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Budget 2021: What you need to know

Article Date: 03 March 2021

What a difference a year makes?

The damage caused by COVID 19 to the economy as well to lives of many people is enormous and no government can reasonably expect to plug all of the gaps to help all of its citizens and the economy of the state. The Chancellor has focused on three aspects trying to support people and businesses, trying to set out a blue print to enable the public finances to recover and trying to look ahead to the longer term rebuild and the future of the economy.

There is no right answer in politics at any time but probably even less so when you are trying to answer the question of how to resolve the COVID crisis.

The 2021 Budget offers answers to all of the questions.

Supporting the public and the economy

Every business, including motor dealerships, will welcome the extension of furlough and the self-employed grant payments to allow businesses and employees to try to return to something like normal in future.

  • Coronavirus job retention scheme – extended until September 2021 with increased employer contributions of 10% in July and 20% in August/September
  • Increase in payment to employers who hire new apprentices between 1 April 2021 and 30 September 2021 to £3,000
  • New Recovery Loan scheme offering loans of £25,000 to £10m – this will be open to all businesses even those that have received funding under the previous schemes
  • Restart Grants of up to £6,000 for non-essential retail premises
  • Business rates relief – 100% up to June 2021 then two thirds reduction up to March 2022 subject to eligibility criteria

 

Recovery of public finances

The Chancellor has chosen to limit taxation increases by freezing the tax bands at which income is subject to tax at basic rate and higher rate until 2026 as well applying a similar logic the annual CGT exemption, the IHT nil rate band and the threshold at which VAT registration automatically applies. In addition, the fixing of the lifetime value of a pension fund until 2025/26 will also generate taxation without need to raise headline rates of taxation.

Effectively, tax will be levied upon inflation, as these limits remained unchanged whilst tax rates remain unchanged. Increases in taxation may be expected to follow from the imposition of the off-payroll rules requiring the engaging party to be responsible for the contractor’s tax liability such that post 5 April 2021, more and more people will be employees and not self-employed contractors (this was to be effective from 5 April 2020 but was deferred because of COVID19).

These measures will limit the negative impact of the cost of COVID 19 primarily to those who can afford to pay tax increases and should therefore of benefit to the underlying recovery of the economy which in turn will then indirectly impact upon motor dealers.

In addition, measures are focused on combatting COVID-19 fraud with over £100 million to be invested in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages, including the CJRS.

Corporation tax rate changes from April 2023 will increase to 25% on profits over £250,000 introducing a new rate for small profits under £50,000 at 19% along with the re-introduction of marginal relief between these amounts.  This is a throwback to legislation that used to exist a number of years ago and includes special rules for dealing with companies under common control, not just within a group, and limits on application of the small company rate to certain holding companies.

Recovery of the economy

In a major proposal of benefit to struggling businesses, losses incurred in the period 1 April 2020 to 31 March 2022 will be eligible to be carried back for a period of three years as opposed to the existing period of 12 months. Losses will be capped in each 12-month period at £2,000,000. The relief will also apply to self-employed businesses for tax years 2020/21 and 2021/22.

There are some dealerships who will welcome this having paid Corporation Tax for 2019 and in earlier years when they were struggling. This may be a small but welcome light at the end of the tunnel.

To promote investment for the future a super deduction for investment will enable 130% additional relief for main pool assets and 50% for special rate assets and above cost to be treated as expenditure from 1 April 2021 to 31 March 2023. The relief effectively operates as a super deduction capital allowance pool with balancing charges and allowances as and when assets are disposed of in future.

Motor dealerships are good examples of businesses who invest in capital projects to promote business activity. Whilst many dealerships are perhaps beyond the days in which large scale dealership building works are to be undertaken, any capital investment to improve a business will be that much more tax effective during this period.

ASE will be posting a full update about this measure on the blog tomorrow after reading all of the small detail to see how it will operate within the environment of a motor dealership.

Summary

Has he answered the questions in full?

Only time will tell and as always, the devil is in the detail but one thing is certain, when you look at the scale of the measures, you cannot accuse the Chancellor, a Conservative Chancellor, of being reluctant to spend the way out of the crisis.

If you need any further details please contact us at mike.jones@ase-global.com or chris.cummings@ase-global.com.

Or visit our LinkedIn page for more info:https://www.linkedin.com/company/ase-plc/

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