Budget 2021 Need-to-know for directors

There is much for businesses to get behind in the Chancellor’s Budget today. If there was a scorecard based on what the IoD had called for Mr. Sunak would certainly score highly.

There were extensions to key elements of the Covid-19 economic support package, considerable efforts to jumpstart business investment, and while the prospect of higher corporation tax is a big downer, the fact it comes into force from April 2023 will give firms some time to recover. Below we have pulled out some key measures for business leaders to be aware of.

It was paramount that this Budget extended pandemic support for firms while they continue to mend damaged balance sheets and weather lingering restrictions:

Coronavirus Job Retention Scheme: Extended until end-September, with employers contributing a percent to the 80% of furloughed employee’s salaries from July (10%), August (20%), September (20%). See here for more details.

Self-Employment Income Support Scheme: Extended until end-September, with a fourth and fifth grant—the final grant will be determined by a turnover test. The scheme will also be widened to include those who became self-employed in 2019/20. See here for more details.

Business rates: retail, hospitality and leisure properties in England will continue to receive 100% business rates relief till end-June. This will be followed by two-thirds relief for the period till end-March 2022, with caveats.

‘Restart Grants’: Grants will be available in England, worth up to £6,000 per premises for non-essential retail businesses, and up to £18,000 per premises for hospitality and other sectors that are opening later this year.

VAT relief and deferrals: A UK-wide VAT reduction, for tourism and hospitality sectors, to 5% until end-September, with a further reduced rate of 12.5% for the following six months. A new VAT deferral payment scheme will also allow firms to pay deferred VAT in up to eleven equal payments from March 2021.

Recovery loan scheme : Firms of all sizes are eligible for an 80% government guaranteed loan of  between £25,000 and £10 million—including those who have already received support under the existing Covid-19 guaranteed loan schemes.

Alongside providing an ongoing economic lifeline, in tandem with the roadmap to reopen the economy, the Chancellor heeded our calls to provide a stimulus to catalyse business investment and up-skilling:

‘Help to Grow’: Management – a new UK-wide management programme to upskill SME leaders, 90% subsidised by government. See here for more details.

‘Help to Grow’: Digital –  SMEs will be able to get a discount of up to 50% on the costs of approved software, worth up to £5,000, alongside free impartial advice. See here for more details.

Incentives for capital investment: Between April and March 2023, companies investing in qualifying new plant and machinery assets will be able to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments, and a 50% first-year allowance for qualifying special rate assets. See here for more details.

Apprenticeships incentives: The government will extend and increase payments made to employers in England who hire new apprentices. Employers who hire a new apprentice between April and September will receive £3,000 per new hire.

Traineeships: Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.

The rumour mill that typically precedes the Budget meant many business leaders were likely aware of the Chancellor’s ambitions to address concerns around the UK’s public finances. In his speech, Mr. Sunak provided some clarity on the Government’s plans, with a proposed hike to corporation tax—but no major action on capital gains.

Corporation Tax: Set to increase from April 2023 to 25% on profits over £250,000. The rate for small business profits under £50,000 will remain at 19%, and there will be tapered relief for businesses with profits under £250,000

Extended loss carry back for businesses: The trading loss carry-back rule—which allows businesses to carry trading losses back for relief against profits of earlier years— will be temporarily extended from one year to three years.

All in all, this Budget delivers a solid platform for many businesses to relaunch as the economy reopens. That said, the steep tax hike will bite, and the Treasury should remain prepared to extend support if the roadmap goes off course, whilst building on its stimulus package today to drive long-term growth well beyond our immediate recovery.

See here for more details on what you need to know from today’s Budget. The Red Book is also available here.

Tej Parikh, Chief Economist

Tej holds a Bachelor’s degree in Economics from University College London, and a Master’s degree in International and Development Economics from Yale University.

Prior to joining the IoD, he worked as an economic analyst at the Bank of England in roles across monetary and financial policy. Subsequently, he moved to Cambodia where he was a journalist focusing on economic and private sector development for a national newspaper. He has since been a freelance political risk consultant and journalist, covering Europe and Asia in particular.

He has published for numerous international media outlets including Foreign Affairs, the Guardian, and The Diplomat, and is currently an active member of London’s Great Debaters Club.

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