Spring Budget 2021 - Business Perspective, Part 2

By Tom Davies, Accounts Senior, Business Services.

What support continues to be available? Will any further support be made available to see us through to the end of the tunnel? How are we going to pay for the unprecedented levels of support the country has received? Just some of the questions being asked prior to Rishi Sunak’s 2021 budget, one of the most eagerly anticipated in recent times.  In two separate articles I am covering the key points for businesses to consider. Part two covers some of the tax announcements and their possible impact.

The tax section…

As ever, the changes that would be made to the country’s tax regime was one of the most hotly anticipated and debated sections of this year’s budget.

Will he increase the dividend tax? Will Entrepreneur’s relief be amended? How high will the rise in corporation tax be? Will tax breaks on pension contributions be amended?

These are just some of the questions being asked pre-budget.

The importance of a good remuneration strategy

It was confirmed that despite the fact the personal allowance will rise by £70 on 6 April 2021 and the basic rate band by £270 on the same date, no further increases to income tax rates will come into force next year. Mr Sunak also confirmed that these thresholds would be frozen until April 2026.

Although this is purely speculative, I think tax rates are extremely unlikely to reduce in the next couple of years and are much more likely to begin heading north…

Therefore, it should be a top priority for all business owners, especially those who trade through a limited company, to ensure their remuneration packages are as robust as possible to ‘bank’ the current lower rates of income tax.

Still no change to CGT

It seems every year we expect an announcement outlining an overhaul to the current, rather generous capital gains tax rules. However, again it did not occur this year.

For business owners who aspire to sell all or part of their businesses over the next couple of years and do not have a clear strategy and exit plan to achieve this… You need to put one in place! There are so many considerations to be made in this area and professional advice is a must when planning for future transactions.

Rises to company profits

‘Corporation tax rises to 25%’

This is probably the biggest and most widely covered announcement that Mr Sunak made on Wednesday, however he also said that the most severe increases will only affect 30% of companies and does not come into force until April 2023.

However, just because your company does not make a profit in excess of £250k (the magic number when considering the 25% rate), it does not mean that this won’t affect you, with a taper system being introduced for companies whose profits fall in the £50 – £250k range from the current 19% up to 25%.

There will be significant tax planning opportunities to be done around this to mitigate any future corporation tax bills. A carefully considered tax strategy should be at the heart of any businesses long-term plan and this announcement will no doubt effect such strategies.

The super deduction

Investment in the future is a huge part of The Chancellor’s roadmap to recovery and the announcement of the ‘super deduction’ shows the exchequers commitment to this. (I’m not convinced on the name though!)

From 1 April 2021 until 31 March 2023, companies investing in qualifying plant and machinery assets will be able to claim a 130% ‘super-deduction’ on such purchases, leading to a marginal 24.7% saving.  For those assets which qualify for the less generous special rate allowances, the super deduction will be 50%.

Again, this announcement will mean that all business owners, especially those with large cap-ex budgets, will need to consider and plan carefully their plant and machinery purchases over the next couple of years. This will, of course, need to be factored into future cashflow and profit forecasts.

Research & development (R&D)

The R&D tax relief scheme is already extremely advantageous to those businesses who have operations that qualify. However, Mr Sunak announced that there are plans to review the scheme to ensure it remains competitive worldwide.

Aside from a cap on the repayable R&D tax credits for SMEs, there were no changes to the scheme announced this year, it continues to be extremely beneficial to all businesses and I urge any business owners to undertake a review of their processes to check if anything they are doing qualifies… N.B. you don’t need people in white coats experimenting with Bunsen burners!

Task force

Towards the end of his budget, the chancellor did announce that as a result of his department being so generous over the last 12 months, HMRC are going to come down on abuse of any support schemes extremely harshly, with £100m of funding being made available to HMRC to target potential false claimants.

If any business owner has any doubt whatsoever regarding the validity of a claim they have made for any scheme, I would urge them to seek professional advice or contact HMRC to confirm the position. Being up-front and repaying any monies in advance of being caught may help negate any penalties that may become payable.

Here to Help

If you have any questions relating to business support measures covered in the Budget, please contact us – hello@wrpartners.co.uk