At Insight Finance Solutions, we pride ourselves on making finances stress-free and simple. So in the spirit of making information accessible and easy to understand, here’s our distilling of the budget and how it will impact businesses and individuals.
I know not everyone is like me. I LOVE the budget and every year I make some predictions, write them on a piece of paper, pop them in an envelope and then see if I am right with my predictions.
This year I did ok, not my best year ever but my Mystic Meg senses were spot on with a few things! But I’m not The Chancellor and being honest, I really wouldn’t like his job, especially over this past stressful year.
At Insight Finance Solutions, we pride ourselves on making finances stress-free and simple. So in the spirit of making information accessible and easy to understand, here’s our distilling of the budget and how it will impact businesses and individuals.
Please remember, these are what we feel are the key points which will impact the majority of businesses. For the full budget report, please head to gov.uk
The Budget 2021 – The Facts
The UK economy has experienced the largest plunge in 300 years with GDP tumbling by 10%. Government borrowing is expected to soar to £355 billion in 2020/21 – lower than the £394 billion that was forecast at first. This is still 17% of national income and the highest level since the Second World War.
The Chancellor said the economic damage caused by coronavirus will recover “swifter and more sustained” than previously thought as a result of the vaccine rollout. The economy is expected to return to its pre-Covid level by the middle of next year, six months earlier than it previously thought, but Rishi Sunak warned that “coronavirus has done and is still doing profound damage”. He pledged to do “whatever it takes” to support people.
The Budget was announced in two parts;
- Protecting jobs, livelihood and people
- Fixing public finances
So let’s explore both aspects of the announcement.
Protecting Jobs, Livelihood and People
Extension to the Furlough Scheme
The furlough scheme has been extended to 30th September. This means employees will receive 80% of their salary up to a cap of £2,500 while on furlough. The difference this time after the budget announcement is that employers will be expected to contribute to that furlough in the following phases; 10% in July (capped to £2,187.50) and 20% in August and 20% in September (capped to £1,875). Employers must also continue to pay the associated Employer National Insurance contributions and pension contributions on subsidised furlough pay from their own funds.
For periods from 1 May 2021 onwards, employers will be able to claim for eligible employees who were on employers’ PAYE payrolls on 2 March 2021. This means they must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying HMRC of earnings for that employee. Businesses do not need to have benefitted from the scheme before to make a claim, as long as they meet the eligibility criteria.
While this is good news that the furlough scheme has been extended, I do feel it is unfair on employers who, by July and the first 10% contribution point, will not have been open and at capacity by then. They will have not had a chance to get traction and recoup losses. Social distancing will possibly still be in place which puts a cap and limit on earning potential for many. Businesses could potentially have VAT deferment payments, corporation tax payments, rent arrears and Bounce Back/CBILS loan payments falling due. I feel that the contribution date for employers as been brought in too early and it would have been preferable to have seen this come in to place in August, rather than July.
For more information on the extension to the scheme and the support available, visit https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme
The Self Employed Income Support Scheme (SEISS)
Great news for those who missed out on the first three SEISS grants. Those who were newly self-employed in the 2019/20 tax year have now submitted their self-assessment tax returns and may possibly be eligible for the 4th and 5th SEISS grant.
The self-employed income support scheme (SEISS) 4th grant will cover the period between February to April 2021 and will be 80% of average trading profits. The criteria for this is pretty much the same as the 3rd grant except the calculation will now take into account earnings in the 2019/20 tax year where applicable, so grant amounts are likely to vary accordingly. You will need to make an honest assessment that there has been a significant reduction in trading profits due to reduced demand or your inability to trade, and keep appropriate records as evidence.
The 5th grant will cover the period from May onwards and it’s important to note that the entitlement criteria for this grant has changed. Grants will still be at 80% of average trading profits based on the same four year period as with the 4th grant, however only for those who can evidence that they have experienced a minimum of 30% reduction in turnover. For those who have still been impacted but their turnover has reduced by less than 30%, the grant is reduced to 30% of average trading profits.
From mid-April, eligible self-employed people will be given their personal claim date by HMRC which confirms the earliest date they can claim. The online claims service for the 4th grant will be live from late April. This is to allow time to process recently submitted 2019-20 Self Assessment tax returns. You must make your claim for the 4th grant between your personal claim date and 31 May 2021 at the latest. Applications for the 5th grant will be open from late July.
There is still more information needed on the criteria for SEISS and eligibility for those who missed out on the first three grants. As we found in the third grant application process, the wording was slightly changed and more guidance around proving the reduction in income due to COVID will be needed.
For information on the fourth SEISS grant please visit https://www.gov.uk/government/publications/self-employment-income-support-scheme-grant-extension
Support for Directors
Many directors who took their pay from dividends were missed out of the business support offered in the last year. There has been much press about those forgotten business owners who did not qualify for the SEISS and had to rely only on Universal Credit. Unfortunately, no further support has been announced for these business owners.
Universal Credit Extended Until the End of September & Working Tax Credit Boost
Universal credit £20 a week increase in payments has been extended until the end of September for many, in line with furlough. People who are working tax credit claimants will get a one-off £500 payment as an equivalent to the universal credit uplift of £20 a week that is already in place.
