UK Spring Budget 2021 by Chancellor Rishi Sunak

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the cover image for a blog with the topic announcement of UK Spring Budget 2021 by Chancellor Rishi Sunak

Springtime is just around the corner, and we all know what that means – budgets! UK Spring Budget 2021 and grants extension.

Oh, were you expecting something else?

Kidding aside, let us get down to business. This previous week, Chancellor Rishi Sunak has announced a few updates that will undoubtedly impact SMEs or Small to Medium Enterprises, and even larger corporations in this year’s UK Spring Budget.

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Today, I will share with you some of the budget’s highlights that would be most relevant to small business owners and traders – plus my thoughts on a few of these announcements too!

Without further ado, let’s begin with the UK Spring Budget.

Support For Directors of Limited Companies

If you are a director for a limited company, the update that you are most anticipating is probably about whether you would qualify for a grant or additional support this year. Unfortunately, there has been no announcement of additional support for Directors of Limited Companies as of this time with the UK Spring Budget. But if there are new updates on this topic, we will be sure to be the first to give you a heads up!

UK Economy Projection

Due to the massive economic setback, the country had to deal with back in 2020 – businesses being non-operational, companies closing down permanently, tax freezes, etc. – the UK Economy has shrunk by a massive 10%. After all, borrowing is at its highest outside of wartime. The impact of COVID on the UK’s economic state is incredibly immense that it will take us some time to get back to how things were progressing pre-COVID.

Even with the bounce back schemes in place and great efforts put into the country’s economic recovery, it is projected that in 5 years, the UK Economy will still be 3% lower compared to how it would have been if COVID had not happened.

Here are the Main Points Highlighted in UK Spring Budget 2021

Updates On Furlough Scheme

Furlough is going to be extended till the end of September, and from the employees’ perspective, there will be no significant change. 

Furloughed employees will still receive 80% of their salary, which is the same amount they have been receiving since the second quarter of last year.

The only major change is that there will be a 10% contribution required from businesses as of July, which will slowly increase to 20% by August to September. There is going to be a gradual tapering of furlough from July onwards to get businesses to contribute.

An increase in the unemployment rate is yet to be determined, but it will likely be higher come July. I anticipate that more companies will file for redundancies come the end of May to July to avoid the 10-20% contributions.

More info about Furlough Sceheme here.

Self-Employment Income Support Scheme (Sole Traders & Partnerships)

For self-employed individuals, a fourth grant will be rolled out this spring which is equivalent to 80% of trading net profits and will cover the months of February to April. There are a few things to note, however:

If the self-employed individual’s turnover decrease is more than 30%, they will receive the full 80% grant.

On the other hand, if the decrease is less than 30%, then they will receive 30% of the grant.

Also, individuals who have their tax filed before midnight of March 2nd will qualify for the self-employed grant.

Rise in National Living wage from April 2021

There was a said increase of 2.2%. This will be applied from ages 23 and over for the workers which is the first time and down from aged 25 and over.

On UK Apprenticeships

On the brighter side of things, payment to businesses for hiring apprentices now sits at £3000, which is double the amount paid before £1500. This is excellent news for businesses looking to take on more apprenticeships at this time of the UK Spring Budget.

The New Restart Grant of the UK Spring Budget

The New Restart Grant is said to replace all the existing grants that are happening since last year as a result of COVID. This new grant will be made available in April, and so far, here is what we know:

The grant will be:

  • Up to £6000 per premises for non-essential retail
  • Up to £18000 per premises for hospitality and leisure

The government will announce further updates later, and we will be sure to keep you in the loop when new information about the restart grant is rolled out from the UK Spring Budget announced!

New Recovery Loan Scheme of the UK Spring Budget

Back in 2020, the UK government established BBL or Bounce Back Loans to help SMEs cope with financial constraints their businesses had to suffer due to extended lockdowns and trading limitations. In the Spring Budget 2021, it is announced that a new recovery loan scheme will be rolled out to replace bounce back loans. Here’s what we know about it:

  • A qualified business will be able to loan a minimum of £25,000 and a maximum of £10,000,000.
  • Under this new loan scheme, 80% of the total loan amount will be guaranteed by the government to the lenders.
  • As for matters of personal guarantee and other requirements, further information is yet to be announced.
  • There is also no information yet as to whether the loan will be available for all banks.

Other contents about Bounce Back Loan

Business Rates Holiday

Another positive update we have received in the UK Spring Budget announcements is that they will extend business rates holiday till the end of June this year and that there is going to be a decrease in business rates equivalent to a third of the standard costs from June till the end of the year.

