For the last 12 months the chancellor has been pouring money in to support the UK economy through the COVID-19 pandemic. The good news from yesterday’s budget is this isn’t stopping yet and support for business and the self-employed carries on for the next 6 months. We also now know how the chancellor is going to “balance the books” in tax rises. After all, the government’s borrowings have hit a peacetime record. Punitive tax measures will kick in from April 2023.

You can read our full budget update here………

Summary of a few key points:

Support for businesses

  • The furlough scheme continues to Sept 2021 across the UK
  • From April 2021, the government is introducing a ‘super deduction’ tax credit scheme by 25p for every pound they invest in new equipment
  • £5 billion for Restart Grants
  • A new UK-wide Recovery Loan Scheme offering loans between £25k and £10 million, plus invoice finance between £1,000 and £10 million will be available for all businesses to help with recovery
  • VAT cut to 5% for hospitality, accommodation and attractions across the UK until the end of September 2021, followed by a 12.5% rate for a further 6 months until 31st March 2022
  • The current reduction in Stamp Duty Land Tax in England and Northern Ireland will continue until September 2021
  • Fuel and alcohol duty are staying the same for another year

Support for sole traders and self employed individuals

  • The UK-wide Self Employment income support scheme will be extended to Sept 2021, with the criteria relaxing so that more people can now claim for the first time
  • The 4th SEISS payment will be based on your 2019/2020 tax return, and set at 80% of 3 months’ average trading profits. It will be capped at £7500 and paid out in 1 instalment likely to be available from late April 2021 to 31st May 2021
  • There will be a 5th grant covering May to Sept 2021. The amount of this 5th grant will be determined by how much your turnover has reduced in the year April 2020 to April 2021. I.e. pre-pandemic vs pandemic

How will the government pay for this support:

  1. Here is the big one… Corporation tax in 2023 will go up to 25%. The good news is that businesses with a profit of £50,000 or less will continue to be taxed at 19%. And a taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate
  2. R&D tax credit that a small or medium sized business can receive in 1 year is now capped at £20,000 plus 3 times the company’s total PAYE and NIC’s liability
  3. The income tax Personal Allowance and higher rate thresholds will be frozen from April 2022 until April 2026
  4. Inheritance tax thresholds will stay the same until April 2026

The increases in corporation tax combined with the low dividend tax credit may mean that you could be better off by:

  1. Staying as self employed and not moving to a limited company or LLP
  2. Increasing the amount of PAYE you take from the business vs dividends for the tax year 2023/2024

As always, everyone’s individual circumstances are different. And we are here to advise you on the right business structure for you to trade depending on your current situation and plans for the future.

On a positive note, this is a time for opportunity and growth. We will work together to achieve our goals and as always, we are here to for you and to offer additional support with your business planning.

We look forward to a successful 2021 for you and your business,