Finance · 23 March 2021

Budget 2021 and what it means for small business

Small business

Chancellor Rishi Sunak has spoken. Unusually there was not too much wailing and complaining flung back at him, and the hubbub was generally positive.

One of the red flags raised was that the strength of the budget depends on Covid-19’s continued disappearance. The appearance of new strains has caused a wobble in market confidence.

Some business leaders labelled the budget as “great news”, praising small businesses’ extended support. The management training that was listed was seen as a big value add for the stabilisation and longevity of SMEs.

The inclusion of the last tax return in the SEISS grant will benefit many self-employed people who had one of the toughest start-ups ever during the pandemic.

Tax increase

Sole Traders are not affected by Corporate Tax, but there are still a lot of small businesses that do trade as Limited Companies. The smaller businesses will not have a tax increase, but the larger companies will see a rise in corporate tax (up to 25%), albeit a staggering rise with changes coming in from April 2023.

The number of loans that have been taken out by individuals and businesses is at a risky, high level. This, and other economic factors, are on a balancing point which needs strong economic growth over a long period of time to achieve stability.

The 25% rate is still the lowest of the G7 countries.

Small businesses

There has been an increased acknowledgement of the importance of small businesses in the UK’s economy. The wider inclusion of the newly self-employed to support benefit categories was far overdue, and the allocated benefit might be too little too late. Those who will benefit from this new support are the plethora of start-ups.

It is unfortunate that the knowledge of long term support was not known before the formal announcement. Many small businesses are severely stressed, scrambling from one announcement to another, wondering when the ‘end-of-funding’ announcement was going to be made.

Small businesses that are earning over £50k profit can breathe a sigh of relief, knowing they are excluded from tax increases.

Benefits

SMEs should definitely use the upskilling benefits offered as two critical aspects of business growth are addressed by the government’s offer: digital and management training.

Astute management skills and a digital presence have been proven to be the difference between a business folding or a business surviving.

The treasury finance requirements are hoping to be addressed by increased investment and an economic growth spurt. The traditional taxing businesses were not seen as beneficial, an innovative approach by the Conservative Government.

Some economists and business consultants have expressed their concern that September is a flawed deadline for stopping financial support. It is believed that 20 per cent of SMEs have planned severances for when the furlough scheme ends.

Budget overview

Help to Grow – this is providing digital training and a grants scheme for SMEs and sole traders. The Government will cover 90 per cent of training costs. Additionally, any small business can apply for a £5,000 grant to pay for Government-approved productivity software.

Tax increase exemption – this relates to businesses with profits of </=£50,000 and the corporate tax increase to 25 per cent from 2023. Based on a sliding scale, only businesses with >£250,000 profits will be taxed at the full 25 per cent rate.

This translates into 1.4 million unaffected or benefitting small businesses, with approximately 10 per cent of UK businesses paying 25 per cent.

Restart Grant – for businesses in England providing grants of up to £18,000 for leisure and hospitality businesses when they reopen on May 17. There will be a grant of up to £6,000 for non-essential retail per premises when they reopen in April. 

Coronavirus Job Retention Scheme – has been extended the furlough but only until September.  It will be maintained at the current level, which is 80 per cent of salary for hours not worked.

The government will be asking businesses to contribute 10 per cent towards the cost as of July.  This expectation will increase to 20 per cent in August. Then in September, it ends.

Self-Employment Income Support Scheme – will continue with a fourth and a fifth grant which means grants will be paid until May.  Thereafter, sole traders whose income has fallen by 30 per cent will still qualify to receive this grant.

The government is expecting to be approached by an additional 600,000 self-employed people requesting to be brought into the scheme.

At the time of the announcement, £33 billion has been granted to support the self-employed.

Self-employed company directors paid via dividends, not PAYE, were excluded from support.  This raised a lot of criticism as the Chancellor had said the Budget protects businesses. Still, millions of small company directors, who have received almost zero help, are again overlooked and excluded. Small company directors are suffering from this stiff financial kick. More loans are not the be-all and end-all as that is more debt that could be digging a deeper grave for the company.

Recovery Loan Scheme – will replace the existing Government-guaranteed Covid-19 financial support schemes and will run until December 31 2021. Businesses can borrow between £25,000 and £10 million. The Government has formally guaranteed that they will issue out 80 per cent of loans requested.

It was announced that a total £5 billion had been issued in lieu of business grants at the time of the announcement.

Super-deduction tax break for investment – for investment in new equipment beginning April 2021 worth £25bn over two years. Businesses can claim 130 per cent of what they invest in themselves. The government is expecting a 10 per cent increase in investment.

Business rates holiday – extended by three months. Reduced VAT for tourism and hospitality – the temporary 5 per cent reduced rate of VAT until September 30 2021.  A 12.5 per cent rate will apply from then until 31 March 2022 to support the 150,000 businesses and 2.4 million jobs. 

The Office for Budget Responsibility has stated that they expect an economic growth rate of 4 per cent, retrospectively, in 2021. The government believes recovery will happen much faster than previously expected, and normal levels, i.e. pre-Covid, should be achieved by April 2022.

Despite this growth rate, the overall size of the economy is expected to be 3 per cent smaller than the predictions that were issued pre-Covid.

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