The past 12 months have been a challenging and testing time for your business clients. The business community has experienced both the negative impact of the Covid pandemic and the uncertainty of Brexit. Budget 2021 was therefore eagerly awaited by many business owners, keen to find out what support there may be for them.
Budget 2021 took place on 3 March. The Chancellor, Rishi Sunak, delivered measures aimed at tackling the economic challenges while still encouraging enterprise. There was also the need to claw back the tax income required to rebuild the UK economy over the coming years.
But how might these measures impact your clients? And what can you do to help steer the financial destiny of these business clients over the course of 2021?
The Government has provided a mix of financial support schemes to help affected businesses get through the pandemic. We’ve seen government loans, furlough support and drops in or freezes of business rates, all aimed at easing the financial pressure on clients.
There were a number of new announcements in the Budget regarding these financial support schemes – some good, and some bad.
Here are the main points to discuss with your clients:
- Furlough scheme – the furlough scheme (or the Coronavirus Job Retention Scheme, to give it its official name) is being extended until September 2021. This will be good news for any clients that still need to furlough employees as the business starts opening up. Employer contributions will start going up, so it’s a good time to have open discussions with these clients about how they can afford the change. Crucially, the extension of the scheme provides further support as we move towards easing the main Covid restrictions from April through to June.
- CBILS and Bounce Back Loans to end on 31 March – The Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme have been a key area of support and funding for many businesses. However, both these schemes will close to applications on 31 March 2021. If clients would benefit from access to these highly favourable loans, they need to act fast! Make sure they’ve at least started an application so they can be considered for funding.
- Self-Employment Income Support Scheme – if you have self-employed clients, the extension of the Self-Employment Income Support Scheme (SEISS) is very welcome news. SEISS will be extended until September 2021, with 600,000 more people who filed a tax return in 2019-20 now able to claim for the first time. This could be a real lifeline for freelancers and contractors who’ve seen a drop in income.
- Business Rates Relief – if you have clients in the retail, hospitality and leisure sectors they will still be able to benefit from the current business rates relief. This 100% relief will continue until 30 June 2021 and will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022.
There was plenty of talk prior to the Budget around whether the Chancellor would hike up taxes. With so much public spending during the pandemic, the Government has made it clear that tax increases would be likely. But the key question for business clients was which taxes would be affected, and by how much.
Here are the main tax talking points to discuss with clients:
- VAT cut extension – the VAT cut to 5% for hospitality, accommodation and attractions across the UK will be extended until the end of September. This is obviously good news for clients in these sectors and will help to boost cashflow. From September the rate will jump to 12.5% rate for a further six months until 31 March 2022.
- VAT advice for clients trading in Europe – if clients are exporting or importing to/from the European Union (EU), the VAT rules have changed since Brexit. The tax treatment for VAT on both goods and services has got immeasurably more complex. As a result, clients are highly likely to need your advice, or the services of an EU VAT specialist.
- Deferred VAT payment scheme – if clients had deferred their VAT during the early part of lockdown, this payment could be deferred until 31 March 2021. A new VAT payment scheme is now available for these clients. Businesses can spread this deferred payment, interest-free, over two to eleven equal monthly instalments.
- Corporation tax – corporation tax will increase to 25% from 2023. This wasn’t a huge surprise – we knew that tax hikes were coming. But it does mean that this increase in tax costs needs to be included in any client planning and budgeting. There will also be a two-tier system. Businesses with profits of £50,000 or less will continue to be taxed at 19%. A taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
- R&D tax reliefs – R&D Tax Credits are a great source of tax relief for any business clients that carry our research and development (R&D). The Budget mentioned that a review of R&D tax reliefs will be made in the future. This is intended to ensure the UK remains a competitive location for cutting-edge research. It’s worth tracking any review to understand the potential impact for clients.
- Super-deduction – a new ‘super-deduction scheme’ is being introduced from April 2021. This will cut companies’ tax bill by 25p for every pound they invest in new equipment. The scheme introduces a new 130% first-year capital allowance for qualifying plant and machinery assets. It also includes a 50% first-year allowance for qualifying special rate assets. This is positive news for clients looking to invest in new equipment as part of their growth plans.
A number of other schemes and initiatives were introduced in the Budget, with the aim of encouraging and incentivising enterprise and new business. If you have ambitious clients with plans to expand, grow and scale up their operations there are plenty of schemes to explore.
- Restart Grants
- Recovery Loan Scheme
- Film & TV Production Restart Scheme
- Future Fund: Breakthrough
- Help to Grow Scheme
Many companies are eager to come out of lockdown and kickstart their business operations over the coming months. These schemes, and the changes to government financial support and taxation, make excellent conversation-starters when checking in with clients. If you’d like to know more about the outcome of Budget 2021, take a look at our recent Budget summary post.
As always, MarketFinance is here to support your clients and find the best routes to finance. If your clients are looking to boost their funding and cash flow, please do get in touch for a chat.