The 2021 UK Budget will have a profound impact on SMBs, with the government introducing a raft of measures specifically aimed at helping SMBs bounce back from the economic fallout of COVID-19.
Let’s explore what the budget means for UK SMBs before outlining how SMB owners can take advantage of the opportunities that it offers. By the way, if you are looking for help with accounting work for UK companies, so that you can focus on your business.
Fortunately, the furlough scheme isn’t over just yet for UK SMBs.
The Coronavirus Job Retention Scheme
Chancellor Rishi Sunak has extended furlough until 30 April 2021. The Government will continue paying 80% of employees’ wages, but by July, employers will be expected to pay 10% of their employees’ pay at a monthly cap of £2,500 per month. This will rise to 20% in August and September.
This is a major lifeline for SMBs. With Britain still under lockdown for the time being, economic recovery will be slow going for a while yet. Thanks to this announcement, however, SMBs can subsidise large portions of their wage bill when it comes to paying furloughed employees.
Dama’s cafe has yet to fully reopen. Thankfully, she can avoid making any layoffs and continue to support her furloughed staff with the help of the Coronavirus Job Retention Scheme. As her cafe opens up later on this year and begins to recover from the past year, she will gradually increase the portion the cafe pays towards her furloughed employees’ salaries.
Tax Breaks and Relief
There are numerous tax-related changes that SMBs need to be aware of moving forward.
From April 1st 2023 onwards, Corporation Tax will rise from 19% to 25% for all companies boasting annual profits over £250,000. While such a sharp increase might seem catastrophic for UK SMBs, it’s worth pointing out that this will likely only affect 10% of companies—with larger corporations bearing the brunt of this hike.
Companies whose profits lie somewhere between £50,000 and £250,000, however, can actually claim a certain portion of marginal relief. This means that they will only face gradual increases in the Corporation Tax, paying anywhere from 19 - 25% on all taxable profits (depending on the company’s unique circumstances).
But wait—that’s not all.
Businesses with profits of under £50,000 will continue to be taxed at 19% via the ‘Small Profits Rate’. In other words, despite the scary headlines surrounding 6% increases, small SMBs that fit into this category won’t actually have to pay any more Corporation Tax.
Steven runs a small, three-person company selling boutique homemade jam to supermarkets. They usually record annual profits ranging from £30,000 - £45,000. If their profits from April 1st 2023 - April 1st 2024 stay under £50,000, then Steven’s company will pay 19% on all taxable profits under the Small Profits Rate.
Sarah, on the other hand, runs her own architectural practice that records average annual profits of around £100,000. If her profits from April 1st 2023 - April 1st 2024 are within this range, her company will technically have to pay 25% on all profits—though this figure will be reduced thanks to marginal relief.
Business Rates Relief
There will be an extension of business rates relief for the retail, leisure, and hospitality sectors. This ‘holiday’ will continue until the end of June, while business rates will continue to be discounted by a third throughout the rest of the financial year—though this discount is capped at a total value of £2 million per business.
In total, over 750,000 retail, leisure, and hospitality properties will not have to pay business rates for 3 months, from April 1st to June 1st.
Scotland and Wales have also extended the ‘holiday’ for a full year.
Given that many SMBs operate in the retail, leisure, and hospitality sectors, this announcement comes as a big relief—especially given how adversely these industries have been affected as a result of the pandemic.
Darren’s hotel won’t have to pay any business rates for the period from April 1st to June 1st. From June 1st onwards, however, he will have to resume paying business rates—though the rate will be discounted by a third for the rest of the year.
However, Nikita, who operates a hotel in Scotland, and Aled, who runs a hotel in Wales, won’t have to pay any business rates whatsoever during this financial year.
Reduced VAT for Tourism and Hospitality Industries
The government has extended the reduced 5% VAT rate for tourism and hospitality businesses until the 30th of September, with an interim rate of 12.5% for a further 6 months. The standard 20% rate will not return until April 2022.
Darren, Nikita, and Aled’s hotels will only have to charge 5% VAT between now and the 30th of September. They will then charge 12.5% for another six months, up to the 30th of March, before the normal 20% rate returns in April 2022.
Super Deduction Tax Break
The Chancellor announced a “super-deduction” tax break for companies investing in new equipment. This will run for 2 years, from the 1st of April 2021 to the 31st of March 2023.
Businesses can offset the cost of new equipment against tax, plus an extra 30%, allowing them to claim a total 130% of the cost of new machinery as a tax cut.
Equipment that qualifies for this ‘super deduction’ includes:
- Computer equipment and servers.
- Solar panels.
- Foundry equipment.
- Electric vehicle charge points.
- Tractors, lorries, vans.
- Ladders, drills, cranes.
- Refrigeration units.
- Office chairs and desks.
Paul decides to purchase 5 new computers for his small local legal practice. In total, these computers cost the company £2,000. Under the new super-deduction scheme, Paul’s company can then claim back £2,600 x 19% as a tax cut.
Loans and Grants
Many UK SMBs have relied on loans and grants throughout the past year to stay afloat. Let’s dig into what the budget means for SMBs wishing to access further government funding in the near future.
