Two years to invest and regenerate - then payback time
If the economy is to recover, regenerate and grow, it needs significant and sustained investment.
For businesses, in particular SMEs, the Budget was full of investment incentives. It was a Budget that clearly signalled that business is central to the economic prosperity of the nation and key to our ability to play a central role in the development of the new world economy. The Budget also signalled that the people that start, run and back businesses matter, and that they must be encouraged and rewarded for taking risks and investing in the UK. Around £20 billion has been assigned to stimulate business investment, including:
- Capital Investment - From 1 April 2021 to 31 March 2023 businesses can claim 130% capital allowances on qualifying investment in plant and machinery. The ‘super-deduction’ will apply to investments that ordinarily qualify for 18% main rate writing down allowances. A first-year allowance of 50% also applies on investments that normally qualify for a 6% special rate writing down allowance. These are super-attractive savings and the Annual Investment Allowance limit of £1m has been extended until 31 December 2021.
- Corporation Tax – From April 2023, businesses with profits over £250k will start paying 25% corporation tax. For businesses with profits less than 50k, corporation will remain at the current rate of 19%. That means businesses with profits over 250k have a two-year window in which to benefit from a 6% lower rate of corporation tax – and an even lower rate if businesses start take advantage of the two-year window of 130% capital allowances. Losses will be able to be carried forward for longer.
- Extended VAT Reliefs – For hospitality businesses that are in the fortunate position of trading and having cash in the bank, the extension of the 5% VAT rate and the prospect of a 12.5% interim rate thereafter will provide a short window in which they could use any excess cash for investment. And take advantage of 130% capital allowances.
- Investment in People – Incentives and subsidies to support job retention, job creation, reskilling and recruitment of apprentices were announced. Furlough will now be extended to the end of September, with tapered payments of 10% starting in July and then again in September. SMEs will be able to reclaim up to 2 weeks statutory sick pay. £126m is being made available to support traineeships and SMEs can claim £3000 to employ an apprentice.
- Readiness Grants – In England, cash is being made available to help ensure businesses can reopen. This includes a business rates holiday extension until June, followed by a 75% discount thereafter; a £5bn restart grant for businesses forced to close; £6k per premises for non-essential outlets due to open in April and £18k for gyms, personal care providers and other leisure businesses. The UK government has given consequential increases to Barnett which could enable similar support packages in Scotland.
- Frozen Duties – Fuel and alcohol duty has been frozen, which is a boost for Scotland’s thriving whisky and craft spirits industries, and a welcome tonic for the hard-pressed transport and haulage industries. Again, these savings will free up cash that businesses can use for investment, and in turn claim the tax reliefs.
- Recovery Loans – If CBILS and BBLs were the acronyms for 2020, they will gradually become displaced by the RLS (Recovery Loan Scheme). Businesses of any size can access loans and other kinds of finance up to £10 million and once received, the finance can be used for any legitimate business purpose, including growth and investment, again taking advantage of the 130% capital allowance. The government will guarantee 80% of the finance to the lender and the scheme runs from 6 April to 30.
However, whilst the Chancellor clearly wants to incentivise businesses to invest, he also needs a relatively quick return on the investment for the Treasury.
Businesses essentially have a two-year window in which to recover, regroup and regenerate. With careful planning and use of the short-term reliefs, grants and other incentives, it should be possible to invest to save, and save whilst investing. If his plans work, the UK economy could be back on its feet sooner rather than later.
However, assuming it does recover the corporate tax collector will come calling, but broadly speaking not until 2023.
In the meantime, extra cash will be squeezed out of the economy by the freezing of Inheritance tax thresholds, pensions life-time allowances, annual capital gains tax exemptions, tax-free allowance and the higher rate tax threshold. Dividends are also set to become less attractive as a form of remuneration, which will impact on many owner directors.
This was a Budget that really did seem to put business at the heart of the UK’s recovery and regeneration. Business owners should be encouraged to take advantage of the incentives, they will not be here for long.
Have you been affected by the Budget?
If you have any queries regarding the Budget 2021 announcements and the impact they may have on you or your organisation, please get in touch with your usual Azets contact or a member of our Tax team.