Rishi Sunak’s job of balancing the books to rebuild in a post-Covid world is unenviable. Mapping out the 2021 UK Budget for an uncertain world is probably the hardest task a chancellor has had in generations. Below is the breakdown of the key elements in the 2021 UK Budget that will impact businesses….
And Some Positivity Before We Start
The government’s successful rollout of the Covid-19 vaccine has brought a glimmer of hope to the UK’s economy. A survey by PWC of 5,000 global CEOs suggests that Britain may be more favourable to investors than it was before Brexit. And shockingly, despite all the gloom Britain overtook India as the world’s fourth most promising economy behind the USA, China and Germany.
Let’s look at the impact of the budget on some of the UK’s most vital industries.
Motor Trade Leaders Say Not Enough Is Being Done About The Impending End Of Petrol
The Society of Motor Manufacturers and Traders (SMMT) chief executive Mike Hawes believes that the budget should have done more to help drivers transition to zero-emissions vehicles.
Hawes highlighted that the motor industry needs help to transition away from petrol and diesel vehicles by 2030. Technology is developing rapidly, but buyers need to be incentivised, and infrastructure needs to be built to make the change practical. The subsequent reductions to the electric car buyer subsidies won’t have improved his mood either!
On top of financial investment, the motor industry is desperately calling for a timeline to the government’s de-carbanisation plan. Otherwise, the industry is at risk of being held hostage by the 2030 deadline to end sales of new internal combustion engine vehicles.
In good news, The BVRLA (the British Vehicle Rental and Leasing Association) did at least welcome the introduction of the new 130% capital allowance super-deduction. This can at least be utilised by companies looking to invest in electric vehicle (EV) charging infrastructure.
Hauliers And Fleet Operators Give The Fuel Duty Freeze A Warm Welcome
For the 11th consecutive year, additional taxes on fuel prices have been frozen at 57.95p per litre for both petrol and diesel. As climate change issues continue to be at the forefront of policy, this is particularly welcome news for those in the fuel dependent motoring, private hire and logistics industries.
Rishi Shunak said: “Right now, to keep the cost of living low, I’m not prepared to increase the cost of a tank of fuel, so the planned increase in fuel duty is cancelled.”
In more good news for the haulage sector, the government will also continue to freeze Vehicle Excise Duty (VED) for Heavy Goods Vehicles (HGVs) for 12 months from August 2021.
The Fuel Duty Freeze will hopefully help stoke growth in the motor industry, considering the worrying figures we are seeing for the purchase of new cars.
Property Owners Enjoy A Longer Stamp Duty Holiday
Estate agents were reporting that property owners had been delaying putting their homes on the market due to lockdown and the end of the stamp duty holiday approaching. The number of listings fell for the second month in a row in February. Buyer inquiries reduced at the same time. If supply and demand were both decreasing, the property market looked doomed for 2021?
The chancellor announced last week that the stamp duty holiday will be extended until June. The tax break is available for purchases on homes under £500,000 or on the first £500,000 of purchases that cost a higher amount. After June and up to September, there will be a tapered stamp duty holiday of £250 000 to prevent a cliff edge.
Hefty Corporation Tax Increases…..But At Least They’re Delayed
Some have said Rishi Sunak’s decision to signal an increase in corporation tax at a time when the UK’s global standing is on shaky ground is a bold one. Yet with a £407 billion pandemic costs to cover not many firms are entirely surprised.
The choice to raise corporation tax six percentage points was still surprising, considering that conservative chancellors have historically focused on keeping corporation tax low. The jump is at least not due to hit until 2023 so firms can prepared for the hit.
Also changes will include a new small profits rate that maintains the 19% corporation tax rate for firms with profits of £50,000 or less. The Chancellor stated that around 70% of businesses (1.4 million) will be “completely unaffected.” by the increase. A tapered rate will apply above £50,000. This means only the top 10% of businesses that generate profits of £250,000 or above will be taxed at the full 25% rate.
Any business owner thinking that it’s time to get out will have been sad to learn that entrepreneurs’ relief cap is to be reduced from £10 to £1 million. This was described in the budget as being a ‘sensible reform’. Originally introduced in 2008 by the then Labour government, entrepreneurs receive a 10% cut in the Capital Gains Tax they pay on the sale of their business. Its estimated 80% of small business owners are unlikely to be impacted by this change that will net the treasury an extra £6.3 billion in the next 5 years.
Capital allowances and tax relief on low and zero-emission vehicles do at least remain in place. This creates an incentive for company car users and fleet managers to transition to electric vehicles, as the post-tax cost of ownership will be far lower.
Amazon’s Gets Off Tax-Free But Ignites The UK Warehousing Industry
The logistics industry has boomed during the pandemic, and the new super investment tax relief should give companies a further incentive to invest in their infrastructure. The tax break will be unpopular with some, as experts have explained that it will effectively wipe out most of Amazon’s UK tax bill.
Sunak’s ‘super-deduction’ will give Amazon, and companies like it, the opportunity to offset spending on plant and machinery against profits to the tune of 130%. Essentially, the chancellor clarified, if Amazon spends £10m on new equipment, their taxable income will be reduced by 13m.
Oliver Dowden, Secretary of State for Digital Culture, Media and Sport, said that Amazon is sitting on large amounts of cash and a tax break encourages investment in the UK’s logistics industry. Amazon insists that this equates to hundreds of millions put back into Britain’s economy.
Evidence could point to this being true. One of Britain’s biggest warehouse investment trusts, Tritax, has reported a 218% rise in profits. This is as a result of e-commerce purchases skyrocketing during the pandemic. Demand for warehouse space has hit record highs, currently at four times the level of available supply.
And Finally, Good News For Self-Employed Contractors
Sunak confirmed that the fourth SEISS (self-employment income support scheme) grant will be given in a single instalment, paying out 80% of 3 months average trading profits. The maximum that will be given is £7,500. It should be clear that your business has been adversely affected by the pandemic and that you intend to continue trading as usual after it.
The grant takes into account the 2019 to 2020 tax year and is available to those who become self-employed from 2019 to 2020. To be eligible, your trading profits must be under £50 000, and at least equal to your non-trading income. If you are not eligible based on your 2019 to 2020 return then HMRC will look at 2019, 2018 and 2017.
So there you have it, lots of details to digest from Mr Sunak’s budget. The most eye catching element of all was the leap in corporation tax that will leave the UK with one of the highest rates of any developed economy. Although some tax breaks were also included to encourage investment.