Budget implications for small businesses
Yesterday Chancellor Rishi Sunak announced perhaps the most anticipated and important budget of our generation.
It’s been quite a year for everyone and no business - large or small - has been unaffected by what we would have described as a rare and unlikely event, until we all experienced the wave of a global pandemic for ourselves. Whilst we’re still going through it, thanks to falling infection rates and rapid vaccine roll-out, there does seem to be light at the end of the tunnel. However, the economic implications of the last 12 months are really only just being seen and are likely to be felt for many years to come.
The financial impact of the pandemic will likely be felt most acutely by small businesses in the coming months. Those that are able to make use of available government support and plan accordingly, we hope will make it. So let’s look at the highlights of what the chancellor is going to do to support arguably the most important, and vulnerable, sector of the economy.
Immediate Changes Announced by the Chancellor
1. Furlough Scheme Extended
The “80% of salary” furlough scheme will be extended to September with a phasing out approach that begins in July when businesses will be asked to contribute 10% towards furlough costs and 20% in August.
Furlough has been a lifeline for many small business owners throughout the pandemic. It has allowed them to keep trained staff employed, which will certainly ensure they can return to business faster by keeping the experience and knowledge of their existing team. As well as supporting team members and ensuring that they are kept off the unemployment register. Though frankly it has been pretty inadequate for many small limited owner-directors.
More details can be found here: https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
How we can help you. We will continue to provide free of charge furlough claim submissions to our clients.
2. Self-Employed Grant Extended
The Self-Employment Income Support Scheme (SEISS) will continue with a fourth and a fifth grant running up to September. This is another essential lifeline and welcome news to many.
There is also finally some potentially good news for the "forgotten" - those new businesses who were ineligible to receive any grants last year.
The fourth government grant will be based on your 2019/2020 self assessment tax return, which means those with newer businesses previously excluded from the grants are now included. It will cover the three-month period from February until the end of April. As with previous SEISS grants, it is worth up to 80% of trading profits, averaged over three months, up to £7,500 in total.
If you are not eligible based on this tax return they will look at previous years as far back as 2016/2017. This grant will be available from late April.
The fifth grant will be available for claims from late July and covers May to the end of September. It will be calculated based on how much your turnover has been reduced between April 2020 - April 2021. If your turnover has fallen by at least 30% then you can apply for a grant for up to 80% of profits, up to a value of £7,500 in total. Those whose income has fallen by less than that can apply for up to 30% of trading profits capped at £2,850.
More details can be found here:
How we can help you. If you are unsure of your eligibility or if we can help you with the information you need to apply for the grants please get in touch.
3. Minimum Wage Increase
The national living minimum wage will be increased by 2.2% to £8.91 from April 2021.This applies to any employees you may have over the age of 23.
The impact of this will be softened by the current furlough scheme but no doubt this increase will be felt by many small businesses. The idea is that the increase will put more money into the pockets of consumers and will help small businesses as those consumers begin to spend again, which we hope will offset the costs to employers.
How we can help you. We offer advice and support alongside our payroll services which includes setting rates of pay and ensuring you meet the minimum wage requirements.
4. No Changes to Income Tax or NI
There were no changes to income tax or national Insurance which is great news for small business employers. The better news is that the thresholds before employees pay income tax is increasing in April to £12,570 for the lower rate of 20% and £50,270 for the higher rate of 40%. These will then be frozen for five years, arguably putting more more money into the pockets of consumers to spend with small businesses.
How we can help you. Whether self employed or owner of your own small limited company we can advise you on how ensure you are tax efficient as possible.
5. Business Rates Relief & Discount
The business rates relief will continue until June followed by a 75% discount for a further six months. This is a significant lifeline for many small businesses as this tax holiday was due to end this month.
We hope this government website with more details will be updated soon:
How we can help you. We offer a range of cashflow planning solutions to help you plan the change in your income and outgoings in the coming months.
Future Changes Expected
Rise in Corporation Tax
The anticipated rise to Corporation Tax from April 2023 to 25% (currently 19%) has caused quite a stir. But don’t panic! This corporation tax hike will no doubt strike fear into the hearts of many owner-directors of small limited companies who have already had a rough ride of it recently, but there is good news in the form of low profits and taper relief.
In layman's terms if your annual profits are less than £50k your corporation tax will remain at 19%. If you are making higher profits than that but still below £250k per year then there will be additional reductions to that rate. It will only be larger companies with profits in excess of £250k that will pay the full 25%. Phew!
How we can help you. Tax planning is important in any business, while important that you pay the right amount of tax there are lots of steps you can take to minimise your tax burden. Arrange a mid-year review with us to ensure you making all the right decisions from a tax perspective.
Super-Deduction Tax Break
If your business makes large purchases such as equipment they will have a deduction for tax of 130% of the cost - yes that’s an extra 30% on top of the cost of your outlay that will be set against your taxes. This is designed to encourage all businesses to spend and invest in themselves, which will support regrowing the economy as well as ensuring businesses are supporting their own business growth.
How we can help you. Let us help you to understand how your business can benefit from this.
As expected, it's a mixed bag with some winners and losers. Some changes designed to put more money into the pockets of consumers will help small businesses as those consumers begin to spend again. Whilst much of this sounds like good news for small business (ok, the future corporation tax hike probably isn’t what you wanted to hear) there are going to be some self employed business owners who will continue to struggle.
Millions have been excluded from the government support either because their businesses were new or because they receive payment from company dividends as well as salary. Sadly this hasn’t been fully addressed and the “excluded” will continue to struggle.
There are some other schemes that we believe will be able to support the small business sector.
Help to Grow
Two programmes will be available to support small business growth this year, which we believe are well worth investigating because of the incredible amount of free or low-cost access they offer to experts and mentors.
Help to Grow: Management
A 12 week-programme delivered by leading business schools across the UK. The programme will combine a practical curriculum, with 1:1 support from a business mentor, peer-learning sessions and an alumni network.
The minimum requirement is that you employ between 5 - 249 employees. It’s 90% funded by the government. The fee to participate is £750. The Programme begins this June.
Register your interest here: https://smallbusinesscharter.org/help-to-grow-management/
Help to Grow: Digital
We have less details on this programme but the current outline is that small businesses will be able to get free impartial advice on how technology can boost their performance through a new online platform.
Eligible businesses will also be able to get a discount of up to 50% on the costs of approved software, worth up to £5,000.
The minimum requirement is that you employ between 5 - 249 employees. The Programme begins in Autumn.
Register your interest here: https://register-help-to-grow-scheme.service.gov.uk
The Restart Grant scheme is set to help small business owners including those running shops, pubs, clubs, hotels restaurants, gyms and hair salons. Non-essential retail businesses could get up to £6,000 per premises to help them reopen (after 12 April or later). More Restart Grant money will be available for any small business in hospitality, accommodation, leisure, personal care and gyms, which will reopen later and will be more affected by restrictions. They can receive up to £18,000, depending on their rateable value. Restart Grants are administered by your local council.
There are fiscally tough times ahead for everyone but none more so than for small businesses who collectively are the biggest contributor to the economy but just don’t have the voice or power to negotiate/lobby at the same level or manage to avoid scrutiny like big business and multinationals.
We implore everyone to continue to support local small and local businesses as much as you can because they are the heart and soul of our communities and provide essential services to all of us.
For more details on the budget read here: https://www.gov.uk/government/news/budget-2021-what-you-need-to-know
If you need help to manage your accounts or understand the impact of these latest measures, please get in touch:
☎️TEL: 01480 775 611