Budget 2021 and what it means for small business

Furlough and Covid financial support set to be extended, while Treasury keeps on business rates suspension for many

Budget 2021 and what it means for small business

As expected, Chancellor Rishi Sunak has extended furlough until September, launched a Help to Grow digital training and grants scheme aimed at small business and extended self-employed Covid-19 financial support to a further 600,000 people.

In total, the extensions to furlough, self-employed support, business grants, loans and VAT cuts will bring total Covid-19 fiscal support to over £407bn.

Commenting on today’s Budget and its implications for small business One World Express CEO Atul Bhakta said: “Naturally, the devil will be in the detail – and I eagerly await the full publication of Mr Sunak’s plans. For now, however, today’s Budget has certainly given UK businesses cause to be optimistic about the future.”

Steve Taklalsingh, managing director UK business at fintech Amaiz, said: Overall it is a budget that aims to fill the black hole in the treasury finances by boosting investment and the economy, rather than collecting more tax.  It goes directly against the austerity measures of previous Conservative Governments. It will be interesting to see the impact.”

However, Toby Harper, CEO of Harper James Solicitors, was dismissive of the Budget and what it offers the UK’s 5.9m small business owners.

Harper said: “Rather than producing costly-promotional videos on the job he has done so far, the Chancellor needs to roll up his sleeves and deliver the kind of fiscal support and investment that will help free Britain’s entrepreneurs to rebuild our shattered economy.”

Small business exempt from corporation tax hike

Any small business with profits of £50,000 or less will be exempt from the corporation tax increase to 25 per cent from 2023. This means that around 70 per cent of companies will be exempt from the corporation tax hike. A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25 per cent rate.

However, Mark Williams, CEO of London-based IT company Pensar pointed out that although more than two thirds of businesses will be exempt from the corporation tax hike, businesses with profits of just over £250,000 are also still relatively small.

Williams said: “The revised corporation tax rates are extremely disappointing and are another slap in the face to SMEs that form the bedrock of the UK economy. A company with profits of £300,000 is in a different world altogether to a company with profits of £300m. Just because you’re turning profit of more than £250,000 doesn’t suddenly make you Google.”

>See also: Rishi Sunak eyes hiking corporation tax even higher to 25%

Restart Grant

Grant funding will be available to businesses in England through a new £5bn Restart Grant scheme to help the high street, providing up to £18,000 for leisure and hospitality businesses and £6,000 for non-essential retail, bringing the total spent on business grants to £25bn.

>See also: Restart Grant for your small business – what is it and where to claim

Help to Grow scheme

Around 130,000 small and medium sized businesses will be supported through the new Help to Grow scheme, which will provide the digital and management tools and training.

Any small business can apply for a £5,000 grant to pay for Government-approved productivity software.

However, Toby Harper, CEO of specialist small business law firm Harper Jones Solicitors, poured cold water on Budget 2021 and the Help to Grow scheme.

Harper said: “Entrepreneurs will feel particularly short-changed by voucher based schemes and a Help To Grow package which is nowhere near far enough in its level of ambition.

“If the Chancellor thinks his plan to give vouchers to get up to 50 per cent off new productivity enhancing software will provide some kind of a quick fix he is mistaken.

“The advent of SaaS businesses means enterprise grade software is already affordable to smaller businesses. So this feels like a cheap ploy dressed up to look like a huge benefit to businesses.”

>See also: Government to launch £520m Help to Grow scheme for SMEs

Coronavirus Job Retention Scheme

Coronavirus Job Retention Scheme will be extended to September.

However, Tide CEO Oliver Prill said that September would be too soon to withdraw support: “With one in five small businesses expecting to make redundancies once the furlough scheme ends there will be huge pressure for small businesses to return to pre-Covid revenue levels in just a matter of months. Pulling the furlough scheme and all other financial support from under small businesses’ feet so soon may pose a real danger.”

Self-Employment Income Support Scheme

Self-Employment Income Support Scheme (SEISS) will continue with a fourth and a fifth grant. The Chancellor announced that more than 600,000 people, many of whom became self-employed in 2019-20, may now be able to claim direct cash grants under SEISS.

However, self-employed company directors who pay themselves in dividends rather than PAYE were again excluded from support.

Mike Cherry, chairman of the Federation of Small Businesses, said: “Ensuring the newly self-employed can now access support marks a big step forward – we’re pleased our campaign has been heard – but directors, who appear to have been left out yet again, will be incredibly disappointed.”

Paul Asbridge, founder of West Midlands-based entertainment company, Jam Hot,  added: “For the Chancellor to stand up and say this Budget protects businesses and that he has done whatever it takes to support everyone in the economy is an insult to millions of small company directors like myself who have received very little help at all. The self-employed may have received £33bn in grants, but small company directors have been kicked into the long grass. We’re being offered more loans but that’s more debt that we just cannot afford to take on.

“The Chancellor is lucky that small business owners like me love what we do, although to an extent he’s probably playing off the back of that knowing we’ll just take it on the chin.”

>See also: Self-employed to be offered fourth and final £7,500 grant in Budget

Recovery Loan Scheme

A new Recovery Loan Scheme will also be launched to replace the existing Government-guaranteed Covid-19 financial support schemes that have supported £73bn of lending to date and close at the end of March.

The Recovery Loan Scheme is scheduled to run until December 31 2021, but this is subject to review.

