Budget 2021: Live updates on how it will affect your small business

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Hello and welcome to Startups.co.uk’s live coverage of Budget 2021.

We’ll be offering regular updates on this hugely important day for UK small businesses, as the Chancellor Rishi Sunak sets out measures to help the UK weather the impact of the latest coronavirus lockdown and lays the groundwork for the country’s economic recovery.

The budget proper is expected to kick off at 12:30pm GMT, but we’ll start by explaining what we know so far.

What to expect from Budget 2021?

As always, many of the most important budget announcements have been revealed ahead of time, including an extension to the furlough scheme and a new grants scheme.

Furlough scheme extension

It’s already all but official that the furlough scheme will be extended until September 2021, providing a crucial lifeline for businesses across the UK.

Under the scheme, the government will pay 80% of wages, with companies expected to begin contributing later in the year.

They will need to pay 10% in July and then 20% in August as the UK economy (hopefully) continues to recover.

Self-employed support

The government will also take action to support the so-called Excluded group of self-employed people who could not access Covid-19 financial support.

This was partly due to applicants having to submit a 2018-2019 tax return, which meant anyone who became self-employed after this was not able to claim cash grants under self-employment income support scheme (SEISS).

Now, anyone who became self-employed during the 2019-2020 tax year (that ended on 5 April 2020)  will be able to claim, which the treasury expects to extend support to another 600,000 self-employed people.

£5bn of business grants

In what is being billed as a plan to save the UK high street, the chancellor will announce an extra £5bn in cash grants to help non-essential retailers re-open after the lockdown is eased.

Under the “restart” grants scheme, eligible businesses will be able to apply for a grant of up to £6,000 per premises from April.

Businesses only able to open later – including hospitality venues, hotels, gyms, personal care and leisure firms – will be able to apply for up to £18,000 per premises.

Corporation tax increase?

In a bid to claw back some of the billions spent on combating Covid-19, the Chancellor is widely expected to increase corporation tax from its current level of 19%.

With the US reportedly planning to increase its equivalent tax from 21% to 28% and Canada, France, Germany, Italy and Japan all having rates above 25%, Sunak could increase rates as high as 25%.

However, this is likely to be done gradually, as he balances the need to raise funds with supporting UK businesses.

Needless to say, any increase would go down very badly with UK small businesses struggling to survive during a historic economic crisis.

Income tax changes

One of the conservative party’s key election promises was not to increase income tax, national insurance or VAT, which is now severely limiting Sunak’s ability to raise funds.

However, in what’s been called a “stealth” tax rise, the Chancellor is reportedly planning to freeze the income tax thresholds for three years.

Normally, these thresholds increase every year, but freezing them will gradually mean more people are in higher tax brackets and therefore pay more tax.

If the current personal allowance (the amount you’re allowed earn per year without paying income tax) was frozen at £12,500 for three years for example, then many more people would be paying income tax in 2024 than in 2021, and the amount each person paid would also increase, as the amount earned tax free would not increase in line with inflation.

Overall, the measure could raise £6bn.

Apprenticeship funding

In a bid to increase the takeup of the UK’s apprenticeship scheme, Sunak is expected to announce that businesses will be paid £3,000 per apprentice taken on.

This payment would be regardless of the apprentice’s age and the scheme would run until September 2021.

Employers would still be paid £1,000 for new apprentices aged between 16 and 18 (or aged under 25 with an Education, Health and Care Plan), so some employers could be paid £4,000 per apprentice in total.

A “flexi-apprenticeship” scheme is also expected to be announced, with an apprentice shared between multiple employers to cater for sectors with more flexible/short-term working patterns.

Live updates

Budget 2021: Furlough scheme extension confirmed

As widely expected, Sunak’s first announcement is that the furlough scheme will continue to the end of September 2021.

As discussed above, businesses will need to contribute 10% of wages in July and then 20% in August.

Budget 2021: Self-employed income support extended

Sunak states that support for the self-employed will also continue to September 2021.

There will be a fourth grant that covers the period from February to April.

And then a fifth and final grant from May onwards.

For the fourth grant, all eligible self-employed people will receive 80% of average trading profits for those three months (February, March and April).

For the fifth grant however, the amount paid will depend on how much the pandemic has affected profits:

• Those people whose turnover has fallen by 30% or more will continue to receive the full 80% grant
• People whose turnover has fallen by less than 30% will receive a 30% grant

Sunak also confirms that as long as self-employed people filed a tax return for the 2019-20 tax year by midnight last night (2nd March), then they will be eligible for the scheme.

