Here we give the reactions of AAT – and accounting professionals – to the measures announced in the 2021 Budget.
The 2021 Budget has reduced the level of uncertainty and risk for many in the UK. It also includes some initial steps toward rebalancing the nation’s finances.
There is a cost too, both financial – another £65 billion is needed to support the economy – and also in terms of some extra complexity with taxes and grants.
Budget 2021: review and analysis
Join us for an in-depth analysis and review of the Chancellor’s latest plans to balance the Covid deficit and support struggling businesses.
Support for business
AAT members have been expressing their desire to see the ‘irreversible’ roadmap out of lockdown bolstered by a budget that settles the nerves of business owners.
Wide-ranging measures to support business will calm fears that up to 250,000 could fail. They include:
- £5 billion for new Restart Grants – a one off cash grant of up to £6,000 for non-essential retail businesses; and up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England.
- A new Recovery Loan Scheme will replace Bounce Back Loans, providing loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery.
- Business rates holiday for retail, hospitality and leisure to continue until June, then taper to 66%.
- Reduced VAT for support tourism and hospitality will continue at 5% until the end of June, then rising to 12.5% until 31 March 2022.
- The Coronavirus Job Retention Scheme will be continued until 30 September.
- Employer apprenticeship incentives will continue with payments doubled to £3,000.
- A super-deduction will allow businesses to cut their tax bill by 25p for every pound they invest in new equipment over the next two years.
- Corporation tax will rise to 25% after two years, but with a tapering scale so only for companies making declaring profits of £250,000.
Phil Hall, Head of Public Affairs & Public Policy, gave this assessment on behalf of AAT:
“The Government has recognised that small and medium-sized businesses are key to the UK’s economic recovery. We welcome the raft of measures announced to support them over the coming months, including cash grants to help businesses reopen this spring, the continuing business rates holiday and extending the VAT cut for the hospitality and leisure sectors.
“SMEs have been particularly badly hit by the pandemic and these measures will help them to weather the storm and get back on their feet.
“AAT is particularly pleased to see the furlough scheme extended to September, as well as the Chancellor’s commitment to investment in skills and training. This should also help more people around the UK to gain the skills they need to develop and thrive in their careers.”
However, AAT is disappointed that the Chancellor did not write off Bounce Back Loans for SMEs. In AAT’s view, this would have been a pragmatic step that would have hastened recovery.
Phill Hall explained:
“The Government has admitted up to 60% of these loans could be written off, with the Public Accounts Committee suggesting the figure could be as high as 80%. AAT has long recommended that all legitimate Bounce Back loans be written off. This is something that we will continue to press the Treasury to consider.”
More support for the self-employed
In keeping with prolonging the CJRS, the Self-Employed Income Support Scheme will be extended. Those who filed a tax return by last night and draw the majority of their income from self-employment will be eligible. This takes in another 600,000 people, including some who launched into self-employment last year.
“AAT has repeatedly called for more help for the self-employed during this crisis. We are pleased that the Chancellor has today confirmed millions of workers will have access to grants of up to £7,500 – claiming 80 per cent of average monthly profits up to a maximum of £2,500 a month,” said Phil Hall.
“Making an additional 600,000 self-employed people eligible by accepting claims from those who had filed a 2020 tax return is also something that AAT had campaigned for and very much welcomes.”
Corporation tax to increase to 25% by 2023
Corporation tax will rise from 19% to 25%, starting in 2023 – a necessary tax rise to pay off the cost of the pandemic.
“Our Corporation Tax rate will never be as low as the likes of Barbados, Hungary or Montenegro, but these countries are not the UK’s international competitors.
“We currently have the lowest Corporation Tax rate in the G20 and even with a small increase to 25% from April 2023, we will continue to enjoy a lower than average Corporation Tax rate amongst G20 countries – and still the lowest in the G7. This decision is one that strikes the right balance between raising substantial sums of money to invest in public services and pay down debt without stifling investment and innovation.”
To soften the blow, the new tax rate will only apply to companies making over £100,000 in profit. Firms making less than £50,000 profit will continue to pay 19%. Between the two thresholds a taper will apply.
