A year is a long time in politics. In the Budget 2020, the Chancellor earmarked £12 billion for COVID expenditure, at this year’s Budget the total spend was heading towards £407 billion. This is a huge amount of money that will take generations to repay, thankfully the Chancellor is not looking to start the repayment just yet but he has set out his agenda and it includes substantial tax rises all round.
This blog will not cover the information printed in the newspapers on the personal allowance and tax thresholds but will focus on the areas that are of most interest to our clients.
- The furlough scheme will continue until September although from July employers will be expected to contribute (this will be at 10% in July, and 20% in August and September). For those of you who claimed in summer 2020 this will look the same.
- The self-employed will be able to obtain up to two more grants. The newly self-employed who missed out on the first three grants will be able to claim provided the tax return for 2019-20 was been submitted to HMRC before Budget day.
- The fourth self-employed grant will be at 80% but the fifth grant may be restricted depending on profits. If profits have fallen by more than 30% then the full 80% grant is available, if profits have fallen less than 30% then the grant will be at 30%.
- There is a new re-start grant for rateable business of £6000 for non-essential retail and up to £18,000 for personal care and entertainment.
- There is a new loan scheme to replace the Bounce Back Loan and CBIL scheme, with an 80% government guarantee. The banks were very wary of issuing loans to struggling businesses in Summer 2020 without a 100% Government guarantee and I expect the same will be true in Summer 2021. If you want a Government loan I would recommend applying soon.
- The Government is to set up a “Help to Grow” executive training programme to help small business owners update their skills and IT, software knowledge and capabilities.
On the tax side
- Under current tax legislation tax losses for a year can be carried back to the immediately prior year to obtain a tax repayment. The loss carry back period has been extended to 3 years, so for companies that have been loss making a tax repayment will come your way.
- For most of our clients the purchase of equipment can be claimed as an “expense” in the year of purchase. Technically this is done through the capital allowance regime. From 1 April 2021 these purchases will qualify for a deduction of 130% of the cost, so please delay any purchases until April.
- The legislation to change the assessment of IR35 was passed in the Finance Act 2020. The start date for this legislation is 6 April 2021 and this has not ben deferred.
Chancellors cannot be trusted to implement policy decisions announced in a Budget for future years. For the moment, THIS chancellor intends to recoup tax from individuals by threshold creep, gradually more people will earn more and breach the personal allowance threshold to become national insurance payers and taxpayers. Similarly more tax payers will breach the higher rate threshold and become 40% tax payers. This measure is expected to raise £19 billion by 5 April 2026.
Corporation tax will increase on a sliding scale from 19% to 25% for companies with profits exceeding £50,000. For most of our contractor clients their tax should be limited to 20% (profits up to £100,000)
If you have any questions on how the Budget measures might apply to you then please contact Clearways Accountants.