The Chancellor’s second real budget on the 3rd of March made some important business announcements to try and mitigate the effects of the pandemic and also to start rebuilding the nation’s finances for the future. Below we list some of the most important announcements that will affect individuals and small businesses in Scotland.
The full details of the budget are available here: https://www.gov.uk/government/news/budget-2021-what-you-need-to-know
CJRS FURLOUGH SCHEME EXTENDED TO 30 SEPTEMBER
The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2020. In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September.
This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours.
In addition to the 10% and 20% contributions employers will continue to be responsible for paying employers national insurance and pension contributions on the full amount being paid to employees.
SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED
In line with the further extension of the CJRS furlough scheme for employees the chancellor has also set out further support for the self-employed. We had been waiting for the details of the calculation of the fourth SEISS grant covering the period to 30 April and we now know that the support will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.
The chancellor has also bowed to pressure to extend the scheme to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 2 March 2021. This is potentially a further 600,000 traders.
Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.
CORPORATION TAX RATES TO INCREASE TO 25% BUT NOT FOR ALL COMPANIES
The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive. That should have the effect of encouraging companies to remain in the UK and companies to set up here. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.
SUPER-DEDUCTION FOR INVESTMENT IN NEW EQUIPMENT
In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.
THREE YEAR CARRY BACK OF TRADING LOSSES
Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment.
Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses.
The chancellor has announced that the carry back period will be temporarily increased to three years thereby enabling the business to obtain a tax refund. For companies this will apply to loss making accounting periods ending in the period 1 April 2020 to 31 March 2022. For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.
The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carry back against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.
5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED
The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.
If you need any advice in any of these matters please do not hesitate to get in contact with us: https://www.sutherlandblack.co.uk/contact/