As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
Sunak pledged to do ‘whatever its takes’ to support the UK’s economic recovery, but also warned the pandemic has placed ‘enormous strains’ on the country’s finances and that the government must take steps to address this.
But what does this mean for businesses? What sort of support can you expect from the Chancellor and how might future tax hikes affect you?
Budget 2021 – key points
Furlough extensionPerhaps the most significant part of the Budget for individuals and businesses alike was the Chancellor's announcement that the government’s furlough scheme, in which it pays 80% of the wages of employees have been unable to work during the pandemic, will be extended through to the end of September.
However, there will be some tapering of the government’s support towards the end of the scheme, with employers expected to pay 10% towards the hours their staff do not work from July, with this contribution rising to 20% in August and September.
Corporation tax hikeAs part of the Chancellor's plan to rebalance the UK’s finances he announced that corporation tax on businesses with profits in excess of £250,000 will rise from 19% to 25% in April 2023.
Smaller UK businesses with profits of less than £50,000 will continue to be levied the 19% tax.
Business rates holiday extendedThe Chancellor also announced that the 100% business rate holiday for firms in England would continue through to the end of June.
This will be followed by 75% discount (up to the value of £2m per business) for the remaining nine months of the fiscal year.
The ‘super deduction’To help encourage investment in the UK, the Chancellor unveiled his ‘super deduction’ tax regime, which will allow firms to offset 130% of the cost of new ‘qualifying’ equipment against tax.
The move will enable business to cut their tax bill by 25% for each £1 they invest and has been hailed by Sunak as the ‘biggest business tax cut in modern British history’.
Hospitality VAT reliefIn an effort to support the hospitality industry (which has been one of the sectors hardest hit by the pandemic) the Chancellor announced that the 5% VAT rate will be maintained until the end of September.
An interim rate of 12.5% will then apply to the sector for another six months from October.
Business grantsSunak also outlined how the government will protect the high street, with a ‘Restart’ grant scheme worth £5bn to support shops when they begin to reopen.
This grant will provide £6,000 per premises for non-essential businesses when they start to reopen in April and £18,000 for some of the sectors worst hit by the lockdown restrictions – notably gyms, hospitality and leisure businesses.
What has the reaction been so far?
The general reaction to the budget from businesses has been largely positive, with praise for the VAT discounts and furlough extension, although there are (unsurprisingly) some concerns that the burden of tax hikes will fall on businesses.
Mike Cherry, National Chairman at the Federation of Small Businesses (FSB) said:
‘The continuation of business rates and VAT discounts is critical, and it’s important that those in supply chains benefit from them, not just those that neatly fit the definitions of frontline retail, leisure and hospitality. The new super deduction option sounds very promising, and we look forward to further detail on the investments it will cover.’
Dr Adam Marshall, Director General of the British Chambers of Commerce, commented:
‘Rather than targeting the broader public, the weight of tax rises will fall on the private sector – most notably with a rise in corporation tax to 25% in 2023 – a higher level than many were expecting.
‘Many businesses recognise that the Government’s generosity has to be repaid – but will worry that it will fall on a relatively narrow set of wealth creators, making the tax base more vulnerable to changes in economic circumstance and reducing our international attractiveness.’
Phil Smith, MD of Business West, suggests:
‘Businesses will welcome an extension of the full range of Covid-19 support measures, with the timescales longer than many were expecting. The extension of the furlough scheme, an extended and more targeted self-employed scheme, a new tranche of business grants and a new recovery loan scheme will all continue to provide a safety net for businesses through to the autumn. There will be disappointment, however, that limited company owners appear yet again to have been forgotten.’
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