The events of the past year have led the UK to spend more than £280bn protecting jobs and businesses, with this week’s Budget promising a further £65bn of spending through new loans, grants and the extension of several important schemes.
The measures confirmed in the Chancellor’s speech will play an integral role in helping businesses to recover in the months to come but the freeze on personal tax allowances and an increase to Corporation Tax could ultimately affect thousands of local business owners.
Rishi Sunak outlined the immense impact that the coronavirus pandemic has had on the UK economy, which shrunk by around 10% last year. But he said that the actions taken to support businesses so far meant that the Office for Budget Responsibility predicted economic growth of 4% this year and more than 7% in 2022.
Much of this growth, the Chancellor said, could be linked to the financial support measures implemented during the past 12 months. With a roadmap to re-opening the country now delivered by the Prime Minister, Mr Sunak set about outlining new support to help businesses rebuild and recover.
The extension of the Coronavirus Job Retention Scheme (CJRS) and the Self-Employed Income Support Scheme (SEISS) until September will play a key role in keeping local people in work by significantly reducing the cost of employment for businesses.
Although employers will need to start contributing more to the CJRS in July, August and September, employees will continue to receive 80% of their wages via this vital measure. Meanwhile, the self-employed scheme or SEISS will now be extended so that many people who started out on their own before the pandemic, who have struggled to access support, can now apply as long as they have submitted their self-assessment tax return for the last year.
The £5bn worth of Restart Grants for non-essential retail, hospitality, accommodation, leisure, personal care and gym businesses will be welcomed by these hard-hit sectors.
Although taking on additional debt is unwelcome, the new UK-wide Recovery Loan Scheme, which is guaranteed by the government, should help businesses access loans of between £25,001 and £10m at a when many companies time may find it hard to access traditional forms of finance.
The Budget included numerous new support initiatives, including an extension to the Business Rates holiday worth £6bn and a further extension to the VAT cut for hospitality, accommodation and attractions across the UK until the end of September, which will be followed by a smaller rate reduction until March 31, 2022.
Details also emerged of an innovative ‘super deduction’, which will offer tax relief of up to 130%, which could cut some company’s tax bills by 25p for every £1 they invest in new plant and equipment.
The Budget also confirmed an extension to the Stamp Duty Land Tax Holiday, which will remain at £500,000 until June 30, before being reduced to £250,000 the end of September which will help those looking to buy and sell a home. A new guarantee scheme, which will incentivise lenders to offer 95% mortgages was also welcome news for those looking to get onto the housing ladder.
However, we also recognised that additional tax rises are on the horizon as the country attempts to repay the debt it has incurred due to Covid-19.
In total, the government will have spent more than £400bn on its response to the pandemic.
It is no surprise then that the Chancellor announced an increase to Corporation Tax that is paid by profitable businesses from 2023 and a freeze on personal tax allowances and thresholds, from April 2022 until April 2026.
In a return to a system with multiple rates of corporation tax, businesses with profits of £50,000 or less will continue to pay corporation tax at the current rate of 19%, with a taper above £50,000 so that only businesses with profits of more than £250,000 will be taxed at the full 25% rate.
There was some relief that the Chancellor chose not to increase capital gains tax rates in this Budget, despite much speculation in the preceding weeks. This appears to be a likely target for future tax increases however, at least for now, some planning opportunities remain.
Rob Chedzoy is general practice partner at accountancy firm Milsted Langdon, which has an office in Bath.
