It’s been a gruelling 12 months for the UK economy, so we were interested to see what restorative measures the Chancellor, Rishi Sunak, would deliver in his March 2021 Spring Budget statement.
Here are five of the biggest changes the Chancellor delivered, along with our take on how they could affect us, our clients, and the wider business community. Keep reading to find out more…
The prospect of raising taxes is never an attractive one, so it’s unsurprising that there was a lot of speculation and discussion in the run-up to the Spring Budget on March 3rd. As expected, the government has announced some tax increases as a measure to recoup financial damage from the pandemic.
Rishi Sunak announced that corporation tax will rise up to 25%, but not until April 2023 (in two financial year’s time). However, the rate of tax increase depends on the size of the business. Small businesses with profits of £50,000 or less will continue to pay the current 19% rate. Larger companies that earn over this threshold will start to pay more tax, but only businesses with profits of more than £250,000 will pay 25%. Since most UK businesses are SMEs, most companies will not reach the new maximum tax limit – the government estimates that only 10% of companies will pay the new 25% rate of corporation tax.
While headline income tax rates have not increased, Rishi Sunak announced a freeze on the personal tax allowance thresholds. By not increasing the personal allowance over the next few years, this allows HMRC to recoup more income tax without actually raising the tax rate (which would be a very unpopular move, especially at the moment). Rishi Sunak was quick to reassure the public that “nobody’s take-home pay will be less than it is now”.
Furlough scheme extended
For businesses that have been unable to continue their usual operations during the pandemic, the extension of the furlough scheme comes as welcome news.
The Coronavirus Job Retention Scheme will now run until 30 September 2021, with the scheme planning to be ‘tapered out’ through July and August 2021. Businesses will need to contribute 10% towards hours furloughed staff don’t work in July, increasing to 20% in August and September.
Remember: having staff on furlough can affect your R&D tax relief claim. Click here to see the official guidance from the Institute of Chartered Accountants and HMRC.
R&D tax relief consultation
Once again, the government openly stated that innovation is the key driver for the economy and, at the heart of their strategy is research and development incentives.
In our opinion, the most exciting announcement from the Spring Budget Statement is the upcoming consultation on the R&D tax relief scheme. Depending on the results of this consultation, this could create major changes to the R&D tax relief incentive.
The three-month consultation period runs from now until June 2021. During this time, HMRC will be reviewing the current R&D tax relief system, and engaging with stakeholders to establish how well the current system works, and how it might be improved.
In particular, the consultation and review will cover:
- How the two R&D relief schemes support R&D in the UK, including how they operate, how they interact with the way modern R&D is done, and the main differences in design between them
- Whether the schemes should be amended to remain internationally competitive and keep the UK at the cutting edge of innovation
- Whether the definition of R&D and the scope of what qualifies for relief remain fit for purpose
- Whether current rates of relief, and the difference in rates between RDEC and the SME scheme, remain appropriate
You can see the full proposal for the consultation here.
Another announcement that has the potential to affect some of our clients is the proposed changes to capital allowances.
If your business is likely to invest in plant or machinery for R&D from April 2021, you may be able to benefit from a higher rate of tax relief. HMRC is offering:
- A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- A first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
HMRC is hoping that it can stimulate the economy by encouraging more businesses to invest in plant and machinery, in turn boosting R&D and innovation.
New Recovery Loan Scheme to replace CBILS & BBLS
The government knows that many businesses have relied on its COVID loans to help them survive the pandemic. Since the COVID Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) are both due to end in the next month, Rishi Sunak announced the launch of a new Recovery Loan Scheme. This is intended to help companies get back on their feet as we move beyond the peak of the pandemic.
You can see full details of the loan scheme, and who’s eligible, here.
It’s also worth exploring whether your business may be eligible for R&D tax relief. Unlike the government’s business interruption loan schemes, R&D tax credits do not need to be paid back, and are yours to spend wherever your business needs it most.
Follow us on LinkedIn to keep up to date with the latest news and views from the Hamilton Blake Consulting team.