Mark Desai, Tax Manager, describes some of the changes for businesses outlined in the Budget.

The headline announcement arising from Rishi Sunak’s 2021 budget was the increase in the main rate of corporation tax from its current level of 19% to 25% for companies with taxable profits in excess of £250,000 from 1 April 2023. Whilst the continuation of the existing 19% rate until then is welcome news for larger companies, this increase is nonetheless the first rise in nearly 50 years and should be viewed as a product of the current extraordinary times.

The continuation of the current 19% corporation tax rate for all companies with profits below £50,000 together with the marginal relief that will be available to companies with profits over £50,000 but under £250,000, should, however, at least ensure that the rate change will not adversely impact the majority of owner-managed businesses.

The Chancellor also announced a temporary relaxation in the rules for carrying back trading losses to secure cash repayments. The increase in the number of years that losses generated in the period, 1 April 2020 to 31 March 2022, can be carried back against from one to three will be particularly helpful for companies that have been hard hit by the effects of the pandemic as they will be able to secure a cash repayment from HMRC. This will be a vital source of cash for many companies.

The other major announcement was that of the introduction of a temporary super-deduction capital allowance on qualifying plant & machinery purchased between 1 April 2021 and 31 March 2023. Under the scheme, qualifying assets that would normally qualify for capital allowances at 18% will instead benefit from a deduction equal to 130%. Assets that normally qualify for capital allowances at the lower rate of 6% will likewise benefit from a deduction equal to 50%. This means that the purchase of a qualifying asset for £1,000 has the potential to generate a deduction of £1,300 and consequently a tax reducer of £247 for a profit-making company.

The caveat is that this super-deduction will have disappeared by the time the 25% corporation tax rate is introduced. This is because the Chancellor wants companies to invest in large-scale plant & machinery now whilst business investment is subdued to provide the UK economy with a much-needed immediate boost. It can therefore be seen as a relief given to large companies in the short term which will be repaid via the hike in the corporation tax rate in the long run. For this reason, large companies will not be able to benefit from deferring large-scale capital expenditure to mitigate the rate rise. It is also worth mentioning that a company in receipt of a super-deduction will be subject to a balancing charge on disposal of the asset if it receives any disposal proceeds.

In summary, the government will continue to support companies through the current coronavirus pandemic but will claw back much of this support by way of the rise in the main rate of corporation tax in the long term.

If you have any specific queries about how these changes might affect your company, please do get in touch with me or another member of the corporate tax team at DRG Chartered Accountants.

If you have any specific queries about how these changes might affect your company, please do get in touch with me or another member of the corporate tax team at DRG Chartered Accountants.

Read in more detail the changes for businesses outlined in the Budget Summary

COVID-19. Continued Government Support

Sophy Canty, from the DRG Tax Team, outlines some of the government support available for businesses affected by Covid-19.

The Government is continuing to support businesses through the Coronavirus pandemic, with an extension to the Coronavirus Job Support Scheme & Restart Grants of up to £18,000 for certain sectors, along with many other schemes.

The Coronavirus Job Support Scheme will be available to employers until September 2021. Companies are still able to claim 80% of wages up to £2,500 per employee, until June 2021. From July 2021 employers will be expected to contribute, as the government contribution reduces. This is key to ensuring unemployment rates do not further increase, as they have reached the highest level since August 2016.

The Chancellor also announced there would be an extension to the Self Employment Income Support Scheme (SEISS), allowing individuals who filed tax returns for the 2019/20 tax year to claim. This will provide essential financial support to individuals who have not previously been eligible to claim.

Restart grants are being offered to businesses within industries such as hospitality & accommodation, in order to fund their path to recovery from the pandemic. This will be vital for businesses within these sectors, which have been closed during lockdown.

The Government has also provided business rates relief to those within the retail, hospitality and leisure sectors. This provides further financial support for businesses with premises not currently in use, as a result of the Coronavirus pandemic.

The final scheme that has been introduced is the Recovery Loan Scheme. This focuses on providing continued business support once the COVID-19 schemes close, to help businesses recover from the pandemic and grow their trade. The loans will be available through accredited lenders, with businesses being eligible for up to £10 million.

If you have any queries about the schemes you may be eligible for, please contact me or another member of the tax team at DRG Chartered Accountants.

Read more about the government support outlined in the Budget

Impact of the Budget on personal taxation

Elyss Woodward, Tax Manager, outlines the impact of the Budget on individuals

The decision to freeze the tax rates has come as a relief to some, as it appears that tax on income will therefore remain static. However that is not quite the case. As wages increase in line with inflation rates, the amount of tax due on income will rise - this raise could push some people into paying tax who weren't previously and could also push some 20% taxpayers into the 40% bracket.

Due to the increase in corporation tax rates by 2023 for companies in the bracket subject to the higher rate, the overall profit extraction from owner managed businesses will be less beneficial than it has been in the past. An extra 6% of corporation tax on top of the freeze in personal tax rates will mean that overall there will be less to take home.

With the stamp duty holiday being extended until June 2021, this should provide some relief for those that are currently in the process of purchasing a home as there are huge delays with the mortgage providers trying to meet the original 31st March deadline. With the staggered approach to going back to the normal 0% threshold this should reduce the pressure on sales close to the new 30th June deadline. This extension should give a further boost to the housing market and help first time buyers to save a few thousand pounds when buying their first home.

Finally, whilst Capital Gains Tax was not increased in this Budget, the Chancellor has not ruled out further rises. For those with disposals that would be subject to capital gains tax, be aware that this is an area that may be targeted in the future.

If you would like to discuss in greater detail the impact of the Budget on you and your business, please do get in touch with a member of our Tax Team.

Read in more detail the impact of the Budget on personal tax