This should equate to over 600,000 additional self-employed people.

The system will be open for claims from late July.

Budget 2021: National Living Wage increase

The Chancellor announces a modest rise in the National Living Wage (the legal minimum wage), which will increase to £8.91 per hour from April 2021.

The previous rate was £8.72 per hour.

Sunak says this means an annual pay rise of almost £350 for someone working full-time on the National Living Wage.

Budget 2021: Increased apprenticeship funding

Confirmation of another widely expected move, as the Chancellor confirms that businesses will now be paid £3,000 per apprentice taken on regardless of the apprentice’s age.

There was no mention of the flexi-apprenticeships but this may just be buried in the small print.

Budget 2021: £5bn restart business grant scheme confirmed

Sunak confirms that a new cash grants scheme will be available from April.

The details match those discussed above:

• Non-essential retail businesses will be eligible for a cash grant of up to £6,000 per premises
• Hospitality and leisure businesses (including personal care and gyms) will be eligible for a cash grant of up to £18,000 per premises

Budget 2021: New recovery business loan scheme announced

Businesses of any size can apply for loans from £25,000 to £10m through to the end of 2021.

And, like the previous business loan schemes, the government will provide a guarantee to lenders of 80%.

Budget 2021: Retail, hospitality and leisure business rates holiday extended

Sunak announces that the 100% business rates holiday for eligible retail, hospitality and leisure businesses will be extended to the end of June.

For the remaining nine months of the financial year, business rates for eligible businesses will be discounted by two thirds (with a cap of £2m for closed businesses and a lower cap for those who have been able to stay open). 

Budget 2021: Hospitality and tourism VAT cut extended 

The Chancellor pledges further support for the hospitality and tourism sector.

The current reduced 5% VAT rate will be extended for six months to 30 September 2021.

From September 2021 to April 2022, an interim VAT rate of 12.5% will be payable for businesses in this sector.

From April 2022, the rate will return to the standard 20%.

Budget 2021: Income tax thresholds will be frozen

A marked shift in tone now as Sunak stresses the need to be fiscally responsible and avoid public debt getting out of control.

To do this, the treasury needs to raise money.

The first announcement is a widely expected one, as Sunak confirms that the income tax thresholds will be frozen.

In 2022, the personal allowance will increase to £12,570.

However, it will then stay at this level until April 2026.

In 2022, the higher rate threshold will increase to £50,270.

It will also stay at this level until April 2026.

Budget 2021: Other tax thresholds also frozen

Sunak adds that the inheritance tax thresholds, the pensions lifetime allowance, and the annual exempt amount in capital gains tax will be frozen until April 2026.

The current £85,000 VAT registration threshold will be frozen until April 2024.

Budget 2021: Corporation tax changes

As expected, Sunak now turns his focus to corporation tax.

From April 2023, he states, the corporation tax rate will increase from 19% to 25%.

He argues that this is fair given how much support business have been given by the government during the pandemic.

He adds that, even after this change, the UK will still have the lowest corporation tax rate in the G7 (which comprises the UK, Canada, France, Germany, Italy, Japan and the US).

He also emphasises that corporation tax is only paid on company profits.

IMPORTANT

From April 2023, there will be a new small profits rate of 19% (the current rate) for businesses with an annual profit of £50,000 or less.

Sunak states that this means around 70% of companies (1.4m businesses) will be completely unaffected by the change.

There will also be a taper so that it’s only businesses with annual profits above £250,000 that will pay the full 25% rate.

Sunak says that this means only 10% of companies will pay the full higher rate.

Businesses will also now be able to carry back losses of up to £2m for three years, which should enable companies to claim additional tax refunds.

Budget 2021: “Super deduction” to encourage business investment

Sunak announces that he wants to encourage businesses to invest, as this will fuel the UK’s economic recovery.

To do this, he unveils the “super deduction”. 

This scheme will run for the next two years and mean that, when companies invest, they will be able to claim 130% of this investment back from their tax bill.

Sunak seems to be referring to capital allowances here, as he then discusses the example of a construction company buying £10m worth of construction equipment.

Under the current rules, this company would be able to reduce their taxable income in the year they invest by £2.6m.

With the super deduction, they can reduce it by £13m.

Sunak states that the super deduction will be worth £25bn for the two years it’s in operation, and is therefore the biggest business tax cut in modern British history.

Budget 2021: Alcohol, fuel duties frozen

The Chancellor announces that all alcohol and fuel duties will be frozen for the next financial year.