An Entrepreneur’s Guide to the 2021 UK Budget

Chancellor Rishi Sunak delivered his Budget on 3 March and it’s very clear that this is a budget to ensure the economy can recover post-pandemic, with only one minor sting in the tail.

In the run-up to the Budget, the media had widely trailed changes to the capital gains tax regime, including entrepreneur’s relief, which allows a reduced tax rate of just 10% on the first ￡1 million of gain from the sale of a business. In the end, there were no such changes. That’s a win for entrepreneurs.

New loan schemes

The CBILS and BBLS loan schemes will be running out at the end of this month. I’ve said this before and I’ll say it again. EVERY entrepreneur should at a minimum take out the Bounceback Loan. No repayments or fees in the first 12 months, the UK Government picks up all of those, and then it’s just 2.5% interest per annum with repayment starting 13 months after drawdown and running for 5 years with an option to extend to 8 years. This is the cheapest money around, and if you want to make investments in your business (see more on that below) then here’s the money to do it. You’ve got until the end of March, and it’s all done online. Takes about 10-15 minutes. This one’s a no-brainer.

There is a new scheme coming on stream from 6 April called the Recovery Loan Scheme. From the limited information given so far it looks broadly similar to CBILS, with loans kicking in from ￡25,001 up to a maximum of ￡10 million. There is no personal guarantee on loans up to ￡250K. More details will follow in the coming weeks.

I’ll say it one more time: if you haven’t taken out a Bounceback Loan, do it now!

Extension of the furlough scheme

The furlough scheme was due to expire at the end of April and has now been extended to the end of September. HMRC will continue to pay up to 80% of a furloughed employee’s salary (up to a cap of ￡2,500 per month) through the end of June. In July that drops to 70% (cap drops to ￡2,187.50) with the employer picking up 10%, and then in August and September it drops again to 60% (cap drops to ￡1,875) with the employer picking up 20%. This is very similar to the changes in the furlough scheme that ran last summer before it was extended again at the 80% level.

Employers have the option of topping up their staff to 100% of salary and must also pay employer’s NI and pension contributions.

Turning to taxation

There were a number of items related to taxation that have an impact on entrepreneurial businesses:

• To encourage investment, there is a new “super deduction” on the purchase of qualifying plant and machinery, whereby you can claim a 130% deduction of the amount invested between 1 April 2021 and 31 March 2023. So if you’re planning on making any capital investments, hold fire for a few more weeks until April to take advantage of this extra deduction. Qualifying plant and machinery includes computers, office furniture and equipment, and for more details check with your external accountant. This is a great incentive. Let’s say you are spending ￡10K on qualifying assets. You get to deduct ￡13K from your taxable income and that extra ￡3K is basically a gift that will save you ￡570 in tax (￡3K x 19% tax rate). This is where you should spend the money from your Bounceback Loan.
• For companies that suffer a loss in the period between 1 April 2020 and 31 March 2022, there is a new feature allowing you to carry back the loss by up to three years instead of just one. If your business had good years in 2017, 2018 or 2019 and you paid taxes in those years, you’ll be able to offset the current losses and claim back the taxes paid. Let’s say for example you had taxable profits of ￡20K each year before the pandemic. You’ll have paid ￡3,800 (￡20K x 19%) in tax each year. Then let’s say you had losses of ￡45K during the pandemic. You can carry those losses back and reclaim ￡8,550 (￡45K x 19%) of the tax that you paid. That’s a nice boost to cash flow.
• The rate of VAT was reduced from 20% to 5% on businesses in the hospitality, accommodation and attractions industries. That reduced rate will stay in place through September 2021, when it will increase to 12.5% for another 6 months before returning to 20% from April 2022.
• Restart grants of up to ￡18K will be made available to businesses in the hospitality, accommodation, leisure, personal care and gym sectors. These will be administered by your local authority like the grants that were announced last year.
• For those businesses that deferred their VAT bill from the 2nd quarter of 2021, that bill is due on 31 March. However, you can elect to pay it off over an extended period through January 2022 at nil interest. You should definitely take advantage of this as there is no interest charged. You’ll need to fill in an election here
• Personal tax thresholds will increase from 6 April 2021 as previously announced, with the upper rate band (40% tax) kicking in from ￡50,270. These bands will then be frozen until April 2026.

The only real sting in the tax tail was the announcement that Corporation Tax rates will be increasing from 19% to 25% from April 2023. For companies with a taxable profit below ￡50K the tax rate stays at 19%. For those with a taxable profit of more than ￡250K it jumps to 25%, and for those in between it will be a tapered rate increasing from 19% to 25%.

Conclusion

As ever, there are many more details that will follow when the legislation comes out. My aim was to set out the most important items that directly impact on entrepreneurs and their businesses.

All in all, this was another masterful performance from our Chancellor. Make no mistake, there will be some hefty bills to pay in the coming year. After all, someone has to pay for the support programmes that have carried the majority of businesses and people through the pandemic. Government deficits are running at wartime levels and they will have to be paid back somehow. However, now is not the time to turn the screws. Now is the time to invest in our recovery so that the economy comes back to some form of pre-Covid normalcy – whatever that turns out to be.

Rishi Sunak has delivered the goods, yet again. 10 out of 10, Chancellor.