This week’s Budget was unprecedented, with much-needed spending pledged to aid the UK’s economic recovery and support businesses and individuals through the pandemic, alongside what will clearly be the first of many future tax raises to help repay the country’s escalating national debt.
Although some of the Chancellor’s key announcements had already been reported in the press, there was still room for a few Budget surprises, such as the 130% ‘super tax deduction’ on capital investments for businesses.
At first glance this may seem like a significant tax giveaway, but it is only an extra 30% saving on top of the existing 100% deduction.
It is also limited to firms that are planning to buy new qualifying plant and machinery, and doesn’t include cars or anything bought second-hand. Regardless of this though, it could still generate some additional cashflow benefits for certain businesses.
Similarly, alongside the various coronavirus support scheme extensions, the extension of the normal loss carry back rules for businesses, which allows additional flexibility to carry back any unused losses in 2020/21 and also 2021/22 to the previous three years (subject to a cap of £2m applying for each of the earlier two out of these three years), is another positive step in helping businesses and sole traders to recover. Separate rules will apply to groups of companies.
Whilst increases to Corporation Tax (CT) won’t be popular with directors, it’s encouraging that businesses earning profits of less than £50,000 will remain on the 19% CT rate, with only the most lucrative companies (generating more than £250,000 of annual profits) subject to the new higher rate of 25% in two years’ time.
This tax rate ‘jump’ was possibly a little higher, though, than some business owners would have liked.
Firms earning profits of more than £50,000, but less than £250,000, will also be subject to a tapered CT rate, which seems to hark back to the old ‘marginal relief’ days. Depending on individual scenario and profit levels, this may mean that the balance of dividends and salary needs to be reconsidered. However, there’s still scope for directors to look at their options ahead of the change in April 2023.
As with all Budgets, there are always winners and losers. Those who became self-employed after April 2019 and filed a 2019-20 tax return will no doubt be pleased that they may now be eligible to apply for grant support through the SEISS scheme.
Unfortunately, they will still have to wait until they can claim the cash and it appears that the previous ‘cliff edge’ threshold for those earning £50,000 or more in profits still applies, so these workers are likely to remain ineligible for the new grants.
Jon Miles is tax director of Bath-based chartered accountancy firm Richardson Swift
