Budget 2021 – Business changes you need to know about

by | Mar 5, 2021 | Blog, Budget 2021, Making tax digital, Tax | 0 comments

Following on from our personal budget 2021 roundup, this blog will be about the changes and how it will affect businesses.

Lots of announcements were made, and if you’re unsure of what it all means for you, we’ve got you covered!

We’ll detail everything we think you need to know, and how it affects you.

Head on over to our other budget 2021 blog to read about the changes for individuals and the self employed.

COVID-19 Support for businesses

Recovery loan scheme

The recovery loan scheme ensures businesses can access loans and other finance of up to £10m per business once existing COVID-19 loan schemes close. The Government guarantees 80% of the finance to the lender. The scheme launches on 6 April 2021 and is open until 31 December 2021.

Finance terms are up to six years for term loans and asset finance facilities and up to three years for overdrafts and invoice finance facilities.

No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.

Businesses that have received support under existing COVID-19 guaranteed loan schemes will still be eligible to access this scheme.

Restart grants

Non-essential retail businesses in England will be eligible for grants of up to £6,000 per premises, while hospitality, accommodation, leisure, personal care and gym businesses may get up to £18,000.

Furlough

One of the worst kept secrets from the announcement was the extension again to the furlough scheme. It will now be extended until the end of September 2021.

Employees will continue to receive 80% of their current salary for hours not worked with no employer contribution beyond NICs and workplace pensions required in April, May and June 2021. From July 2021, the Government will introduce an employer contribution towards the cost of unworked hours of 10% in July 2021, 20% in August 2021 and 20% in September 2021.

Business rates

Eligible retail, hospitality and leisure properties in England will continue to benefit from 100% relief until 30 June 2021. The relief will be reduced to 66% from July 2021 until the end of March 2022 with a cap of £2m per business for properties required to close on 5 January 2021 or £105,000 for other eligible properties.

Business Taxes – what’s changed in the budget 2021?

Corporation tax – a hike to 25%?

One of the headline announcements was that corporation tax would increase to 25%. We know, argh! But, it doesn’t mean all doom and gloom, and there are some conditions associated with the increase to 25%.

The corporation tax will remain at 19% for the financial years beginning 1 April 2021 and 1 April 2022.

From 1 April 2023, corporation tax will increase to 25% of taxable profits over £250,000. For businesses making taxable profits of less than £50,000, the rate will remain at 19%. It will not be available to close investment-holding companies.

Companies with profits between £50,000 and £250,000 will pay tax at 19%, but this will be reduced by a marginal relief, which means the actual rate of corporation tax will be between 19% and 25%.

Don’t forget, you also get ‘super deductions’ too!

What are super deductions? From 1 April 2021 until 31 March 2023, companies investing in new qualifying plant and machinery will benefit from a 130% first-year capital allowance. This will give you an extra 30% on top of the full deduction for the asset against taxable profits, possibly reducing taxable profits to nil.

This ‘super deduction’ might allow companies to cut their tax bill by up to 25p for every £1 invested. The rate of the super deduction will require apportioning if an accounting period straddles 1 April 2023. Additionally, a 50% first-year capital allowance will be available for qualifying special-rate assets. Certain exclusions will apply including used and second-hand assets.

Annual Investment Allowance (AIA)

The current £1m annual investment allowance in respect of capital allowances (the amount a business can invest in equipment, machinery etc) remains in place for one year from 1 January 2021, and then will reduce to £200,000 on or after 1 January 2022.

Transitional rules will apply to the AIA limit where a business has an accounting period that spans 1 January 2022.

Loss relief

If you have made losses in business, you’ll be aware that you can normally use them 3 different ways. Firstly in the current year against other income, then carried back one year against the previous years profits, and lastly carried forward to be used against any future trading profits.

The new relief states that trading losses this rule will be temporarily extended from the existing one year to three prior tax years.

This measure will cover company accounting periods ending in the period 1 April 2020 to 31 March 2022.

After the loss has been carried back to the preceding year, a maximum of £2m of unused losses will be available to carry back against profits of the same trade to the earlier two years.

This £2m cap applies separately for both 2020/21 and 2021/22. Companies that are members of a group will be able to obtain relief for up to £200,000 of losses in both 2020/21 and 2021/22 without any group limitations.

Companies that are members of a group will be able to obtain relief of up to £2m of losses in 2020/21 and 2021/22, but subject to a £2m cap across the group as a whole.

Research & development relief

The amount of the SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000, plus three times the company’s total PAYE and NICs liability. This measure will apply to accounting periods beginning on or after 1 April 2021.

This has been capped due to large scale fraud and abuse.

There are some exemptions – A company is exempt from the cap if meets two tests.  These are if its employees are creating, preparing to create or managing intellectual property (IP) and if it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) or connected persons.

VAT – 5% extended discount for hospitality

The current 5% VAT rate for the hospitality sector, holiday providers and attractions will be extended by six months to 30 September 2021. This was due to expire on 31 March 2021.

Perhaps more surprising was the introduction of a new 12.5% rate to cover supplies with a tax point between 1 October 2021 and 31 March 2022.

This intermediate rate is to ease these businesses back to the use of the standard rate of VAT on their supplies.

VAT thresholds frozen

It was expected that the current VAT threshold of £85,000 would increase, but in fact the government has chosen to freeze this threshold for a further two years to 1st April 2022, and the thresholds for registration and de-registration will remain unchanged until at least 31 March 2024. 

Employers – what’s changed?

Employer reimbursed COVID-19 tests and home office expenses

The income tax and NICs exemption for COVID-19 antigen tests provided, or reimbursed by, an employer, along with employer reimbursed expenses covering the cost of home office equipment will be extended to the 2021/22 tax year.

Apprenticeships

One of the bigger announcements was that employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new recruit.

This has increased from the incentives announced in autumn 2020.

Statutory sick pay

Small and medium-sized employers across the UK will be able to continue claiming up to two weeks of eligible SSP costs per employee. No closure date has been announced.

Freedom in Numbers - Accounting & Business Support

At Freedom in Numbers we understand that the spring budget 2021 can be quite confusing. We’re doing all we can to help you understand what it all means so you can make the right choices.

We’ve made it our mission to help businesses make the most of the Government support on offer.

If you’re struggling to make sense of your business finances and plan ahead, we’re here to help you too.

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