Details of the scheme include:

  • Up to £10m facility per business:  The maximum value of a facility provided under the scheme will be £10m per business. Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts
  • Turnover limit: There will be no turnover restriction for businesses accessing the scheme
  • Wide range of products: Businesses will be able to choose from a variety of products: term loans, overdrafts, asset finance and invoice finance facilities
  • Term length: Term loans and asset finance facilities are available for up to six years, with overdrafts and invoice finance available for up to three years
  • Interest and fees to be paid by the business from the outset: Businesses will be required to meet the costs of interest payments and any fees associated with the facility
  • Access to multiple schemes: Businesses who have taken out a CBILS, CLBILS or BBLS facility will be able to access the new scheme, although the maximum they are allowed to borrow will depend on their lender’s assessment and scheme requirements
  • Credit checks for all applicants: Lenders will be required to undertake credit and fraud checks for all applicants. When making their assessment, lenders may overlook concerns over short-to-medium term performance owing to the pandemic. The checks and approach may vary between lenders

Commenting on the Recovery Loan Scheme, Institute of Directors director general Jonathan Geldart said: “The recovery loan package will offer a helping hand to many firms, but more needs to be done to catalyse equity investment in our cash-starved start-ups and scale-ups.” 

>See also: Recovery Loan Scheme up to £10m will replace CBILS and BBLs

Super-deduction tax break for investment

Mr Sunak also announced a “super deduction” tax break for companies investing in new equipment beginning April 2021. This will cut companies’ tax bills by 25p for every pound they invest meaning they can reduce taxable profits by 130 per cent of the cost.

This is worth £25bn to businesses over the two-year period the super-deduction will be in effect.

According to accountancy firm MHA MacIntyre Hudson, if you spend £100,000 on equipment for your small business, the corporation tax deduction will be £130,000, giving corporation tax relief at 19 per cent on £130,000, which is £24,700.

Normally such expenditure would either fall within a company’s annual investment allowance and produce relief of only £19,000 or alternatively be tax-relieved at 18 per cent of the cost per annum.

Business rates holiday

The business rates holiday in England has been extended by an additional three months. That means 750,000 retail, hospitality and leisure properties in England will pay no business rates for three months from April 1 when combined with Small Business Rates Relief, with further relief available for the rest of the year.

Reduced VAT for tourism and hospitality

The Government has extended the temporary 5 per cent reduced rate of VAT until September 30 2021. To help businesses manage the transition back to the standard rate, a 12.5 per cent rate will then apply for a further six months, until 31 March 2022.

Mr Sunak said this would continue supporting the 150,000 businesses in the tourism and hospitality sectors and protect 2.4m jobs.

Live blog

13:16: Mr Sunak confirms Help to Grow scheme, which will consist of two prongs: Help to Grow offering tens of thousands of small businesses get management training from business schools. The Government will cover 90 per cent of training costs.

Help to Grow Digital will offer grants worth up to £5,000 for each small business to upgrade digital technology to boost productivity, as well as free expert training. Mr Sunak called this “a real commitment to help over 100,000 businesses become more competitive”.

Mr Sunak added: “Too often smaller firms do not have the time or resources to invest.”

13:10: Chancellor announces “Super Deduction” tax break for business investment worth £25bn over two years. This means that businesses investing in themselves can claim 130 per cent of what they invest in themselves.

“We’ve never tried this before,” said Mr Sunak. “The OBR predicts that business investment will increase by 10 per cent because of this Super Deduction.”

13:05: Small businesses with profits under £50,000 exempt from corporation tax increase from 19 per cent to 25 per cent in 2023. This means that 70 per cent of businesses or 1.4m small firms will be unaffected by the corporation tax increase.

Businesses with profits higher than £50,000 will have a stepped increased.

Only 10 per cent of UK businesses will pay the full 25 per cent corporation tax rate in 2023.

12:54: Recover Loan Scheme confirmed to replace existing Covid-19 financial support schemes. Businesses will be able to borrow anything between £25,000 and £10m. The Recover Loan Scheme will run until the end of 2021 and the Government will guarantee 80 per cent of loans.

12:51: Restart Grant scheme confirmed, offering non-essential retail businesses up to £6,000 per premises when they reopen in April. Leisure and hospitality businesses set to reopen on May 17 will be eligible for grants of up to £18,000.

In total £5bn has been spent on business grants to date.

12:46: Support for self-employed through the Self-Employed Income Support Scheme extended again for a fourth and fifth time, ensuring grants until May.

After that date, self-employed people whose income has fallen by 30 per cent will continue to receive a grant.

An additional 600,000 self-employed people will be brought into the scheme.

To date, £33bn has been spent supporting the self-employed.

12:44: Rishi Sunak announces furlough scheme to be extended until end of September at current 80 per cent level of salary for hours not worked.

From July businesses will be asked to contribute 10 per cent of furlough cost.

From August through to September businesses will have to cover 20 per cent of furlough cost.

12:35: Chancellor Rishi Sunak says Office for Budget Responsibility forecasts economic growth will be 4 per cent in 2021. The recovery is expected to happen much faster so that we should be back to pre-Covid levels by April 2022.

However, because of Covid the size of the economy will still be 3 per cent smaller than it would have been in five years’ time if the pandemic hadn’t happened.

Further reading on Budget 2021 and small business

What coronavirus business support is available from the government?