Before today’s announcement he was clear that he would focus on three areas in particular; protecting jobs, protecting businesses and protecting the housing market. Our initial thoughts are that it feels like it’s a budget that is good for business and particularly small business which is the majority of our client base.
Along with the extension to the furlough scheme until the autumn and a freeze on personal tax allowances, three things stood out for us in the details of the speech, the widely anticipated Corporation Tax increase isn’t as bad as predicted, the super deduction and increases in capital allowances will represent massive savings for businesses that invest in plant material or electric car fleets and with the potential for an even bigger impact is the news that the loss carry back period for businesses has now been extended.
Let’s start with the Corporate Tax Rate rise to 25%
To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19% and there will be tapered relief for businesses with profits under £250,000 so that they pay less than the main rate.
Firstly, the rate isn’t going up until 2023, so that does offer businesses the chance to bounce back somewhat after Covid, and realistically, I think 90% of small businesses will not be paying the new headline 25%. A huge amount will remain on the 19% rate they are paying now while under the new tapered system, the rest will be somewhere between 20 and 23%. Interestingly, under the previous budget, pre-Covid, the corporation tax rate was due to be going up past19% anyway. The flat rate was going up to 20, 21 and 22% over the next few years. So actually a number of small business with profit below 50K could look at this like a tax cut!
Linked into this is the super deductions capital allowances scheme.
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the most competitive in the world.
For businesses that buy plant machinery, electric vehicles or anything that capital allowances would normally apply to, or anything you would have got annual investment allowance for this is huge.
The chancellor has also removed the annual investment allowance limit. It was £1m which sounds like a lot but we have agricultural clients that can easily spend that in a year. It now appears the £1m limit has been abolished, and there is another 30% added to the tax relief you can claim.
The final and possibly biggest news of the day is the extended loss carry back for businesses.
To help otherwise-viable UK businesses which have been pushed into a loss-making position, the trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.
- Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22
- Companies that are members of a corporate group will be able to obtain relief for up to £200,000 of losses in each of 2020-21 and 2021-22 without any group limitations
- Companies that are members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22, but subject to a £2 million cap across the group as a whole
At present if you make a loss in any given year, you can carry back that loss against profits you made the previous year. So let’s say you made £100,000 profit and paid £19,000 in tax last year, but this year you lost £50,000. Under the old rules you could carry that £50,000 loss back and get half of your £19,000 of tax back.
The new rules mean that we can go back two years.
So, if you made £50,000 of profit last year, but due to Covid you made a substantial loss of £100,000 this year, under the old scheme you would be unable to go back and recover the £50,000 loss over and above last year’s profits.(instead you would have to carry the rest of the loss forward against future profits). Now you can carry all of the losses back against profits last year, and if necessary go back to the before that and use any of the profits there. And if there are still losses that haven’t been relieved, at that point you can go back to the year before. Any regained funds will come in as a tax refund, which could represent a massive cash flow injection for a number of businesses.
There was also good news for a number of the sectors we support. The chancellor announced the up-to-£500,000 “nil-rate band” for stamp duty will finish at the end of June, rather than the end of March, as planned, which will continue to drive activity in the housing market.
The government will also provide ‘Restart Grants’of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses, giving them a level of cash certainty to plan ahead and safely relaunch trading over the coming months. The government is also providing all local authorities in England with an additional £425 million of discretionary business grant funding, on top of the £1.6 billion already allocated. We will work with clients in these sectors to access these funds as they need them.