In the lead up to the budget itself, there was a flurry of speculation, spurred on by the Chancellor wanting to be honest with the country about the cost of COVID and how we were all to pay back levels of debt which have not been seen since 1945 and the end of WW2. The surprise therefore was that this Budget was loaded with sugar, with the less palatable stuff pushed back by at least 2 years.
The Furlough (CJRS) scheme was due to end in April 21, where the government pays 80% of salary / wages of hours not worked, but this has been extended to September 21. Employers will be expected to contribute 10% in July and 20% in August and September. Whilst this is much needed, smaller employers still struggle with national insurance contributions and the removal of the job retention bonus. Costs of employment therefore remain high and there was no mention of stimulating employment through reductions in onerous employers’ national insurance contributions.
Self-Employed small businesses will welcome the confirmation of a 4th Self-Employment Support Scheme grant (SEISS) covering the period February to April payable in April, along with the announcement of a 5th grant. But it appears this one has to stretch over 5 months from May to September whilst being capped at £7,500 (80% of average profit). The Chancellor has listened to the FSB campaign to include new starters and 2019/20 self-assessment tax returns will now be taken into account with an estimated 600,000 new claimants for both the 4th and 5th grants. There is a caveat with the 5th grant relating to turnover, if turnover has fallen by more than 30% then the full 80% is available, however if turnover falls by less than 30% then the grant is for 30%.
A sweetener for business investment is undoubtedly the announcement of the superdeduction. This will benefit limited companies especially because it is linked to corporation tax and will mean that a business can claim 130% against the cost of capital expenditure. We have crunched the numbers and can see that the Superdeduction will be of benefit to larger companies but not so much of a game changer for companies wishing to invest say 10k, they would normally save tax of £19k so £1900, now they will save 19% on 13k = £2470, saving = £570 or 5.7% of the expenditure.
However, a green bonus might be:
Electric cars (if new) qualify for the Super Deduction which means:
If you buy for £20k you will get tax relief on £26,000 = £4940 so you’re getting nearly 25% of your outlay back straight away in tax savings.
Its interesting that the Superdeduction is set to end as soon as the new hike to a 25% corporation tax rate starts. Cynics might suggest that if the Bank of England projected consumer boom, supplemented by the superdeduction does promote investment, then perhaps the uplift in corporation tax to 25% may not be needed in 2 years’ time and a rate of say, 24% would be seen as a cut and politically acceptable. The good news for smaller businesses is that the 19% rate of corporation tax remans where profits are less than £50k pa.
The real impact will be seen in stealth taxes, in that personal tax thresholds are being frozen from next year and then are set to remain the same until 2026. Essentially this means that with anticipated inflationary pay rises, more and more people will be pushed up into the higher tax threshold tier and thus pay more income tax. Planning can be done to avoid this, so this is an area where we will look to help and advise.
The Budget should really be measured, in my opinion, by what is missing:
- No support for Directors, despite a Directors Income Support Scheme being put on the table by the FSB, ACCA, Institute of Directors and Rebecca Sealey Harris of the (gloriously named) Office of Tax Simplification. The Chancellor appears determined to ignore the plight of small company Directors.
- Funding for supply chains which have been directly impacted by COVID but not actually requested to close.
- 100% Business Rates relief for next year. The small business extension to June is welcomed but then reduced by 2/3 until September. An extension of the full relief could have been a lifeline for many.
- The NHS. No new investment was announced to help the NHS manage to get back on its feet in the next year.
For more details about the Budget itself, covering all aspects of COVID-19 support, business and personal finances, click here for our free e-book :
Elsby & Co - Budget Summary 2021