Welcome measures, but there was a sting in the tail…
The Chancellor presented what had been billed as the ‘most important business Budget in a generation’.
Businesses will welcome the extension to a raft of COVID-19 support schemes which for many, will provide a safety net through to the autumn. They will also welcome the ‘super deduction’, which as the name suggests is a big, short term incentive for investing in new plant and machinery over the next two years. Meanwhile, more loss flexibility is also a positive measure for businesses who find themselves in precarious positions.
However, there was a sting in the tail to the Budget announcement. It goes without saying that the governments generosity will have to be paid back at some point, but we began to see where the first contributions will come from.
Most notably, we heard that there will be a rise in corporation tax to 25% from 2023. Whilst there is some tapering for businesses with very low profits, this is a higher level than I had been expecting. It will also put some question marks on the attractiveness of taking dividends, and salary vs dividend extraction planning in the coming years.
For individuals, the freeze in personal allowance and tax thresholds will mean that middle to higher income earners will bear the brunt of increasing personal tax liabilities over the coming years.
Whilst we surely haven’t heard the last of measures to claw back government spending, overall it seems the main focus in this Budget was on continued support in the short-term which will be repaid in years to come.
Below you can see our highlights from the Budget 2021.
Watch our highlights reel:
- Furlough scheme extended until the end of September. Employees continue to receive 80% of their salary with employers contributing 10% in July and 20% in August and September.
- From April 2023, businesses who profit more than £250,000 will pay Corporation tax at 25%. Companies with profits under £50,000 will continue to pay Corporation Tax at 19%, with a tapered rate for those with between £50k-250k profits.
- New ‘Super Deduction’ over the next 2 years to encourage businesses with cash reserves to invest by reducing their tax bill by 130% of the cost.
- The normal business loss carry back rules will be extended from one year to three years for losses of up to £2m, for the next 2 years. Allowing struggling businesses to claim refunds of corporation tax paid in earlier periods.
- Bounce Back Loans and CBIL schemes will come to an end, to be replaced by a new Recovery Loan Scheme for loans between £25k and £10m until the end of the year, with an 80% government guarantee.
- Non essential retailers opening in April will receive a £6k reopening grant per premises, with others opening later, such as gyms will receive £18k each.
- Eligible retail, hospitality and leisure businesses will continue to pay no business rates between April-June, with up to 66% relief for the rest of the 2021/22 tax year.
- The reduced 5% rate of VAT for the hospitality and tourism sector will be extended for 6 months, before rising to 12.5% for the following 6 months until April 2022.
- New consultations to be launched to review R&D tax relief and EMI schemes to ensure these incentives are internationally competitive.
- A £100m fund pledged to form a HMRC taskforce with 1,000 investigators to tackle fraud in COVID support schemes.
- Help to Grow scheme announced with two sides. 1. Management: To help SMEs access management training. 2. Digital: To provide small businesses free online technology advice and 50% discounts on new productivity enhancing software.
For individuals and families
- Support for the self-employed will continue with a 4th grant covering February to April for 80% of average profit. Those who became self employed in the 2019-20 financial year will now also be able to receive the payments. There will also be a 5th grant from May.
- The basic tax rate threshold will rise to £12,570 next year. For higher-rate payers the threshold will be £50,270. Both rates will stay the same until 2026.
- Inheritance tax, which is currently charged at a rate of 40% on assets exceeding the nil rate band of £325,000, will remain the same.
- There were also no changes to the pension lifetime allowance or CGT annual exemption.
- The £500,000 nil rate band (Stamp Duty holiday) will end on 31 June rather than the planned 31 March. After that it will reduce to £250,000 until the end of September before returning to the usual £125,000 after that.
- New mortgage guarantee scheme to encourage lenders to offer 95% mortgages.
Investment and infrastructure
- £300m pledged to extend the Culture Recovery Fund, supporting key national and local cultural organisations in England.
- A £150m fund pledged to allow communities to apply for up to £250k to take ownership of pubs, theatres, shops or local sports clubs at risk of closure.
- 8 new Freeports will be set up in East Midlands, Liverpool, Felixstowe, Plymouth, Thames, Teesside, Humber and Solent, benefiting from simpler planning, improved infrastructure and lower taxes.
Our full Budget Summary Guide
Includes commentary for:
- Capital taxes
- Personal tax
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