A year into weathering the Covid-19 storm, British Chancellor, Rishi Sunak, has announced the next steps the government will take to keep the economy and businesses afloat.
The economy has shrunk 10%, and national borrowing and therefore debt is higher than it’s ever been in peacetime. Sunak says the Treasury has done more than any other country to keep the economy and businesses going in these extraordinary circumstances.
With UK spending on tackling the pandemic at £400 billion, he points out that “It’s going to take this country, and the whole world, a long time to recover from this extraordinary situation.”
In saying the government will do “whatever it takes” to keep tackling this, the wording is also warning of what happens next. Tax rises have already been indicated, with Corporation Tax being targeted, potentially from next year onwards. However, for now, let’s take a look at what support is being offered going forward.
Key Takeaways from Budget 2021
Economic Growth: According to the Office for Budget Responsibility (OBR), the economy could grow 4% this year, and 7.3% in 2022. This is in the context of the economy shrinking 9.9%, which is the decline in recorded history, since 1709.
Furlough: Thankfully, whether you’ve got staff on Furlough, or a director of a limited company using PAYE, and aren’t as busy as normal, this has been extended until September 2021. Contributions are going to be asked for from July onwards (10% and 20% in August and September), until the scheme ends in September.
Self Employed: The self-employment income support scheme (SEISS) has been extended further too, with a fourth and fifth grants to be made. The next one will cover the February to April period, at a rate of 80% of trading profits up to £7,500. Now 600,000 more self-employed will be able to access this funding, based on the previous years returns.
The fourth SEIS grant takes into account 2019/20 income, and is claimable from mid April 2021. Whereas, the fifth grant looks at how much your turnover dropped thanks to Covid-19, and more than 30% then you will get 80% of average profits; and if less than 30%, you will get 30% of average profits.
Please note: these grants are taxable, as they’re classed as income and are taxable based on the year the grants were received.
Restart Grants: Cash grants for hospitality, accommodation, leisure, personal care and gym businesses, from £6,000 to £18,000 will be provided. Local councils will manage and distribute these funds.
Loans: With the closure of the previous loan schemes (BBL and CBILS), a new Recovery Loan Scheme will be launched in April, with funding from £25,001 and £10 million, alongside asset or invoice finance from £1,000 onwards.
With so many directors using loans to survive, this is something the government and British Business Bank, and HMRC will need to plan for when thinking about how to support business owners in the future.
Tax Breaks: Existing tax breaks and offsets still stand, such as R&D Tax Credits at current levels, which the chancellor says will help businesses unlock “£20bn worth” of investment. And now companies can reduce taxable profits up to 130% when firms “deduct” investment costs from tax bills (this doesn’t include cars).
Capital Expenditure: Unfortunately, when it comes larger capital costs, companies need to be aware that the current allowance of £1m is reducing to £200,000 on 1 January 2022. So for any large purchases, some planning might be needed.
Stamp Duty: A continuation of the original Stamp Duty holiday will keep going until September. So, good news for anyone buying a house. This holiday is capped at £500,000 until 30 June, and then £250,000 until 30 September.
Film, TV & Culture: Both the Film & TV Production Restart scheme has been extended, and there is a further £300 million to support theatres, museums and other cultural organisations in England.
VAT (certain sectors): VAT is staying at 5% for hospitality, accommodation and attractions until the end of September, with it going up to 12.5% rate for a further six months, until 31 March 2022. Also, 750,000 legible businesses in those sectors will continue to benefit from Rates Relief; discounted by two-thirds for the remaining 9 months of 2021.
Apprentices and traineeships: Funding for supporting work placements and training for 16-24 year olds has gone up a further £133 million. This will allow for higher one-off hiring incentive to £3,000, and 40,000 more traineeships in England, during 2021/22.
Tax Rises: Because borrowing is at a record high, with a budget deficit of £355bn this year, or 17% of GDP, taxes are going up next year. In total, borrowing and deficits will be 97.1% of GDP in 2023-24. As a result, Corporation Tax is going up to 25%, but only for businesses with profits above £250,000. From £50,000 of profits it will gradually increase from 19%, up to 25% for those registering £250,000 in profit.
Losses: With that in mind, you could try and carry any losses forward, which should offset higher taxes in the future.
Tax Thresholds: National insurance, income tax and VAT are staying as they are, and personal allowance will remain at £12,750 until 2026. Likewise, the higher-rate is staying at £50,270 next year. Other tax thresholds will be frozen at current levels, such as the inheritance tax threshold, pensions lifetime allowance, annual exempt allowance from capital gains tax and VAT exemption threshold.
National Living Wage: Is going up to £8.91 from £8.72, as of April. Further increases are expected in the years ahead.
Electric Cars: To keep encouraging uptake, leasing or buying an electric car is still a 0% benefit in kind, until April 2025 (although this still needs reporting on a P11D). There are even free charging points across the country, and even more charging points than there used to be.
We wait and see whether other taxes might increase next year, or if Austerity 2.0 is rolled out from next year. But for now, this is what the government will keep doing to support businesses and the economy.
