After listening carefully to the Budget today, we can report on the headline announcements and how they affect you as a business owner. As usual, the detailed nuances will become apparent over the coming days, but this newsletter contains the highlights.
This was always going to be a balancing act for Rishi, as we are still in the grips of a pandemic and he cannot increase taxes without risking the economy’s recovery as we come out of it.
So, the emphasis was always going to be on further support, and he has not failed to deliver. However, it’s a budget in two halves – the carrot and the stick if you like.
So, the carrot first…
The Chancellor announced £5bn in Government Restart Grants to businesses in retail, hospitality, accommodation, leisure, and personal care. Grants of up to £18,000 each for 700,000 firms, will be made available to prevent mass bankruptcies during the latest lockdown.
An extension in the temporary 100% tax cut for hospitality, retail and leisure until the end of June 2021. After this a 2/3 reduction will be applied.
Hospitality sector VAT
The temporary reduction from 20% to 5% is to be extended until 30th September and then a reduced rate of 12.5% will apply until April 2021.
An extended stamp duty holiday until the 30th June and then an increased NIL rate band, up to £250,000 from £125,000, until 30th September.
Support for workers
Furlough – this will be extended until the end of September to support the economic recovery from Covid-19.
Employees will continue to receive 80% of their wages until the scheme ends, but firms will be asked to contribute 10% in July and 20% in August and September as the scheme is gradually phased out.
Furlough has kept 100,000’s of people in work over the course of the pandemic and to take it away would put these jobs at risk. This way we are weaned off the support and the Chancellor hopes to avoid a cliff edge.
Unfortunately, many people have already been made redundant so the extension will have come along too late for them.
Self-employed Grants of up to £7,500 will be available from next month for three months, including an expansion in the scheme to allow those who started working for themselves in the 2019-20 financial year to make claims, and a 5th and final grant in July.
This is a welcome extension of the self-employed scheme as many of the newly self-employed, who were excluded in the previous rounds, will be brought in.
To recognise that the scheme may be being used by people who have not seen a downturn in their business, the 5th grant in July will be reduced to 30% of average months if turnover has dropped by less than 30%. If turnover has dropped by more than 30%, increased support remains available.
Employers taking on apprenticeships will receive £3,000 to encourage this – a doubling of this support.
A new Recovery Loan Scheme – business can apply for the loan from £25k and up to £10m with a government guarantee of 80%.
A government mortgage guarantee for home buyers who can only afford a 5% deposit.
Businesses can reduce their Corporation Tax by 130% of the cost of investment. So, for example if you invest £100,000 in equipment you would normally receive a tax reduction of £19,000. Under the new scheme you would receive tax relief on £130,000 an additional £5,700 in tax relief.
Now the stick….
This has already been widely reported, but Corporation Tax is on the rise. It will increase to 25% from April 2023.
Small businesses have some relief in that Corporation Tax will not change for companies with profits below £50K, and there will be a tapered increase for companies with profit between £50K and £250K.
In addition, companies will be able to carry back losses up to 3 years instead of just 1 year. This gives companies a choice to receive a tax refund at 19% or roll forward losses to potentially receive a reduction of 25%.
The Chancellor is unable to increase the headline rates of income tax but by increasing the personal allowance and tax bands at less than the rate of inflation, he can raise income tax without anyone noticing and this is the option taken here.
Capital Gains Tax
Capital Gains was largely left alone however the Capital Gains annual exemption was frozen.
This is not a balanced Budget; it commits the government to spending a whole lot more, but this is arguably exactly what is needed in these times. It does attempt to lay the foundations for paying back the public debt we have incurred over the last two years.
Many feared much harsher tax rises in this Budget, but the reality is it is too soon.
The biggest losers today are the large companies with a 25% corporation tax rate, but this was offset somewhat by the super deduction to encourage investment.