Yesterday, the Chancellor, Rishi Sunak, unveiled his budget in the House of Commons and his plan to help businesses during the crisis caused by the COVID-19 pandemic. His plan includes the furlough scheme, VAT, corporation taxes, and financial help from the government.
The Chancellor announced that the furlough scheme is to be extended to the end of September under the current 80 per cent of salary rate. Employers will be asked to pay 10 per cent in July, then 20 per cent in August and September. The support for the self employed will also go on until September based on 80 per cent of their profits. This scheme put in place during the pandemic is a welcomed continuing support for businesses. Businesses that were previously included in the self employed support scheme may not be anymore and businesses that were not previously included in the self employed support scheme may now be included because of the change in the basis year.
The government is putting in place a £5 billion restart grant scheme for businesses. Retailers will get up to £6,000 per site from April. Hospitality and leisure will be able to claim up to £18,000. The restart grant scheme seems to be a great opportunity for the sectors concerned. There is also a new recovery loan scheme for business of £25,000 to £10 million, with 80 per cent guaranteed by the government. The loan scheme, though welcomed, means businesses will take on further debt, which is far from ideal at this moment in time.
Businesses will be allowed to carry back losses for three years, providing a significant cash flow benefit. Companies can now claim back additional tax refunds of up to £760,000. This means you need to insure you are reviewing your losses and using them in the best way possible.
There will be no rises in income tax, VAT or national insurance. For the hospitality businesses the 5 per cent VAT rate is extended until September, it will then rise at 12.5 per cent until April 2022, and then come back to the 20 per cent regular rate. The business rate holiday is in place until June and discounted for the remaining nine months of 2021-2022 financial year. The VAT rate freeze for the hospitality sector and the businesses rate freeze are based on the assumption that the economy will start to recover this summer but if that is not the case then businesses will struggle with the increases later this year.
Rishi Sunak also unveiled the Super Deduction tax break that will hopefully boost business investment by 10%. It will be available for the next two years. When companies invest in the UK they will be able to reduce their tax bill by 130 per cent of the cost. The super deduction tax break could mean bringing forward capital expenditure to benefit. There is also a « Help To Grow Management » scheme to help tens of thousands of small and medium sized business to get world class management training. The government will help with 90% of the cost.
The rate of corporation tax on company profits will increase from 19 to 25% in 2023. There will be a small profits rate of 19 per cent for small businesses who have a profit of under £50 000 and then a marginal rate for profits between £50 000 and £250 000. This means that it is time to review your salary and dividend policy along with capital investment to minimize your exposure to the new capital rate. It may make businesses review their structure and consider disincorporation.
The Chancellor also announced that personal allowances will rise to £12,570 next year and stay frozen until 2026. The higher rate threshold tax will rise to £50,270 next year and stay frozen until 2026. The inheritance tax thresholds, pensions lifetime allowance and annual exempt amount for capital gains tax is maintained at current levels until April 2026. Although there are no increases in personal tax, because of freezing allowances people will be facing increased taxes in real terms.