What does the 2021 budget mean for accountants and their SME clients?
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One year into the pandemic, Chancellor Rishi Sunak presented the annual Budget, which was initially due to occur in the autumn of 2020. He announced a range of different measures, attempting to protect businesses and jobs in the short term, and over the longer-term, reduce government debt by increased taxation, for when the OBR predicts GDP will return to pre-pandemic levels.
Here, we take a look at the 2021 Budget highlights and what they mean for accountants and their SME clients.
Covid specific measures
Furlough extension
The furlough scheme is being extended past April and is now open until the end of September. The government will continue to pay employees 80% of their wages, up to £2,500. However, employers must pay 10% of wages in July and 20% in August and September.
Accountants should inform their clients of these changes to save employees who may be at risk of redundancy and update clients on associated changes.
Recovery loan scheme
From April, the Recovery Loan scheme will replace CBILS and BBLS. Businesses of any size can apply for finance of up to £10m. The government will guarantee 80% of finance to the lender to increase chances of access, and funds can be used for any business purpose.
Further details on the scheme and how to apply are due to be released imminently.
Restart grants
Restart grants will be made available to businesses in an array of different sectors affected by the pandemic. £5bn of funds have been allocated and will be distributed as one-off cash grants.
Non-essential retail businesses opening first will receive up to £6,000 each. Those due to open later (in hospitality, accommodation, leisure, personal care and gyms) will receive up to £18,000 based on their rateable value.
Hospitality and leisure VAT cut extended
The 5% reduced VAT rate in hospitality and tourism will be extended for six months to 30 September. The standard rate (20%) won’t return until April 2022, with a 12.5% rate applied in this sector for six months from October.
Accountants should review relevant clients' circumstances to advise them on whether it is better to reduce prices to stimulate demand or keep prices the same to boost revenues.
Business rates relief extended
High street sectors significantly affected by lockdown (gyms, non-essential retail, restaurants and pubs) will also benefit from their eligible properties continuing to receive 100% business rates relief until the end of June, an extension of three months. This will then be replaced by a 66% deduction from 1 July 2021 to 30 June 2021.
Self-employed
In addition to the four previously announced SEISS grants (worth 80% of three months average trading profits and capped at £7,500), there will now be a fifth to cover the period from May until July. The grants were previously only open to those who had submitted tax returns in 2018-19, but the last two payments will now also apply to people who have filed 2019-20 tax returns.
General business measures
Income tax thresholds frozen
While income tax bands will increase in line with CPI in 2021-22, they will be frozen for four years from April 2022.
In the forthcoming tax year, the basic rate (20%) will increase from £12,500 to £12,570, with the higher rate (40%) rising from £50,000 to £50,270. It is expected that this stealth tax will raise an extra £6bn a year.
Accountants will need to update client payrolls as well as reconsidering
remuneration strategies for director clients who are paid by salary or combination of salary and dividend.
Corporation tax increase
To help reduce the coronavirus debt, corporation tax will increase to 25% from 2023 for businesses with profits greater than £250,000. Simultaneously, a new small profits rate of 19% will be introduced for companies with profits of under £50,000. Companies with profits between these two bands will be tapered, so they are not taxed at the full 25% rate.
Super deduction tax relief
To sweeten the pill of increased corporation tax, businesses will receive a temporary (between 1 April 2021-31 March 2023) 130% deduction for investing in qualifying plant and machinery. This will allow companies to cut their tax bill by up to 25p for every £1 invested and will make a compelling case for investing in new equipment.
Help to grow schemes
The Help to Grow schemes will support SMEs with management training and discounted software to improve productivity levels.
Help to Grow Management will launch from June, with 30,000 SMEs benefiting from a 12-week training programme delivered by leading business schools.
Help to Grow Digital launches in the autumn and will allow businesses to receive vouchers to cover up to 50% off the costs of productivity software.
Apprenticeships
Companies will be encouraged to give much-needed opportunities to young people, with the government increasing the grant incentive for employers to £3,000, between 1 April 2021 and 30 September 2021. Previously the scheme paid out £2,000 (for those aged 24 and under) and £1,500 (for workers over 25).
Scaleup visas
A new visa will be introduced from March 2022, targeted at attracting highly skilled overseas workers, including researchers, engineers, and scientists, to move to the UK for work. It is hoped that this will help scaleups attract the best talent from around the world.
So, while businesses will be grateful for the continued support to help them through the pandemic, accountants will need to help them plan for the future by making them aware of both the important tax changes and the new opportunities that are relevant to them.
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