National Living Wage to Rise
The national living wage will rise to £8.91 from April 2021. While this obviously is a welcome move by those on the minimum wage, this does pose a potential problem for businesses who will potentially reopen with higher staffing costs before they’ve taken a penny in income. It is additional pressure on businesses that they might not need right now in terms of further support and grant funding.
Business Incentives to Hire Apprentices
A boost of £3,000 for businesses has been made available for those companies looking to hire apprentices between 1st April 2021 and 31 September 2021. These payments are on top of the existing £1,000 that employers get for all new 16-18-year-old apprentices and those aged under 25 with an Education, Health and Care Plan. Unlike the previous scheme, today’s announcement of the £3000 boost is applicable for the hiring of apprentices of all ages.
Restart Grants Up to £18,000
Restart grants will be out from April. Those non-essential businesses opening first from April will be able to claim up to £6,000 per premises. Hospitality and leisure businesses that are forced to close for longer and will open last can claim up to £18,000. These grants will be available to apply for via local council websites. They will be awarded based on rateable value so some businesses without premises may fall out of that remit and possibly lose out. Remember, even if your business gets 100% rates relief, you are still potentially eligible to claim.
VAT Rates Extended for Hospitality and Tourism Sector
The 5% reduced rate of VAT for the tourism and hospitality sector has been extended to the end of September, with an interim rate of 12.5% for another six months after that. This extension and phased approach is welcomed and will give a much needed boost to these industries which have been hit hard by the pandemic.
Business Rates Holiday Extended
Business rates holiday for the retail, hospitality and leisure sectors has been extended at 100% discount until the end of June, with a two-thirds discount for the remaining nine months of the year. Again, I would have liked to see the 100% discount extended for 6 months, to help those businesses that have been hit the hardest to get back on their feet. Rates are one of the biggest costs for many businesses and this is one area that I disagree with the approach from the Chancellor.
Stamp Duty Holiday Extended
The stamp duty holiday for properties less than £500,000 until the end of June, then a new £250,000 threshold will apply until the end of September before the £125,000 starting point is reintroduced. 95% mortgages are back with 5% government-guaranteed deposit.
Recovery Loan Scheme
A new Recovery Loan Scheme to replace previous coronavirus loan packages has been announced allowing businesses of any size to apply for loans from £25,000 up to £10 million through to the end of the year, with the Government providing lenders with an 80% guarantee.
Alcohol and Fuel Duties Frozen
All duties on alcohol has been frozen for the second year in a row and the planned increase in fuel duty has been scrapped.
Fixing Public Finances
Mr Sunak revealed that the total package of measures including those already announced amounted to £407 billion. In order to recoup that, those who can afford to contribute will be asked too and measures put in place to protect those who can’t.
Income Tax, National Insurance and VAT
The good news is there is no rise in income tax, National Insurance and VAT. Inheritance tax, pension lifetime allowances and the annual exemption for capital gains will remain the same until 2026. The VAT threshold will stay at £85k until 2022.
Freezing Personal Tax Thresholds
Increasing personal tax thresholds had been planned for the next few years but this budget announcement honoured the promise to increase the personal tax allowance to £12,570, an increase of £70. The 40 per cent rate threshold will increase by £270 to £50,270. Personal tax thresholds will then be frozen at these rates until 2026. The chancellor said “Nobody’s take-home pay will be less than it is now, as a result of this policy”, but he agreed it “does remove the incremental benefit created had thresholds continued to increase with inflation”.
Corporation Tax Rise
Corporation tax will increase from 19% to 25% in 2023. If a business makes profits of £50k or less, corporation tax will remain at 19%. This has been implemented to protect the estimated 70% of small businesses in the UK earning £50k profit or less. A tapered approach will then be taken for businesses that make profits between £50,000 and £250,000, leaving only those businesses who make profits over £250,000 to be taxed at the full 25% from 2023. Those making profits of £250,000 or more make up around 10% of UK businesses.
It is good that the government are trying to protect smaller businesses and adopting a tapered approach. However, this is a big jump up to 25% from 19% if you are in that bracket. There has been much anger in the media after the announcement of businesses feeling like they’re “forking out for furlough” after working so hard to turn a profit in COVID times.
Changing The Treatment of Losses
Businesses will be able to carry losses of up to £2m back for up to three years.
Super Reduction Up to 130% For Businesses Ready to Invest In Innovation
A super reduction of up to 130% has been pledged for companies that have been able to build cash reserves during the past year and are looking to invest in innovation. This will present as a reduction in tax by up to 130%. For example, if you were going to invest £10m in equipment you could get a deduction of £13m through the new super tax deduction.
Help to Grow Scheme
Free training in management and digital mentoring will be available for businesses trading 12 months or more and up to 249 employees. Management level training and mentoring will be 90% funded by the government. A second part looking at digital solutions has been designed to help businesses grow digitally and take their goods and services online. Free training and 50% discount on productivity software is up for grabs. For more information visit www.gov.uk/helptogrow.
Let’s Arrange a Chat
As ever, if you need help with your business finances due to COVID, we run free virtual drop-in surgeries for your business finances. Pop along on Zoom with a cuppa and have a chat in confidence about your business and bring any accountancy questions that we can answer for you. This is a completely free service and is our way of giving back at this time and helping where we can. To arrange a time to chat about your business finances and book a time to attend our drop-in virtual surgery, click here.