Hospitality businesses, especially, are expected to benefit from this extension as many pubs, restaurants, and other leisure establishments have yet to go back to full operation ever since COVID hit. 

See: https://www.bbc.com/news/business-56266235

Vat Cut for Hospitality Industry – VAT Rates

More on the hospitality sector, the VAT discount for hospitality and leisure businesses will remain at 5% until September 30th and will increase to 12.5% for another 6 months before it goes back to the standard rate of 20%.

Stamp Duty Holiday (applicable in England)

Stamp Duty Holiday also gets extended till the end of June, which is great news for people who have purchased new properties recently. This suspension has been applied to the first £500,000 of all sales in England since July of last year.

The nil rate band will be at a £250,000 level after June and until the end of September, which is double the standard, and will return to the usual £125,000 come October 1st. There has been a similar tax break for property buyers in Scotland and Wales, ending on March 31st.

Personal Tax Allowance Threshold

During the UK Spring Budget, the Chancellor also announced that the personal tax allowance threshold (the amount you can earn that is tax-free) would be frozen until April 2026.

My opinion thought on this is that this “freeze” may be a bit controversial due to the Rooker-Wise amendment of 1977 also being in effect. The amendment states that it should view personal tax allowances in accordance with the rate of inflation to avoid the erosion of non-taxable income.

However, there has been no specific announcement at this time, and we will have to see how this one plays out.

VAT Registration Threshold Is To Remain At £85,000 Until 2024

This means that there will essentially be no change in the threshold until 2024. Furthermore, the UK has a high VAT registration threshold compared to other countries, which is viewed as an incentive by the government to encourage people to come into the UK.

New HMRC Task Force For Tax Fraud And Avoidance

This new task force will also mainly focus on Furlough fraud which, as we all know and caught wind of from different sources, has been rampant from the time it was announced in 2020.

Since last year, there has been an increase in HMRC, VAT, and general tax investigations to recoup the money. In fact, there are so many open investigations that If HMRC were to process all the investigations they have now, it would take them at least 20 years to figure out the backlog, but we’ll have to see how it plays out.

This new task force may shed some light on the current situation.

Corporation Tax Rising In April 2023

Let’s talk about the update on corporation tax, which most of you probably want to hear. According to the recent announcement, corporation tax currently sits at 19% will increase to 25% by 2023. Of course, there are a few things to note about the increase:

  • Corporation Tax will remain at 19% for small profit rate businesses (earning £50,000 or less), which surprisingly covers 70% of companies or 1.4 million UK businesses, according to Chancellor Rishi Sunak.
  • There will be a tapered rate (gradual increase) for corporation tax for businesses at different profit levels. The maximum of 25% corporation tax is applicable for businesses with a £250,000 profit rate which is currently equivalent to 10% of UK businesses.

We already anticipated that there was going to be a corporate tax increase; that much was evident. But what was shocking is that 70% of businesses profit less than £50,000! I honestly believe that these profit numbers are too low, and we should be aiming for higher profit rates, even if it means paying more for corporation tax.

Other Notable Announcements:

Carry back losses for 3 years meaning additional tax refunds will be available

There will be an ability to carry back losses to previous tax years – which means that you can offset the loss you currently made to historic profits and get a tax rebate. You can tell your accountant that you want to “carry back” to get some tax rebates and get money back into your bank account.

Company investments super deductions of 130% of costs to encourage investments

When a company invests, there are many ways to treat the taxes involved. Ideally, you can offset that investment to your tax return and get the tax benefit as a result. You can reduce your tax amount to up to 130% of your investment’s worth. It means that you will be getting more than what you invested as your tax allowance in layman’s terms.

This has been made possible to encourage people and businesses to invest despite the current economic climate.

Planned Increase in Fuel Duty is Cancelled

Talks about an increase in fuel duty have been cancelled – so this is great news for car and vehicle owners!

UK-wide Schemes For Growth

If this one gets implemented successfully, it will be an amazing opportunity for SMEs to grow their business and get to a whole new operation level. This “Help to Grow” scheme offers 130,000 UK companies free digital management pieces of training, which will help boost their money and business mindset. A new visa scheme is also in the works that will help tech firms source talent outside the UK.

UK Spring Budget 2021 Conclusion

And that is it for the UK Spring Budget 2021! We will announce new updates in later weeks, so check back in to catch the latest news concerning UK businesses, UK Grants, and government. You can also follow Annette & Co. on social media to stay on top of UK updates and catch wind of the latest business developments!

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.