What does the recent budget mean
Rishi Sunak has just unveiled the Government’s three-point plan to protect jobs, so what does this budget mean for businesses?
He has warned of tough economic times ahead and has stated that the Government’s main priority is to support and create jobs.
Below in this week’s blog we have detailed the proposed support available to employees, the self-employed and businesses.
The furlough scheme which pays up to 80% of wages has been extended until the end of September 2021, however from July as businesses start to reopen, employers will be asked to contribute 10%, increasing to 20% in August and September.
He also announced that they will be reinstating the government scheme to pay a one-off bonus to companies that take back furloughed workers.
The Chancellor has also pledged to end low wages. From April the National Living wage increases to £8.91 per hour and plans to get people back into work will be launched with schemes such as the Kickstart programme.
The incentive payments paid to businesses to hire apprentices of any age have also been doubled to £3000.
Mr Sunak recognised that more support was needed for the self-employed, especially for those 600,000 people who became self-employed in 2019-20. They will now be able to claim the fourth and fifth grants through the self-employment scheme.
As such the self-employment scheme will continue with a fourth grant covering February – April, worth 80% of three months’ average trading profits up to £7,500, and a fifth and final grant covering from May onwards, which will be available from July.
The reduced rate of 5% VAT for both the hospitality and tourism sectors has been extended until 30th September 2021, followed by an interim rate of 12.5% until 31st March 2022.
Whilst the Government had pledged not to raise income tax, national insurance, or VAT, they have placed a freeze on personal tax thresholds until 2026, which whilst technically not a tax rise, as salaries rise, employees will end up paying more tax.
From April 2023, the rate of Corporation tax paid on company profits increases to 25%. To protect smaller businesses who have profits of £50,000 or less, a Small Profits Rate of 19% will be applied, which means that approximately 70% of companies will be unaffected by the higher rate.
For those businesses that have profits between £50,000 and £250,000 a ‘taper rate’ will be introduced with only those businesses with profits above £250,00 paying the higher rate.
The tax treatment with regard to losses will allow businesses to ‘carry back’ losses of up to £2m for up to 3 years, providing a cash flow benefit.
The Chancellor explained that the UK needs an Investment led recovery, and so a new Super Deduction Scheme is being introduced. Mr Sunak said the move would be a “super deduction” for companies when they invest, reducing their tax bill by 130% of the cost.
Speaking in the Commons, the Chancellor said: “Today I can announce the ‘Super Deduction’.
“For the next two years, when companies invest, they can reduce their tax bill, not just by a proportion of the cost of that investment, as they do now, or even by 100% of the cost.
“With the Super Deduction they can now reduce their tax bill by 130% of the cost.”
He said that under the existing rules, a construction firm buying £10m of new equipment could reduce their taxable income, in the year they invest, by £2.6m.
However, under the new scheme, the company would be able to reduce their taxable income by £13 million.
The Chancellor announced that there would be a new Restart programme available from April which endeavours to help those businesses hardest hit by the pandemic, and to get them started trading again. As such non-essential retail businesses will be able to claim grants of up to £6,000 per premise whilst hospitality, leisure, and personal care business (gyms and beauty salons) will be able to claim grants of up to £18,000 per premise.
As the CIBLS and the Bounce Back Loan Scheme come to an end in March these will be replaced with a new Recovery Loan Scheme which will be available to businesses of any size with a government guarantee of 80% of the loan amount between £25,000 and £10m. This scheme will be available until the end of 2021.
The 100% business rate holiday has been extended for a further three months until the end of June with a two thirds discount for the remaining 9 months of the financial year.
£520m has been put towards a Help to Grow scheme, available to small businesses to boost both training and software systems. Over 130,000 businesses are expected to be eligible to claim up to £5,000 each to secure a 50% discount on productivity-enhancing software.
A new online platform will offer free advice on technology such as cloud storage which will help to save time and reduce costs.
Mortgages and stamp duty until June
The temporary increase to the nil rate band for Stamp Duty Land Tax (SDLT), which is the rate before you start paying SDLT on residential property has been extended.
Rather than ending on 31 March 2021, the temporary nil rate band of £500,000 will be in place until 30 June 2021. Then from 1 July 2021 to 30 September 2021 the nil rate band will be £250,000. The nil rate band will return to the standard amount of £125,000 on 1 October 2021.
The Government have also launched a new mortgage guarantee scheme. Both schemes are hoped to reinvigorate the housing market and enable first-time buyers to get on the property ladder with just a 5% deposit when buying properties worth up to £600,000.
To encourage people back to the shops, the contactless limit for card payments will be increased to £100 per transaction.
Spirits, wine and beer duties have been frozen for a second year in a row.
Cost of fuel duty remains unchanged.
This is what I would call a ‘holding budget’. There is clearly a need to start paying for the costs of the pandemic over the last 12 months.
That said, whilst early signs suggest that the benefits of the vaccine look promising, I think the government remains cautious of the outlook over the next 6 months.
Consequently, Mr Sunak hasn’t gone ‘all-in’ and introduced tax rises whilst removing all the support that has been on offer over the past 12 months.
If it becomes clear in the coming weeks and months that the vaccine is offering the benefits we all hope for, combined with a clear economic recovery in the second half of the year, I do wonder if there might be an autumn budget when we’ll be asked to start paying for the costs of the last 12 months.
Watch this space…