The Chancellor Rishi Sunak presented his second Budget on Wednesday 3 March 2021 with COVID in mind to “protect jobs and livelihoods”.
What did he announce in the Budget 2021 and what do the changes mean for you?
The Chancellor announced that the Corporation Tax rate would remain at 19% but would increase to 25% in April 2023, with a tapered relief scheme in place for businesses with an income of £50,000 to £250,000.
If a company earns profits of £50,000 or less, you will be subject to the 19% profits rate. Above £50,000 of income, there would be a taper, and only companies earning £250,000 or higher-paying the total 25% tax rise.
Businesses that have accessed earlier COVID-19 loan schemes will still be eligible for finance under the new scheme if they meet the eligibility criteria
The Chancellor commented:
“I’m protecting small businesses with profits of £50,000 or less by creating a Small Profits Rate, maintained at the current rate of 19 per cent. This means around 70 per cent of companies – 1.4 million businesses – will be completely unaffected.”
Recovery Loan Scheme
In his Budget on Wednesday, he also announced a succession plan for the Recovery Loan Scheme to take effect from 6 April, which would provide companies with loans ranging from £25,000 to £10 million, with the government guaranteeing 80% of the loan value.
The chancellor’s announcement, together with the previous lockdown exit plans, will give companies the additional lifelines they need to succeed.
Chancellor Rishi Sunak declared in the Spring Budget that the Self-Employment Income Support Scheme (SEISS) would be extended until the end of September in the form of further grants (fourth and fifth grant). Further information can be found on the .Gov website
This suggests that over 600,000 people, many of whom are new to self-employment in 2019-20, will be qualifying for SEISS for the first time. Many other qualifying requirements would be the same as they were with the third grant. In due course, more information will be published.
Capital Gains Tax
No amendments to the current CGT rates were announced in the Budget. This means that the rate will remain at 10% until an income tax base rate band becomes available, after which it will increase to 20%. Certain gains, mostly chargeable gains on residential housing, are subject to higher rates of 18% and 28%, respectively, except for any factor that qualifies for Private Residence Relief.
There has been an uptick in corporate transactions and exits in recent months, as owners have sought to sell their shares or properties while the tax on their gains is noticeably smaller.
Changes to BADR
BADR is a tax break that means business owners pay less Capital Gains Tax on disposal of assets (including shares), up to a current allowance of £1m (compared with the previous limit of £10m). It was almost universally assumed that Rishi Sunak’s new budget would include a change to Business Asset Disposal Relief (BADR). The predicted abolition of BADR would have meant that business owners would have paid the higher rate of Capital Gains Tax.
The removal of BADR seems to have been on the Treasury’s agenda for some time, and it now appears to be a matter of when, rather than if, and it is highly anticipated that one will be made in the Autumn of 2021. As a result, any company owner planning to exit and profit from the tax relief should strongly consider doing so as soon as possible.
What to do next?
MQSP can provide you with the financial clarity and answers you need to make a fully informed decision about the future of your business. For those who require advice on Corporation Tax, Capital Gains Tax or if you’re self-employed and need a helping hand, we’re here to offer you the peace of mind you need.