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Budget 2021: What the outcomes mean for businesses

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It’s both a cliche and an understatement to say that we live in challenging times.

The Budget, delivered on 3 March 2021, reflects this. It contains measures that extend the coronavirus relief but also includes long-term tax changes that aim to pay for the past year’s relief measures. Businesses take much of the brunt in this regard.

Below we take a look at the tax changes that affect businesses, including the updated coronavirus measures.

Here’s what the article covers:

Corporation tax

VAT (including coronavirus relief measures)

Coronavirus Job Retention Scheme (CJRS)

Self-Employment Income Support Scheme (SEISS)

Wage and National Insurance increases

Transport for business

Capital allowances

Carrying back losses

Business rates

Coronavirus grants and loans

There are no corporation tax rises for the year 2021/22. But the corporation tax rate increases from April 2023 to 25% on profits over what’s now referred to as an upper profits threshold of £250,000.

This is accompanied at that time by an increase in the Diverted Profits Tax rate to 31%, although this typically affects only very large businesses.

For smaller businesses, the good news is that there’s also a lower threshold for corporation tax, with its own rate. This applies to profits under £50,000 and the rate will remain at 19% as of April 2023.

For those caught between the upper and lower thresholds, an as-yet-unknown tapering rate will be introduced. The government says this will ensure that only businesses with profits over £250,000 will be taxed at the full 25%.

What this means for your business

Increases in corporation tax are never welcome, but the year’s delay until the tax rise occurs is to be appreciated.

Wise businesses will use the coming 12 months to plan ahead for the tax rate increase from both a tax planning and cash flow perspective so that the increase to corporation tax – if it affects them – will provide a minimal shock to the system.

Value Added Tax received a little attention in the Budget but there are no earthquake changes.

  • VAT rates: These are not changing for the financial year 2021/22 outside of temporary and ongoing hospitality coronavirus relief measures, as listed below.
  • Threshold: There’s some certainty for entities approaching the £85,000 VAT threshold, in that the registration and deregistration thresholds are effectively locked until 1 April 2024.
  • Reduced VAT rate for hospitality: Launched in July 2020 and due to end on 31 March 2021, this scheme reducing the VAT rate to 5% is once again extended – this time until 30 September 2021. Subsequently, a new 12.5% rate is applied until 31 March 2022, at which point the 20% rate resumes.
  • Reduced flat rate VAT for hospitality: Also launched in July 2020 as part of the reduced VAT rate, the temporary coronavirus relief is also extended and flat rate scheme reductions are as follows: Catering services: 4.5% until 30 September 2021, and 8.5% following this until 31 March 2022. Hotel and accommodation: 0% until 30 September 2021, and 5.5% following this until 31 March 2022. Pubs: 1% until 30 September 2021, and 4% following this until 31 March 2022. See our earlier blog and discussion about the VAT rate classification for important notes about the types of businesses that fall into these classifications.
  • Deferred VAT: Although not new in the 2021 Budget, it’s worth adding here that the government has opened the portal for the New Payment Scheme for VAT deferral amounts. See our blog about the Winter Economy Plan for details of the New Payment Scheme.

What this means for your business

There’s perhaps rather less movement around VAT than some might have hoped to see. But this also means there are no increases, and this in turn creates certainty moving forward.

Those in the hospitality and tourism industry will be very pleased to see the existing schemes extended, along with the graduated return to the standard rates.

When it comes to integrating the 12.5% rate into your accounting, you may need to speak to your accounting software vendor about guidance.

Commonly referred to as the furlough scheme, the CJRS was due to end on 30 April 2021 but has once again been extended and now continues until 30 September 2021.

Until 30 June 2021, it will continue to pay 80% of furloughed worker salaries for hours not worked with businesses continuing to pay the employer National Insurance and minimum mandatory pension contributions.

The eligibility and application rules aren’t changing, and you should see our earlier coverage of the CJRS for details.

However, from July 2021 onwards, businesses will once again be required to contribute to the salary for the furloughed hours. This will be 10% for July 2021, and then 20% in both August and September 2021.

The final claim for September 2021 must be submitted by 14 October 2021.

What this means for your business

The extension of the CJRS is what businesses undoubtedly wanted to hear, and it will once again form a lifeline for those that have had to reduce their business activity to whatever degree.

Should the economy recover when the coronavirus disruption lessens towards the end of 2021, it will be interesting to see how many businesses will continue to use the scheme until the very end of the extended period.

But knowing the safety net is there will be reassuring and you should remember that the updated rules announced in 2020 mean you can dip in and out of the scheme as required.

Another coronavirus relief measure, this time aimed at those who use Self Assessment, the SEISS receives some renewed attention in the Budget after being extended in 2020.

Details of the fourth grant have now been announced and, as with the third, it once again covers 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total.

Eligibility for this fourth grant will be open to anybody who has recently submitted a Self Assessment tax return for 2019-20.

This new measure opens the grant to 600,000 more individuals, by the government’s measures, and counters criticism from some more recently self-employed individuals.

