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3rd March 2021Today’s budget: a short term recovery plan, but more detail to come… [UPDATED]

This Government has grappled with the largest deficit since World War Two and the need for a clear Covid recovery plan in this Budget. It is clear from the Chancellor’s speech yesterday that he has prioritised a short term recovery plan, which is welcomed by so many struggling UK businesses.

However, the UK needs tax increases of approx. £60bn if the Chancellor wants to start balancing the books. A fiscal plan will come and the Treasury’s decision to hold a “Tax day” in 3 weeks time on 23rd March will be where more details are uncovered.

We have put together a summary of some of the key measures, and will be sharing more detailed guidance throughout the month.

If you would like to have a conversation with one of our partners about how the budget will impact you and your business, please get in touch directly.

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Business Taxes

What do you need to know:

  • The main rate of corporation tax will increase to 25% in April 2023 – please check which thresholds will apply to your business as this will vary depending on the size of your business
  • A new Small Profits corporation tax rate of 19% will be introduced in April 2023
  • Trading losses can temporarily be carried back for three years – this will allow loss making trading companies to offset losses of up to £2m against profits made in the preceding three accounting periods

Our take:

Toby Ryland, Corporate Tax Partner says:

“This rise in corporation tax will have a detrimental impact on SMEs. Large corporates have been relatively unscathed in the last year, whereas SMEs have suffered more acutely during the pandemic. A rise in corporation tax will be a further unwelcome hit to their bottom line.

“Despite a tiered system, the lowest band is so small that anyone other than the smallest companies are going to face significant tax rises.”

Commenting on the super deduction break, Toby adds:

“This tax break is very good news for businesses, designed to encourage capital expenditure by substantially reducing their upfront costs.

“Businesses can normally claim a tax deduction for expenditure on specific plant and machinery items of 18% per annum or 6% (for specific items such as air conditioning systems, water systems and electrical systems). This new allowance enables businesses to claim a deduction of 130% for most plant and machinery, or 50% for items that would only have qualified for the 6% rate.

“For example, an item that costs £100 will have an effective cost to the business of £75.30 – so the Government is funding almost 25% of the cost of the business’s capital expenditure.

“The ‘super-deduction’ only applies to items purchased between 1 April 2021 and 31 March 2023 – so businesses should delay any purchases planned for this month until 1 April 2021”


Covid Support measures

What you need to know:

  • Furlough scheme extended until the end of September. Businesses to contribute from July
  • Self employed grants can also be extended from July
  • Hospitality and tourism – 5% reduced rate of VAT extended for 6 months
  • A restart grant worth up to £18,000 will help shops, pubs, hotels and any other small business through to June 21
  • Non-essential retail businesses will get up to £6,000 per premises through the scheme to help them reopen

Our take:

Russell Nathan, head of Hospitality said:

“All Covid support measures are a welcome boost for our struggling retail and hospitality businesses. Yet this package doesn’t go far enough. The majority of hospitality businesses have lost 60% of their annual profit in the last 6 months and this £5 billion restart grant only accounts for approximately £1,600 per employee in the UK hospitality sector.

Simon Michaels, Partner and CEO of HW Fisher Business Solutions adds:

“Cash flow is still tight for so many. We would urge all businesses to start thinking about a longer term strategy. It’s a difficult balance to strike, but addressing the cash flow dilemma is vital – not only will they be hit by the need to repay loans, pay loan interest and pay deferred VAT, they will also need to find additional funds for higher corporation tax.”


Property and stamp duty extension

What you need to know:

  • The Stamp Duty Land Tax holiday will be extended to 30 June 2021
  • A transitional nil rate band of £250,000 applying until 30 September 2021

Our take:

Jamie Morrison, head of Private Client said: 

“This is a welcome move. There is currently an estimated 160,000 home sales stuck in limbo and at risk of falling through if the Stamp Duty holiday was not extended.  At a time when the economy desperately needs a quick boost, stalling property investment is the last thing the UK needs.

“The economy needs to start moving and the Stamp Duty holiday will keep this the market stimulated – otherwise we are at a very real risk of stagnation.

“We would also like to see more inward investment in the housing market – one way to do this would be to abolish the 2% surcharge for overseas buyers. The UK needs to remain an attractive option.”


Income Tax 

What you need to know:

  • The Personal Allowance to be frozen at £12,570 from 2021/22 to 2025/26
  • Basic and higher rate income tax thresholds to be frozen at £37,700 and £50,270, respectively, from 2021/22 to 2025/26
  • Pensions lifetime allowance frozen at current level of £1,073,100 from 2021/22 to 2025/26

Capital Taxes

What you need to know:

  • The current CGT annual exempt amounts of £12,300 for individuals and £6,150 for most trustees are to remain the same up to and including the 2025/26 tax year
  • The IHT nil-rate band and residence nil-rate band have also been frozen at their current levels of £325,000 and £175,000 respectively, until 5 April 2026

 

If you have any questions about how today’s budget might impact you, please get in touch.

Key contacts

Jamie Morrison HW Fisher

Jamie Morrison
Partner - Head of Tax

020 7874 7983
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Toby Ryland HW Fisher

Toby Ryland
Partner - Corporate Tax

020 7874 7959
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Connect with Toby Ryland
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Russell Nathan HW Fisher

Russell Nathan
Senior Partner

020 7380 4971
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Connect with Russell Nathan
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Simon Michaels HW Fisher

Simon Michaels
Partner

02038273975
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Connect with Simon Michaels
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