Recovery Loan Scheme
The government will launch a new Recovery Loan Scheme to replace the existing CBILS and Bounce Back Loan Scheme (BBLS) that both close at the end of March 2021. The new scheme will last until 31 December 2021.
Businesses will be able to choose between a variety of products:
- Overdrafts (up to 3 years)
- Invoice finance facilities (up to 3 years)
- Asset finance (up to 6 years)
- Term loans (up to 6 years)
Businesses who have taken out a CBILS, CLBILS, or BBLS facility will be able to access the new scheme, although the maximum they will be able to borrow will depend on the lender’s assessment, and scheme requirements.
Lenders will also undertake credit and fraud checks on all applicants. Owing to the pandemic, they may disregard short-to-medium-term performance.
There will be no turnover limit. Businesses will be able to apply for loans ranging between £25,000 and £10 million, and they must meet the costs of interest payments and fees connected with the facility.
Yumi’s small business has taken advantage of the BBLS but she still needs further funding to support the company’s post-COVID recovery. She therefore decides to apply to the new Recovery Loan Scheme by heading to the gov.uk landing page.
Restart Grants for England
The Government will launch Restart Grants open to businesses based in England. This includes non-essential businesses, which will be able to claim cash grants of up to £6,000 per property. Hospitality, accommodation, leisure, personal care and gym businesses can claim up to £18,000 per property.
John’s gym has been shut for the best part of a year. To kickstart his business’s recovery, he applies—and successfully receives—a Restart Grant worth £6,000.
Excitingly, the Budget also contains a number of schemes designed to help SMBs maximise their growth during the expected post-COVID economic boom.
Help To Grow Schemes
The Budget sets out two different ‘Help to Grow’ schemes:
- ‘Help to Grow: Management’ will give thousands of SMEs access to a 12-week management training programme, with the government subsidising 90% of the costs. 30,000 places will be available over the course of three years. The training seeks to enhance skills in financial management and digital adoption.
- ‘Help to Grow: Digital’ will provide free digital skills training to SMEs and a 50% discount on productivity-enhancing software, with an emphasis on digitisation. Any small business can apply for a £5,000 grant to pay for Government-approved software.
Around 130,000 small and medium-sized businesses will be supported by these two schemes.
Lauren enlists three of her most promising employees in the 12-week ‘Help to Grow: Management’ scheme, where they learn all about proper financial management. Her company only has to pay 10% of the total cost.
Meanwhile, two other employees are enrolled in the ‘Help to Grow: Digital’ scheme. They receive future-proofed digital skills training, while Lauren’s company also receives a £5,000 grant to pay for new bookkeeping, marketing automation, and legal tech software which is approved by the government.
The Government announced eight new freeports in England. They will be East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Thames, and Teesside.
The benefits include:
- No tariffs paid on any goods that enter the freeport from one country and are then shipped over to another country. However, if these goods leave the freeport and are sent elsewhere in the UK, tariffs will apply.
- A 10% Structures and Buildings Allowance rate for spending on the construction or renovation of non-residential structures or buildings brought into use on or before 30 September 2026.
- A 100% Enhanced Capital Allowance (ECA) for investment in new or unused plants and machinery for a qualifying activity, available until 30 September 2026. This will be subject to clawback if the plant or machinery moves out of the freeport area within 5 years.
- Stamp Duty Land Tax (SDLT) relief on purchases of land and buildings until 30 September 2026, subject to clawback if the property is not used in a qualifying manner for three years.
- Full Business Rates relief available for 5 years to all new businesses, as well as any existing businesses that are undergoing a process of expansion. This is available from any date up until 30 September 2026.
- A (proposed) National Insurance Contributions (NIC) relief for eligible employees within the Freeport area from April 2022, available until April 2026.
Freeports represent an unmissable opportunity for UK SMBs looking to grow rapidly. While these locations aren’t currently the UK’s predominant business hubs, they will rapidly grow in importance over the next few years—so consider moving to a freeport sooner rather than later.
Catherine’s E-Commerce business is expanding quicker than she ever imagined, so she decides to move its office to a freeport. Here, she can avoid any tariffs on goods her company imports from other countries.
She can also leverage the 10% Structures and Buildings Allowance rate to build new warehouses, taking advantage of the new 100% Enhanced Capital Allowance (ECA) in the process for any new machinery required.
The business will be exempt from all Business Rates for the following five years, and following confirmation from the government, her business may not have to pay National Insurance Contributions towards certain eligible employees.
It’s Time to Shine
The past year has been anything but easy for small and medium businesses registered in the UK. However, the raft of new announcements made in the 2021 Budget mean that the future is looking very bright indeed.
From tax breaks to management schemes, furlough to freeports, the UK government is throwing its full support behind the country’s SMBs.
That said, it can be hard knowing where to begin. Which of these announcements apply to your business? And even when you work that out, how can you be expected to go through the lengthy application processes while still running your business’s day-to-day operations?
Thankfully, OSOME’s team of accounting experts are on hand to help you every step of the way. Rest easy in the knowledge that your business is taking full advantage of all the help on offer, while reducing the time you spend on paperwork and admin.