A “fifth and final grant”, to quote the government’s announcement, will be available for the period covering May to September 2021. Eligibility this time around will be tiered based on your decline in turnover because of coronavirus:

  • Decline of 30% of more: Same as with the third and fourth grants; these individuals will continue to be able to claim 80% of their three months’ average trading profits, capped again at £7,000.
  • Decline of less than 30%: These individuals will be able to claim 30% of their three months’ average trading profits, capped at £2,850.

It’s not yet clear how the decline in turnover will be measured. As with previous SEISS grants, the government says “further details will be published in due course”.

What this means for your business

The continuation of the SEISS at the original, higher amount for those eligible will come as welcome relief to many small businesses and the self employed. There was a great deal of anxiety around that issue, with some anticipating a lower rate.

And the opening up of the SEISS to more self-employed people will also be welcomed.

It will be interesting to learn how the government intends to regulate the fifth and final grant, and what evidence (if any) it might require from self-employed business owners.

We have to hope the administrative hurdle is not too high for businesses to make one final use of the SEISS, but it might be wise to prepare by ensuring you have required documentation such as a statement of accounts – in which case you might want to ensure your accounting is as up to date as possible, and speak to your accountant if you require help.

There’s a handful of new announcements and increases around salary payments.

Personal allowance and National Insurance

The personal allowance and higher-rate thresholds increase marginally with the consumer prices index (CPI) as of April 2021, up to £12,570 and £50,270 respectively. But they’re subsequently frozen until April 2026 as part of the measures introduced to start recouping the cost of coronavirus financial support measures.

National Insurance contributions (NICs) rise in a similar way with the Class 1 NICs (Primary Threshold/Lower Profits Limit) rising to £9,568.

However, with the exception of the Upper Earnings Limit (UEL)/Upper Profits Limit (UPL), as discussed below, this and other NICs are not pegged until 2026. They may rise “at future fiscal events”, to quote the government announcement.

The Upper Earnings Limit (UEL)/Upper Profits Limit (UPL) rises to £50,270 to match the aforementioned higher-rate threshold for income tax. And like that increase, it is also pegged until April 2026.

Minimum and living wage

Minimum wage increases that come into force in April 2021 were announced in November 2020. The National Living Wage is extended to 23 and 24 year-olds for the first time, having previously been limited to those 25+ years old.

The minimum and living wage details are as follows:

  • National Living Wage (for people aged 23 and over): £8.91
  • National Minimum Wage for people aged 21 to 24: £8.36
  • National Minimum Wage for people aged 18 to 20: £6.56
  • National Minimum Wage for people under 18: £4.62
  • Apprentice rate for those aged under 19, or those over this age but in the first year of their apprenticeship: £4.30.

Statutory Sick Pay (SSP)

The coronavirus relief measure that meant employers could reclaim up to two weeks of SSP cost per employee is extended. This is known as the Statutory Sick Pay (SSP) Rebate Scheme.

There’s no end date set yet with the government saying it will “set out steps for closing this scheme in due course”.

What all this means for your business

Any employees or workers within your business who receive the National Living Wage, or one of the minimum/apprentice wage rates, should be given a pay rise in April 2021, matching the new rates.

But as has been discussed in the mainstream press, the freezing of thresholds and UEL/UPL is an effective tax rise for employees spread across the coming half-decade – unless the rate of inflation drops to 0% or below, of course.

The pressure will therefore mount on businesses to create above-inflation pay rises each year to compensate. If business conditions aren’t conducive to this then friction will inevitably arise.

Speaking to staff pragmatically about the government’s freeze on rates and contributions at this time may help devolve any challenges should the going get tougher.

Fuel duty is frozen yet again, making this the 11th year in which there won’t be an increase.

However, the government hints this might be the final year of such largesse because of its commitment to reach net-zero emissions by 2050 – although it gave the same warning in 2020.

Vehicle excise duty (VED, or road tax) for cars, vans and motorcycles will increase in line with the retail price index (RPI) as of April 2021.

Heavy Goods Vehicle VED is once again frozen, as is the HGV Road User Levy. The government says this is in response to “pandemic recovery efforts”.

In the Budget announcement, the government restated plans to limit red diesel and rebated biofuels from April 2022 onwards, limiting use to just agriculture, rail vehicles, and non-commercial heating.

As a result of a consultation, those who can’t use red diesel after April 2022 now includes:

  • Those using red diesel to power vessels for commercial purposes (including fishing and water freight)
  • Travelling funfairs and circuses
  • Amateur sports clubs as well as golf courses
  • Non-commercial power generation.

What this means for your business

Hauliers or those needing to transport goods via HGVs will welcome the duty and VED freeze but business transport is clearly an area of government interest from an environmental perspective.

The uncertainty around when (or even if) the government will begin to apply measures to achieve those net-zero emissions targets hangs over the industry.

Wise operators should calculate contingency planning in their forward budgets for the coming years, allowing for significant expansion in their costs should it turn out to be required.

