Budget 2021: what does it mean for your business?

Published by Andrew Wallis on 3 March 2021

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Chancellor Rishi Sunak today delivered his first Budget since the conclusion of Brexit. Whilst there were hints of what the country’s position on the world stage might look like, it was a Budget that understandably focused on continued support for businesses and individuals affected by the COVID pandemic.

It was a Budget to provide a COVID-weary nation with a ‘financial breather’ but with announcements of significant increases in tax rates for companies and more subtle increases in tax for individuals in the not-too-distant future.

The Chancellor is giving tax-breaks on investment now to kick-start the economy only to claw it back in a few years’ time.

The Budget, as expected and trailed in advance, outlines several measures that will help businesses now and to plan for in the near future. Businesses will breathe a sigh of relief, but not for long….

We outline the top implications for businesses.

Increased Corporation Tax.

Undoubtedly, the Chancellor’s headline announcement is an increase in the headline rate of Corporation Tax on company profits from 19% to 25% from 2023. Small businesses with profits under £50,000 will remain at the 19% rate. Businesses with profits between £50,000 and £250,000 will see the reintroduction of a tapered rate and marginal tax relief calculations. It is also worth noting that where the Diverted Profits Tax applies this will be at a rate of 31%, so that it continues to deter businesses diverting taxable profits out of the UK.

Extended Loss Carry Back.

Those businesses that have been pushed into a loss-making position will be able to carry back losses for up to three years rather than the normal one year. This extension will apply for the tax years 2020/21 and 2021/22. Relief will only be available for losses of up to £2m and this cap will apply to groups as well as single companies. However, as well as the overall £2m cap, companies that are members of a group will be able to obtain relief for up to £200k of losses without any group limitation.

Super Deduction Tax Relief.

To encourage investment by companies, the Chancellor has announced a new Super Deduction Tax Relief, with tax relief of 130% on qualifying spend. This enables companies to receive 25p of relief for every £1 of eligible expenditure. Investment must be in new qualifying plant and machinery and be made in the next two years. There is no upper limit on the level of investment qualifying for this relief and it is only available to companies. Where an asset is subsequently sold there is a potential clawback of the super deduction to prevent abuse. A 50% first year allowance will also be available for qualifying special rate assets (including long life assets).

Furlough scheme extended.

The furlough scheme has been extended through to the end of September. However, from July, businesses will be required to contribute at a modest rate of 10%, increasing to 20% from August.

Recovery Loans.

The CBILS and Bounce Back Loan schemes will close on 31 March 2021 and will be replaced by a new Recovery Loan scheme. Businesses will be able to borrow between £25,000 and £10m, with lenders provided with an 80% guarantee from Government.

Business Rates holiday extended.

The Business Rates holiday has been extended through to the end of June and then discounted by two thirds until the end of the year. We should not be surprised if further reform of business rates is announced in 2022.

Support for businesses most impacted by COVID-19.

New Restart Grants are being made available for non-essential retail at up to £6,000 per premise. Businesses in hospitality, accommodation, leisure, personal care and gyms will be eligible for up to £18,000. The grants are to help businesses prepare for the lifting of COVID restrictions. The VAT reduction to 5% for the UK’s tourism and hospitality sector will be extended until 30 September 2021 before being increased to 12.5% until 31 March 2022 and returning to 20% thereafter.

Working from home – the new normal.

With the end of COVID still hazy and the scope for return to work in busy workplaces uncertain, the temporary tax and NIC relief for reimbursements by employers for home office equipment has been extended to 5 April 2022.

For practical reasons many employees have purchased necessary items personally to allow them to carry out their work from home. This could include computers, desks or other office equipment. The reimbursement by the employer of the amount spent on such items by an employee would ordinarily be subject to PAYE and National Insurance.  Under the exemption the amount reimbursed is tax and NIC free.

We will be regularly updating the Budget pages of our website. If you would like to discuss the implications, please don’t hesitate to get in touch. Alternatively, book your place on our Budget question time webinar on Friday 5 March 2021 to find out more.

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