The 2021 budget and what it means for your business

As you will no doubt be aware the 2021 Budget was announced yesterday with changes afoot within both of the corporate and owner managed business world.

Auria's CEO Spencer Hall fca, has broken down the announcement and highlighted the major points and what they might mean for you as an individual and/or a business owner. 

Kicking off with the extension of various support mechanisms the main areas were:

Furlough:

The ever-familiar furlough scheme has been extended until the end of September, however from July businesses will be asked to contribute 10% of the cost increasing to 20% as the economy begins to reopen in August and September.

Self Employed Assistance:

The Self Employed see a fourth and fifth phase introduced. The fourth phase will be worth up to 80% of three months' average trading profits, paid out in a single instalment and capped at ￡7,500. This will cover from February 2021 - April 2021. The fifth phase centres around Turnover and if it falls by less than 30% - a 30% grant will be received capped at ￡2,850.

Business Recovery Loans:

As predicted there was no extension to the bounce back or CBIL loans as both will be ending in line with the previous deadlines, however, we will now see the introduction of the Recovery Loan Scheme where businesses will be able to borrow anywhere from ￡25,000 up to ￡10million until the end of 2021.

Although we know it will take a rigorous application process, at the moment it is unclear how a new business would apply for a recovery loan, but you can be sure that Auria will be following this closely and be updating you when more is announced on this topic. 

There were other areas of support and we at Auria are more than happy to chat through any area that you're unsure of or need some help in understanding and implementing. 

The Chancellor then moved on to the 'How we are going to pay for it all' part of the Budget 

Corporation tax:

One of the main tax points to have come out of the 2021 Budget announcement was the changes to Corporation Tax and a bit of a throwback from 2014.

It was announced that Corporation Tax will increase by up to 6% dependent on company profits being above ￡50,000. This will not kick in until 2023, giving businesses a two year grace period. In fact, you'll only be looking at the higher bracket of 25% if your business profits are above ￡250,000, with a marginal relief applying on profits in between.

However, this is much less generous than 2014, whereby the small profit rate was ￡300,000.

Income tax / personal allowance:

Although, as per their manifesto, the income tax rate was not increased, the 'second' main tax point for me was the freezing of Personal Allowances. The personal income tax allowance will remain at ￡12,570 and the higher rate income tax threshold will be frozen at ￡50,270 for the periods between April 2022 to April 2026.

Although the government have stuck by their manifesto and have not increased income tax, when you take into account annual inflation and the freeze on personal allowances it will drag more people into that tax bracket, and raise an estimated ￡8billion.

Following the two main tax 'hikes' if you like, there were some further positives:

Carry back losses:

One of the little 'nuggets' to have come out of the announcement for small businesses is the change in carry back of losses from one year to three years for accounting periods ending in the period April 2020 to 31 March 2022.

So for our clients and small businesses, this gain links back to being prepared and one step ahead of the game because the quicker you can get your books sorted and submitted, the quicker you will get that corporation tax rebate. In this time of financial struggle for many businesses, why wait another nine months until you file your accounts when you could do it in April and get that rebate a lot earlier. 

Arts & Creative Industries:

The sector that runs dear to our hearts are in line for support to the tune of ￡700m, although we're yet to understand the detail as to how, but one thing to mention is that there will be a specific restart scheme for Film & TV Production companies - further details of which we will publish soon.

Super deduction:

For those businesses looking into asset expansion, particularly in the purchase of new machinery you will, I'm sure, be aware of the super deduction of up to 130% of that cost deducted from your tax bill. This will be a huge relief to those businesses who are looking to upgrade and restart amidst the Covid-19 pandemic. 

Hospitality:

In their time of need, the hospitality industry will be encouraged by the continuation of the 5% reduced VAT rate until the end of September, until a rise to 12 1/2% until March 2022, when it then returns to the normal level of 20%. 

Another boost to the hospitality industry will be the 'restart' grants of up to ￡18,000, or for nonessential retail up to ￡6,000.

Stamp Duty & 95% Mortgage Guarantees:

There was the inevitable extension of the Stamp Duty freeze for properties above ￡500,000 until the end of June, whereby there would be a stepped re-introduction to ￡250,000 by end of September and back to the ￡125,000 price from 1st October. 

95% Mortgages were back on the agenda with the Government guaranteeing these from next month. Whilst that's positive news on the face of it, the income multiple in the Mortgage Industry (and for the self employed and business owners), remains an issue - a subject for us to go into another time. 

There were two further areas that require special attention and that will affect the future of owner managed businesses.

Firstly;

Capital gains:

The big surprise for us was what wasn't said i.e. the non-announcement of any increase in Capital Gains Tax. However, I feel that this is something we all know is somewhere on the horizon, but today would have been deemed far too aggressive in this second major tax rise. It's a subject the government will definitely revisit and my hunch is that it will form some part of the 2022 Budget. 

Therefore, Company and Ownership Re-structures are of paramount importance now for owners to maximise their remuneration in the future. 

This is an area where we at Auria can certainly discuss, assist, and implement a clients business and strategic vision with appropriate exit plans in building a relevant structure that will be as efficient as is possible within current legislation.

Secondly;

HMRC

Personally, this is the point that needs to be taken incredibly seriously by businesses of all sizes is the ￡100million investment into HMRC and its inspectors. This undoubtedly means that there will be more inspections taking place each year with a magnifying glass on avoidance and evasion, for individuals and businesses alike, across all taxes ranging from VAT to PAYE, from Income Tax to Corporation Tax. I suspect no stone will be left unturned.

HMRC investigations can take up to 12 months (and in a lot of cases well beyond) and cost thousands to resolve, so do yourself a favour and sort your finances early. 

The key takeaways

For me, the biggest takeaways for our clients and other owner-managed businesses to focus on is the new Corporation Tax levels, unlocking Corporation Tax previously paid by carrying back current losses and the huge investment into HMRC. The easiest way to deal with these, especially the scrupulous HMRC investigations, will be to stay one step ahead and be prepared. Don't leave your finances until the last minute, don't file your returns late, stay up to date and tidy your books every quarter, so that when the end of the financial year comes around you're ready to go with no delays. 

How Auria can help

Whilst the above was not an exhaustive list from the Budget, we at Auria know how stressful these changes can be for a business owner, it's something we've been through ourselves. Having a good accountant partnering you and your business can make the difference between success and failure for small businesses - we're here to make your lives easier.

There are many advantages that Auria can offer. Not only to support you in moving you and your business online and ensure timely Financial information, but we can support you in accessing the financial assistance you require, though the restart loan system when fully announced, and of course support you through any HMRC Inspection you may have to face in the future. Not only that but we can provide you with 'Tax investigation' Insurance (which would cover all of your accountancy fees in the case of a formal inspection). It's little steps for us but can make the world of difference for you. 

We have a team of experts to help you through the new rules, and what they actually mean for your business, so please do get in touch with one of the team to see how we can help you navigate this announcement and the new guidelines.

We're here every step of the way.