Some commentators point out that while pragmatic, this step reverses the policy of simplifying taxes with flat rates.
Freezing personal tax thresholds
“Since 2010 the personal allowance at both the basic and higher rates has risen considerably, so much so that in response to the 2018 Budget, AAT stated that no further increases should take place. This was primarily because they are very expensive, disproportionately benefit higher earners and approximately three quarters of higher earners benefitting from an increase to the higher rate are male.
“AAT was already opposed to any further increases in the thresholds but this position has been solidified by the serious economic consequences of dealing with Covid-19. The Chancellor’s announcement today that personal allowances will be frozen at £12,570 and £50,270 until April 2026 is therefore an understandable, measured and necessary change that will bring in several billion pounds for the exchequer.”
VAT reductions and freezes for business
“Continuing with the reduced 5% rate of VAT for hospitality and tourism for an additional six months should help two of the most seriously impacted sectors of the economy, as will the subsequent interim rate of 12.5% for another six months after that.”
“Although the decision to freeze the VAT threshold at £85,000 for two years provides certainty for businesses, there is increasing recognition that a lower VAT threshold may be needed in the future. This is partly demonstrated by an AAT member survey last month, which found 37.5% of AAT members favour a reduction compared to 33% who want to retain the current threshold.”
Reactions from accountants
David Frederick, AAT President
Rishi Sunak has tried to create a balance between future issues and the economy by allocating funding as liberally as possible.
We saw him putting his arm around the UK Plc, stretching out to Wales, Scotland and Northern Ireland where he announced various projects for those regions.
The announcement to double incentive payments for apprenticeships is particularly interesting, as these should hopefully give opportunities to youngsters and those changing careers, assuming firms will be in a position to actually take it up.
But the greatest concern we all have is that although some may have got what they wanted – a little handout – there will be a long period of time where we will be paying for this. We need to recognise there will be some pain down the line. So while many things are frozen today, the longer term will tell the full story of Budget 2021.
Laurence Field, corporate tax partner, Crowe
The Chancellor has been trying to answer the question of who pays for £407bn of coronavirus spending and when. The answer is everyone, but not just now.
Increasing personal allowances and then freezing them, deferring an increase in tax on large companies until 2023 but allowing enhanced loss carry backs and super deductions for investment in innovation now – all suggest the Chancellor recognises there’s little point in taxing a struggling economy today.
But if it can start growing quickly in the next year or so, there will be more income and profits to tax later. Then the impact of the increases won’t be felt too much in the run-up to the next general election.
Jane Mackay, head of tax, Crowe
Fairness about who pays the bill and honesty around the parlous state of UK public finances were the key themes of the today’s budget. We can all welcome honesty about the concept of fairness, until we are the loser. The publication of tax consultations due on 23 March may well provide more visibility.
The 130% super deduction was unexpected and welcome as it will subsidise the cost of company investment and benefit high capital sectors such as manufacturing. However, the relief is worth only 21% and expires before the corporation tax increase to 25% in 2023. However, the reintroduction of small companies and marginal rate relief will soften the blow.
Joanne Harris, technical commercial manager, Nixon Williams
Sole traders will be pleased that the Chancellor has extended the SEISS scheme in line with the CJRS and confirmed a fourth, firth and final grant which will take us to September. They’ve now opened these to the recently self-employed.
But there was an opportunity in this budget to go further and consider the needs of freelancers and contractors with a limited company set-up, who have essentially been overlooked. The proposal on the table for a Directors Income Support Scheme (DISS) could have helped millions more people, but the government appears to have ignored this completely.
So whilst there were some positives, this budget has not helped the majority of the UK’s self-employed workers who will see an even greater squeeze on personal finances in the years to come.
Lucy Cohen, FMAAT, co-founder, Mazuma
The biggest news is that the forgotten three million self-employed now qualify for support. Further good news comes in the shape of the Restart Grant from April, especially for the worst hit industries. Bounce-back and CBILs are to be replaced with a recovery loan scheme so we will undoubtedly see initial teething problems.
