, which will seek views on future tax changes. That may be when expected reforms to Capital Gains Tax and Inheritance Tax as well as changes to Pension contributions relief will be announced.

As always please contact me if you have any questions.

Until the next time!

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Charles Donkers (ACMA), Tulip Thistle Accountancy

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