Outside of narrow assistance for those building freeports to deal with new Brexit customs requirements, the only major capital allowance measure is the new and so-called super-deduction.

Between 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets can benefit from a 130% first-year capital allowance.

However, a further capital allowance measure applies to investing companies, who benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.

What this means for your business

Two years of an over-100% capital allowance is to be welcomed, even if it only applies to the first year, and it’s an incredibly generous measure for businesses.

To take advantage of this and existing capital allowances, you should speak to your accountant (if you have one).

Understanding the categories of what exactly can claim for will be key, and it’s an area where mistakes or innocent assumptions could prove costly.

Businesses paying tax can get relief in the form of carrying back losses to be offset against profits for the earlier 12 month period.

The Budget temporarily extends this 12-month period to 36 months (three years). This measure is open to both incorporated and unincorporated businesses.

Details will be announced in the forthcoming Finance Bill, although the policy paper is available to read now. But the relief amounts that can be obtained are as follows:

  • Unincorporated businesses and companies not members of a corporate group: Up to £2m of losses in each of 2020-21 and 2021-22 financial years.
  • Companies that are members of a corporate group: There are two options available:
    • Up to £200,000 of losses in each of 2021-22 and 2021-22 with no group limitations.
    • Up to £2m of losses in each of 2021-22 and 2021-22 but subject to a £2m cap across the group as a whole.

What this means for your business

Needless to say, this tax relief will be welcomed by many businesses. To make full and correct use of it if your accounting lets you, speak to your accountant.

Many businesses will soon be able to deduct the business rates relief repayments from their corporation or income tax. However, there are no firm details about this yet, pending legislation from the government.

Additionally, the government is freezing the business rates multiplier for all businesses that pay rates as of April 2021. In other words, the multiplier used to calculate business rates will stay at 51.2p for the standard multiplier and 49.9p for the small business multiplier.

There’s good news for the retail, hospitality and leisure businesses in England that had been making use of the 100% business rates relief as part of the coronavirus relief measures. These are now extended to cover the period from 1 April 2021 to 30 June 2021.

Subsequently, the relief will be lowered to 66% from 1 July 2021 to 31 March 2022. The latter is capped at £2m per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

What this means for your business

Business rates have been an area of focus when it comes to coronavirus relief measures, and it’s no surprise to see the government once again turn its attention there as it aims to encourage growth once the coronavirus disruption lessens.

Seek help if you need calculating your rates for the coming years in light of the announcements, and keep an eye on the media (as well as Sage Advice) for details about the upcoming business rates relief tax deduction scheme.

The existing coronavirus relief loan schemes – the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) – all close for applications on 31 March 2021.

Although the schemes had been extended in December 2021, as of 6 April 2021 they’re replaced by a single loan scheme to act as coronavirus relief: the new Recovery Loan Scheme. This will remain open for applications until 31 December 2021.

As with the earlier schemes, this will effectively underwrite loans up to 80% from commercial lenders, thereby encouraging lending.

Two kinds of loans and amounts are available:

  • Term loans and overdrafts will be available between £25,001 and £10m per business.
  • Invoice finance and asset finance will be available between £1,000 and £10m per business.

The loan terms vary between three and six years, depending on the type of loan or finance.

Already having used one of the above coronavirus relief loan schemes doesn’t block you from applying for the Recovery Loan Scheme (outside of the lender’s usual criteria).

However, the loans will only be available to businesses that are “viable or would be viable were it not for the pandemic”. Perhaps it goes without saying but the loans are also limited to businesses that have been impacted by coronavirus.

Restart Grants of up to £6,000 per premises for non-essential retail businesses in England will be made available. Hospitality, accommodation and leisure premises in England can get higher grants of up to £18,000.

These grants will be administered by English local authorities, which are also getting an additional £425m of discretionary business grant funding to top up the £1.6bn they’ve already been allocated during the coronavirus disruption.

Finally, the Help to Grow: Digital scheme means businesses can claim a voucher covering up to half the costs of approved software up to a maximum of £5,000.

This accompanies the Help to Grow: Management scheme that offers education and training that’s 90% subsidised by the government.

What this means for your business

The general consensus has been that the coronavirus loans offered so far have been so competitive, and with such generous terms, that it would be sensible to take advantage of them if your business is impacted by coronavirus, or even if it simply requires finance for growth.

The new Recovery Loan Scheme tightens the reigns a little, bringing the term down from 10 years to three or six, but this might still fit with your company’s ability to repay.

Speak to your accountant or loan broker about which of the loan types is a good fit for your business.

Conclusion: Budget 2021

This Budget caught some by surprise in its softer rather than aggressive approach. The chancellor adopted a laissez-faire approach in many areas, and measures to address any ongoing Brexit disruption were non-existent.

This was a Budget focused on coronavirus – both in terms of assisting businesses and individuals affected, and in creating a regime where public finances can be repaid as a result.

Ultimately, the measures introduced by the government will aim to make things easier for businesses during this period of uncertainty and as such are to be welcomed.

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