But the budget currently is built on assumptions, so what’s the back-up plan if things don’t open as quickly as they are predicting? Sunak is talking a lot of rebuilding the economy but the narrative suggests that the treasury is still in survival mode – a contradictory and worrying place to be.
Nigel Morris, MAAT, employment tax director, MHA MacIntyre Hudson
Extending the furlough scheme until the Summer is certainly the right call. We will all be paying for the cost of the Covid-19 support measures for a long time, so an extension won’t massively increase this bill.
But the Chancellor also needs to think about job support over the long-term, not just for now. With the rise of new Covid-19 variants other lockdowns in the autumn or winter can’t be ruled out. The UK should think about drawing up plans for a more long-term but less generous retention scheme until we are totally clear from the pandemic.
James Poyser, CEO, inniAccounts and founder, offpayroll.org.uk
Today’s Budget didn’t delay IR35 reforms as expected but introduced a targeted Anti-Avoidance Rule (TAAR). Now HMRC can track down bogus schemes that are designed to get contractors operating falsely outside IR35.
But the most exciting change is that to section 61V (and Regulation 22) which relates to providing fraudulent information and includes information provided by any UK-based party in the labour supply chain. The liability will now rest with the party that provided the fraudulent information and not the client. This could reduce the perceived risks end clients have with dealing with contractors and as such it could be a real turning point.
James Foster, technical commercial manager, SJD Accountancy
It’s great to see the confirmation of a fourth and fifth SEISS grant and it’s also welcome news that the newly self-employed will be able to apply for both of these grants.
But the ongoing issue of no support for contractors and freelancers working through limited companies continues to be overlooked. These self-employed workers are ineligible for the SEISS and were originally pointed towards the CJRS but may only be eligible if their business operates a PAYE scheme, while dividends could also not be claimed for. Once again, contractors and freelancers have completely fallen through the cracks.
Martin Bown MD, My Management Accountant
For business, it seems a sensible budget, with a clear outline of continued support. The furlough extension to September will be welcomed by many businesses while rates relief and sector-specific VAT support is also welcome along with an increase in minimum wage and increased incentives to recruit apprentices.
The longer-term plans: clarity around no decrease in personal tax allowances, freezing of the VAT registration threshold, tapered increases in corporation tax rates from April 2023, the new ‘super deduction’ encouraging investment and initiatives like Help to Grow Management and Help to Grow Digital all seem like positive steps to help the small business community.
Dan Stopp, UK accounting manager, Bokio
Given the extreme amounts of borrowing required during the pandemic, it is unsurprising that tax hikes were a key subject of this year’s budget.
However the proposed increase of corporation tax from 19% to 25% in 2023 is of some concern. While it’s good news that the smallest businesses won’t be directly impacted, this 6% step-up will certainly make scaling a limited company far less attractive.On the flip side, the announcement of the government’s new ‘Help to Grow’ scheme is welcome news. With a pledge of £520m, small and medium-sized businesses will benefit from the chance to invest in discounted digital tools, something that is vital given the widespread shift to online service.
David Fort, managing partner, Haines Watts, Manchester
The budget was a sensible approach. The slow withdrawal of business support over time and no immediate tax rises will be a relief to many of our clients.
The Chancellor has also shown a real commitment to levelling up the North and he’s balanced the books without stifling recovery. Now more than ever, businesses need this certainty, so the support packages that were announced were a welcome surprise.
In terms of a price to pay, I’d say through gritted teeth, it’s fair. It’s a decent trade-off and was definitely the right tone to set. The new 130% relief for capital expenditure is very welcome and this will accelerate innovation and investment.
Terri Halstead, tax partner, Haines Watts, West Midlands
What has gone under the radar with a lot of commentators is a temporary extension of carry-back of trading losses from one to three years and covers the tax years 2020 – 2022. This will generate refunds for many business owners and companies.
Overall, the Chancellor has given a lot away whilst admitting that he will need to recoup the spending in taxes later. We may get a further insight into his plans for the future on March 23rd, which is the UK’s ‘Tax Day’ when the Government publishes a range of tax-related consultations that will signal long-term Government policy. One thing is certain, taxes are set to increase.
AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.