You may understandably be suffering from bad news fatigue at the moment. Whilst today’s budget statement contained cautious reasons to be optimistic, the state of this country’s public finances were laid bare.
For those with a smidgen of intrigue left, here is my take on today’s budget along with a summary of key headlines that I think may impact you the most.
Background
It will be of no surprise that the economic environment is not in a good place. Damage to the economy from Covid was described as ‘acute’, with 700,000 more out of work, annual economic output down 10% – the biggest in 300 years, and the largest level of peacetime borrowing on record. Total Covid financial support funded/pledged now stands at £407bn.
On a more positive note, the Office of Budget Responsibility (OBR) forecasted a ‘swifter and more sustainable recovery’, with a return to pre-Covid economic output by mid-2022.
Whilst it was recognised this country is still in this crisis, and the need to be patient was important, some indications were made as to who would be paying.
Lets get in to the detail.
Covid measures
Furlough scheme (CJRS) extended until the end of Sep 21, Treasury contribution remaining at 80% of employee salaries with employer contributions increasing later in the year. I will continue to facilitate claims through until the conclusion of the scheme.
A fourth and fifth self-employment grant (SEISS) will be paid to eligible businesses. The former relating to impaired earnings during Feb-Apr 21 will become available late Apr 21. Eligible businesses will be contacted with an invitation to apply for the fifth grant towards the end of Jul 21. Newly self employed workers will become eligible (provided 19-20 returns are filed), and the size of the grant will be determined by the drop in your sales.
There is a new online VAT deferral portal. Should you have outstanding VAT liabilities from 2020, you can set up repayment plans via this portal without having to grovel to an HMRC heavy. Get in touch if you’d like to explore this.
Existing loan guarantee schemes such as BBLs and CBILs will end as planned, to be replaced by a new government backed scheme to be announced. Business rates and VAT holidays (for hospitality) will continue in full until the end of Jun 21 & Sep 21 respectively, tapering off until Mar 22.
A one off payment of £500 will be granted to Working Tax Credit claimants. The Universal Credit uplift of £20 will remain as will the Stamp duty holiday which will gradually taper off until 30 Sep 21. On the subject of property, a new mortgage scheme which the Banks are signing up to, will provide government guarantees on mortgages whereby the borrower can afford only a 5% deposit. An appealing albeit vulnerable looking scheme.
I am on hand to support you in making claims where you meet the eligibility criteria.
I will send out a revised reference guide for all Covid measures, updated for today’s announcements.
Fiscal decisions
Recovery will be protracted, across a number of administrations. Announced today are measures from 2 sources: changes to the tax collection regime, and incentivising capital investment.
With regards to tax collection, the Chancellors proposals broadly consisted of 1) a freeze on tax thresholds on personal tax, 2) an increase in corporation tax, and 3) investment in fraud detection.
Tax thresholds derive the rate at which our income is taxed.
Normally, tax thresholds rise broadly in line with inflation and average wage increases so that your disposable income in real terms is not impacted.
Next tax year (starting Apr 6th 21), the personal allowance will increase by £70 from £12,500 to £12,570. The higher rate of tax threshold (the point at which income is taxed at 40% rather than 20%) will increase from £50,000 to £50,270. Beyond this however these thresholds will be held until 2026. On the assumption that your earnings will rise in this time, a greater portion of your income will consequently be subject to higher rates of tax.
I will be in touch with Payroll clients around suggested salaries for next year.
It was with bated breath that I listened to the Chancellor around Corporation Tax. With the reduction in dividend allowance, IR35, lack of Covid support, and now the threat of wholesale CT rises, small Ltd Company proprietors could be excused for thinking they were being picked on. On this occasion, the boy Sunak has done good.
CT will rise to 25% from 19%. A huge hit. However, this will only apply from Apr 2023 to corporations with profits over £250,000. Companies with profits of £50,000 or under will remain subject to a 19% charge. Businesses with profits between £50,000 and £250,000 will be subject to scaled rates.
A potentially risky strategy for a post-Brexit Britain seeking foreign investment. But loss making Companies or those with more modest profits have been protected.
In my view a welcome return of small business relief. A practical, fair and measured response whereby enterprise and creativity are encouraged, and there is one less barrier-to-entry to overcome.
In respect of fraud detection, HMRC will be granted £280m and an additional 1,000 investigators to combat Covid and other financial related fraud. I would reiterate again the importance of conducting your affairs on the assumption that you will one day be subject to audit. Whilst there’s a fair chance you’ll not have to face this rather unpleasant experience, there is a significant and ever rising possibility.
Naturally, financial prudency takes effect in times of crisis where businesses favour saving rather than spending. The Government have adopted a range of measures to unlock as much of this accumulated surplus as possible, the most striking of which was a capital allowance coined the ‘super deduction’. This may be something of interest to you, your business or your employer.
On certain acquisitions, businesses will be able to write off 130% of their capital expenditure against their taxable income. A huge, untested incentive to both domestic and potential overseas investment.
Other Headlines
Fuel and alcohol duties frozen
Infrastructure projects announced, many across the north of England, including an ‘Infrastructure Bank’ in Leeds tasked with funding capital projects across the UK
Targeted measures to bring the most hard hit industries back into business as we emerge from lockdown
Further incentives to address youth unemployment. Apprenticeship schemes so far have been slow.
Green bonds will be issued
The devil is in the detail as always. As further scrutiny happens in the coming days, a clearer picture will emerge on the potential impact of these measures.
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