Budget 2021: onwards and upwards?
To say that a lot has happened in the past few weeks would be an understatement. The vaccines are flying out, there’s a ‘roadmap’ in place to get the country back on its feet, and there’s a cautious optimism in the air. And then, on Wednesday, we had the Budget, which made the financial cost of the past 12 months very clear – and signposted a return to higher taxes and austerity.
However if you're running a small to medium sized business, it wasn’t all bad news.
Here are the headlines for business owners:
- Furlough will be extended until the end of September 2021 (although employers’ contributions will start to increase in July).
- The Self-Employment Income Support Scheme will resume.
- There’s a new restart grant of up to £6,000 per premises for non-essential retail businesses.
- A new business loan scheme is being launched, offering 80% government guaranteed loans from £5,000 to £10 million.
- VAT will remain at 5% until 6 September for hospitality and tourism businesses.
- VAT registration threshold will remain at £85,000.
- Personal tax allowances for 2021/22 will marginally increase to £12,570 but will then stay the same until April 2026.
The big news, however, was the dramatic increase in Corporation Tax. The rate will rise by six points to 25% in 2023 – but only for businesses with profits that exceed £250,000. Companies with profits up to £50,000 will continue to pay 19%, while those in between the two thresholds will pay tax at 25% (BUT it will be reduced by a marginal rate relief rate so that the main rate won’t apply).
CT in context
It’s certainly a higher rate than we’re used to, but it’s not crushing. Under previous governments, Corporation Tax was at a much higher rate and we seemed to cope OK back then. And the larger companies that are making profits above a quarter of a million should be able to shoulder the increase OK (and don’t forget, they’ll have a couple of years to put a strategy in place).
The continuation of furlough will come as a big relief to many business owners, but I feel that, given the reopening of the economy, it’s unwise to rely on this financial ‘crutch’ for too much longer. The goal is to start bringing your teams back off furlough in the coming months and to be able to trade on your own terms by the end of the summer. If it’s looking like this is an unlikely goal for your business, then perhaps you should be taking another look at your business model now and start cutting your cloth accordingly.
Final hurdle?
The challenge for many companies that are on hiatus – such as those in hospitality or tourism, for example – is that they’ll need to start preparing today for reopening tomorrow. There’ll be marketing to create and systems to put in place, and that all takes time and human resources, both of which are in short supply if members of your team are on furlough.
Happily, many of the companies we deal with here at Business Control have weathered the storm of the last 12 months. Several have thrived and it’s been encouraging to see so many businesses adapt to overcome the challenges that have come their way. It’ll be interesting to see how the economy fares when we’re all back at full capacity. I have a feeling that good times are just around the corner…
Don’t forget to check out the rest of our Accounting for COVID-19 blogs here, and please check back periodically to get the very latest insight and information from the Business Control team.
