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2021 Budget – path to recovery for UK businesses

Mar 4, 2021

The Chancellor, Rishi Sunak announced this week the hotly anticipated 2021 Budget. Many investors and business owners breathed a sigh of relief when the predicted increase in CGT rates was left out.

Business owners should also be encouraged by the Budget proposals, which are focused on stimulating business growth as we move into a post-Covid world. We take a look at some of the measures introduced and how businesses can benefit from these.

Corporation Tax – no increase until 2023

Businesses will continue to benefit from low corporation tax rates of 19% for two more years. From 1 April 2023, the rate will increase to 25% for only the largest companies (those with profits greater than £250,000). Businesses with profits under £50,000 will continue to benefit from the 19% rate, which is good news for start-ups and smaller businesses.

The two year delay in introducing the change gives businesses time to plan and work out how best to utilise tax savings in the interim period.

Super-deduction tax saving

One of those tax savings introduced is the “super-deduction” capital allowance. This provides businesses with a cashflow benefit in the short term as they can deduct up to 130% of new capital investment from their overall taxable income. According to the Chancellor, this can reduce tax bills by up to 25p for every £1 invested on qualifying plant, machinery and special rate assets. The rate of 130% applies to new plant and machinery and a 50% rate applies to qualifying special rate assets.

We anticipate that this will stimulate businesses investing in equipment which will allow them to increase productivity and grow over the next two years.

Extension of loss carry back

Not all businesses are currently in a position to invest due to the impact of the pandemic. There is some welcome news for those businesses who made trading losses in accounting periods 2020/21 and 2021/22 in the form of extension of loss carry back relief. Losses can be carried back and offset against profits from up to three years up to a maximum of £2million.

Depending on year end dates, some companies will have already submitted their 2020 tax returns and may need to look at changing their year end dates in order to maximise their benefit.

Recovery loan scheme

Sunak has introduced a replacement to the Government’s CBILS and Bounce Back Loan schemes which come to an end this month. The Recovery Loan Scheme will allow businesses of any size to apply for loans between £25,000 and £10million until the end of this year. £73billion has been lent to date under CBILS and the other Covid-19 loan schemes, so it is anticipated interest will be high. The scheme should allow businesses to recover pre-Covid trading levels by providing additional short-term working capital.

Retail, tourism and hospitality industries

The hard-hit industries have been provided with continued support to help them trade out of the pandemic. The tourism industry will continue to benefit from a reduced VAT rates of 5% and the hospitality industry from 12.5%. For the retail sector, the year-long business rates holiday has been extended for a further three months.

How can we help?

For further information, or to discuss the issues raised by this update, please contact our Corporate team on 01276 686222 or at yavan.brar@herrington-carmichael.com.

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Yavan Brar

Yavan Brar

Managing Partner, Head of Corporate and Commercial

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