Budget 2021: key takeaways for small business clients

In a Budget dominated by the government’s continued response to the coronavirus crisis, a number of the announcements made by the Chancellor earlier this week will affect small business clients. FreeAgent's Chief Accountant, Emily Coltman FCA, has rounded up the key takeaways:

Announcements that relate to all businesses in the UK

Furlough scheme extended

The Chancellor, Rishi Sunak, announced that the Coronavirus Job Retention Scheme, which is also known as the furlough scheme, will be extended until the end of September 2021.

Furloughed employees will continue to receive 80% of their salary for the hours they don’t work until the scheme ends on 30th September. Employers won’t be required to contribute to this amount until July, when they will contribute 10% of their furloughed employees’ salary for the hours that they don’t work, while the government will pay 70%.

In August and September, employers will be asked to contribute 20% of their furloughed employees’ salary for the hours that they don’t work and the government will pay 60%.

Employers will continue to be responsible for employer’s National Insurance and pension contributions throughout the remainder of the scheme.

Self-employed support expanded

Fifth SEISS grant introduced and details of fourth grant confirmed

The Chancellor announced that the Self-Employment Income Support Scheme (SEISS) will be extended. A fifth grant, covering May to September 2021, will be made available to qualifying businesses.

For this particular grant, business owners whose turnover fell by 30% or more between April 2020 and April 2021 will receive 80% of three months’ worth of their usual average trading profits, capped at £7,500 in total. Business owners whose turnover fell by less than 30% during this period will receive a grant of 30% of three months’ worth of their usual average trading profits, capped at £2,850 in total. Qualifying businesses will be able to claim the grant from late July.

The details of the fourth grant, which covers February to April 2021, were also confirmed in the 2021 Budget. Qualifying clients will be able to claim 80% of three months’ worth of their business’s average trading profit, capped at £7,500 in total, from late April.

More business owners set to qualify for SEISS

Qualifying business owners who filed their 2019/20 Self Assessment tax return by midnight on Tuesday 2nd March 2021 will be able to claim for the fourth and fifth SEISS grants. The government estimates that this means an additional 600,000 self-employed business owners, who had not started trading early enough to qualify for the first three grants, will be able to receive support through the scheme.

Tax changes announced

5% VAT rate for hospitality industry extended

The reduced VAT rate of 5% for businesses in the hospitality industry has been extended until 30th September. An interim rate of 12.5% will be introduced for these businesses from 1st October 2021 until 1st April 2022, when they will have to begin charging the standard rate of VAT again.

Tax thresholds to be frozen

The Personal Allowance and higher rate tax thresholds will be frozen from April 2022 to April 2026.

The VAT registration threshold will remain at £85,000 until April 2024, while the deregistration threshold will remain at £83,000 for the same period.

Corporation Tax rate set to increase in 2023

In April 2023, the rate of Corporation Tax on company profits will increase to 25% for companies with profits over £250,000. Companies with profits under £50,000 will continue to pay Corporation Tax at the rate of 19%, with profits between those levels taxed on a sliding scale.

Wider scope introduced to carry losses back

The Chancellor announced that businesses will be able to carry back losses of up to £2m for up to three years, with relief available in the years 2020/21 and 2021/22. This will apply to all incorporated and unincorporated business types and the government has advised that further details will be available in due course.

Recovery Loan Scheme to be introduced

The Recovery Loan Scheme will effectively replace the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme. The full details of the scheme are still to be announced but the Chancellor confirmed that it will last until the end of 2021 and the government will provide a guarantee of 80% of the value of each loan.

National Living Wage to increase

The National Living Wage for those aged 25 and over will increase from £8.72 to £8.91 in April 2021.

Announcements that only relate to businesses in England

Restart Grants introduced

Non-essential retail businesses and hospitality, accommodation, leisure, personal care and gym businesses in England will be eligible for a Restart Grant from the government. According to the Budget 2021 report, the grants are designed to provide these businesses with “the cash certainty they need to plan ahead and safely relaunch trading over the coming months”.

The value of each Restart Grant will be up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.

Business rates relief set to change

A 100% business rates ‘holiday’ has been in place for eligible retail, hospitality and leisure properties in England since March 2020. The Chancellor announced that this period of 100% relief will end on 30th June 2021.

From 1st July 2021 until 31st March 2022, 66% relief on business rates will apply to eligible businesses in England. This relief will be capped at £2 million per business for properties that were required to close on 5th January and £105,000 for other eligible properties.

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