The Chancellor delivered the Spring Budget on 3rd March 2021 we summarise below what it means for UK businesses.
The announcement is crucial to the UK’s economic recovery from the coronavirus pandemic.
There were many new measures, as well as changes to existing schemes including Furlough and Universal Credit to support for Green initiatives.
We summarise below the most relevant to small and medium sized businesses.
1. Corporation Tax Rise
Corporation Tax was probably one of the most discussed points before the Budget. This is set to increase to 25% starting from April 2023.
However, the new rate will only apply to businesses generating profits over £250,000.
Companies with profits below £50,000 will pay the current rate of 19%. A taper will be introduced for companies with profits between £50,000 and £250,000.
To boost investment and offset the Corporation Tax increase, the Chancellor announced a “super-deduction” of 130% of the value of capital investment from a company’s taxable income.
At a Corporation Tax rate of 19% this works out at roughly 25p of tax saved for every pound invested.
A first-year allowance of 130% will be available for expenditure on plant and machinery that qualifies for main rate capital allowances of 18%.
Expenditure on plant and machinery qualifying for special rate capital allowances of 6% will qualify for a 50% first-year allowance.
This is independent of the Annual Investment Allowance, which can be claimed instead where this is more beneficial
3. Tax Thresholds Frozen Until 2026
The Chancellor stood by his promise not to break the Triple Tax Lock. However, various tax thresholds will remain frozen until 2026.
The income tax personal allowance and higher rate threshold (which will be raised in April 2022 and then unchanged until 2026) as well as Inheritance Tax, Lifetime Allowance, and the annual subscription limit for ISA’s, will be frozen at current levels.
The Furlough scheme to help employees and employers will now be extended through to 30 September 2021.
As in 2020, employers will contribute to their furloughed employees’ pay, at 10% of normal pay for unworked hours in July, rising to 20% in August and September. As before employees will need to be consulted and the process documented.
5. Self-Employment Income Support Scheme (SEISS)
The self-employed will be able to claim two further grants under the SEISS.
The fourth grant for February to April 2021 will be worth 80% of three months’ average profits, capped at £7,500.
The final grant will cover May to September and will depend on the impact the pandemic has had on turnover. People whose turnover has fallen by 30% or more will receive the full 80% grant. Those whose turnover has fallen by less than 30% will receive a 30% grant.
The final two grants will be available to those who started their self-employment in 2019/20, if they filed their 2019/20 tax return by midnight on 2 March 2021.
6. Carry-back period for losses temporarily increased
Unincorporated business and companies can benefit from a temporary extension in the period for which losses can be carried back from one year to three years for a limited period.
For unincorporated businesses, the carry back will apply to losses incurred in 2020/21 and 2021/22.
For companies, it will apply to losses incurred in accounting periods ending between 1 April 2020 and 31 March 2021 and 1 April 2021 and 31 March 2022 (subject to a cap of £2m for each accounting period).
Taking advantage of the measure to carry back losses incurred as a result of Covid-19 may generate a much-needed tax repayment.
7. Recovery Loan Scheme
A new Recovery Loan Scheme will launch on 6th April 2021 to help businesses raise between £25,000 and £1m with an 80% guarantee from the Government. The scheme will run until 31st December and loans will be available through a network of accredited lenders..
Personal guarantees will not be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
8. Restart Grants
Non-essential retail shops reopening in April will be eligible for up to £6,000 per site, pubs, gyms, and other businesses reopening in May will be eligible for grants up to £18,000.
9. Green Recovery
The Chancellor used the Budget to reiterate the UK’s commitment to a “net zero” target by 2050.
The Government’s investment in green technology consists of £100bn in funding to support UK-wide competitions to develop offshore wind and energy storage, as well as the issuance of green gilts.
10. Cap on R&D Tax Credits
From 1st April 2021, the amount payable as cash back for the R&D Tax Credits SME Scheme will be capped at £20,000 plus 3x the company’s total PAYE and NICs liability for any one year.
VAT cuts for the hospitality and tourism sectors are to be extended, with the rate remaining 5% until September, rising to 12.5% until the end of the tax year in March 2022.
Confirming the changes to deferral of VAT payments from 2020.
The Registration threshold of £85,000 and Deregistration threshold of £83,000 are fixed until 31st March 2024.
MTD for VAT registration will apply to all businesses from 1st April 2022.
12. Business Rates
The 100% Business Rates holiday will continue until the end of June.
Business Rates will then be discounted by two thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.
13. Future Fund
A new £375m UK-wide fund will invest in high-growth innovative companies such as life sciences, quantum computing and clean tech.
Stamp Duty tax cuts are now extended, with the nil rate band set to stay at £500,000 until 30 Sep 2021, then £250,000 until 31 March 2022, and then decreasing back to to £125,000.
The Chancellor announced access to 95% mortgages up to £600,000 with a deposit of 5%, from major UK lenders starting in April.
15. Community Ownership Fund
This £150m fund will help UK local communities to invest in local businesses and assets such as pubs, theatres, event venues, shops and sports clubs.
Further details will be published over the next few weeks.
If you have any questions, please call 01904 404560.
Stephen Perry & Co