Highlights from the 2021 Budget
Kieran Phelan, CEO of Cloud 360 Accounting
Last week, the Chancellor laid out a new Budget which just so happened to coincide with the day we won UK Small Firm of the Year at the annual Xero Awards! On the back of a year like no other, this Budget announcement was eagerly awaited. Would the Chancellor bring in any tax rises now to start the payback for the Covid-19 support measures? Would he outline these on a roadmap to give businesses and individuals time to prepare? Now the dust has settled, we’ve digested the Budget and distilled into a few key points explaining how these changes will affect our clients and other small business owners.
The economic news
- The Chancellor confirmed that the UK economy contracted by 10% in 2020 but also forecasted a ‘swifter and more sustained’ recovery
- 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%
On the borrowing front, the UK is set to borrow a peacetime record of £355 billion this year. Borrowing is expected to total £234 billion in 2021/22 and debt levels are set to hit 97.1% of GDP in 2023/24. This is not unexpected, but does outline the huge cost of supporting the country through the Covid-19 pandemic.
Coronavirus (COVID-19) support measures
There was a little surprise at the announcement that the Coronavirus Job Retention Scheme (CJRS) is extended until the end of September. Whilst the government say they plan to work on data and not dates, their flagship policy of everything being re-opened by 21st June flies in the face of the CJRS extended period. This will be good news for employers though to allow them time to re-open on a gradual basis where necessary.
Employers will be asked to contribute 10% in July, 20% in August and 20% in September, towards salary costs of furloughed employees.
Support for the self-employed is also extended until September under the SEISS. This grant scheme has been widened which will enable 600,000 more self-employed people to access these grants.
In terms of welfare support:
- Working Tax Credit claimants will get a £500 one-off payment
- £20 increase in Universal Credit worth £1,000 a year to be extended for another six months
Employers and employees
- The minimum wage will increase to £8.91 an hour from April 2021.
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 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.
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’. This is a very interesting development and one we aim to advise our clients about on a case-by-case basis. If your business avails of new loans or grants, the funds can be utilised to buy certain equipment and get a huge tax break. Again, some tax planning will be needed around this to ensure maximum tax relief is achieved. Check out our added value tax services here: https://cloud360accounting.com/tax-services/
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
For firms in England, the business rates holiday will continue until June 2021 followed by a 75% discount thereafter. We await news from our Executive on whether or not such measures will be rolled out in Northern Ireland.
The Chancellor 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. We have to wait to see if this will apply to Northern Ireland as well.
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.
What this means is that taxpayers will pay the same rates of tax but they will potentially enter higher rates of tax as they push to grow their business and earnings. Again, a bit of tax planning around this will help mitigate the impact.
There will be no changes to Inheritance Tax or Lifetime Pension Allowance or Capital Gains Tax allowances until April 2026.
In terms of savings, the Adult Individual Savings Account (ISA) annual subscription limit for 2021/22 remains unchanged at £20,000. The annual subscription limit for Junior Individual Savings Accounts (JISAs) and Child Trust Funds for 2021/22 remains unchanged at £9,000.
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.
The Chancellor has erred on the side of caution on the Budget as a whole. Tax rises for businesses are coming in corporation tax especially. Individuals will pay a little bit more tax as their income rises over the next 5 years with the freezing of allowances and tax thresholds.
There are some useful elements of the Budget for small businesses including access to various finance and grant schemes, and attractive ways to get tax relief on capital expenditure. With proper planning, firms may be able to mitigate the rise in corporation tax rates whilst also improving efficiency within their business through new equipment, software and processes.
No news as yet on something the Chancellor said at the start of the pandemic in terms of some inequality between tax and NIC paid by those employed versus those who are self employed. As pressure on the NHS and health budget is expected to continue, and with the need to award doctors and nurses accordingly, further Budget announcements may yet come back to look at National Insurance contributions paid by the self-employed.