Here’s everything you need to know about the 2021 Budget.
The Furlough scheme has been extended until September 2021:
- Until June businesses will still be able to claim 80% of employees’ pay.
- The amount claimable will decrease to 70% in July and 60% for August and September, however employees must still be paid at least 80% of their usual pay.
SEISS grants have been extended until September 2021 (Self-employment grant):
- The fourth grant will be available to claim at the end of April for the February to April period.
- The fifth grant will be available to claim at the end of July for the May to September period.
- For the fifth grant you will only receive 80% of your trading profits if your turnover decreased by more than 30% (I would recommend keeping a good record of your business income so this can be quickly calculated).
- If your turnover decreased but by less than 30%, the grant will be 30% of trading profits.
- If you were previously excluded from being able to claim the SEISS grant because you didn’t start trading until the 2019/20 tax year and therefore hadn’t submitted a 2018/19 tax return you may now be eligible. All other exclusions apply, so if more than half of your total income came from another source (e.g. an employment/rental income/investment income/pension) then you will still be excluded. I have contacted clients directly who are likely to now be eligible but if you think this might apply to you and you haven’t heard from me please get in touch. HMRC have added some additional requirements for new claimants to prove their identity, there are important further details here if this applies to you.
- The 5% VAT rate for the hospitality industry has been extended until September 2021. From October 2021 to March 2022 it will increase to 12.5% then return to 20% in April 2022.
- The registration threshold (£85,000) and the deregistration threshold (£83,000) are frozen until April 2024.
Income Tax Rates:
- The personal allowance for 2021/22 will be £12,570 and this rate will be frozen until April 2026.
- The higher rate tax threshold for 2021/22 will be £50,270 and this rate will be frozen until April 2026.
Tax Efficient Salaries for directors:
- Many directors of small companies choose to pay themselves a small salary taking the remainder of their income as dividends. This is a tax efficient way of taking money from the business because dividends are not subject to national insurance and are taxed at a lower rate of income tax, however dividends are not an allowable expense for corporation tax whereas salary is. This means that directors tend to take a salary equal to the national insurance secondary earnings limit which for 2021/22 is £737 a month. At this rate of pay you still earn a year’s contribution for national insurance, but don’t actually have to pay it!
- For companies that are eligible to claim the employers allowance which reduces employers’ national insurance costs it may be possible to pay a salary up to the personal allowance because only employee’s national insurance would need to be paid, therefore the saving in corporation tax will make this a more tax efficient option overall. This option is only available to businesses that have employees that aren’t directors, and as the reduction to employers’ national insurance is limited to £4,000 in 2021/22 it is also necessary to calculate how much of this is likely to have already been used up in paying other employees to see whether the additional salary is worthwhile.
Corporation tax changes:
- The corporation tax rate will be increasing to 25%. This does not impact small businesses with profits of £50,000 or less where the rate will remain at 19%. For businesses with profits between £50,000 and £250,000 the rate will increase on a sliding scale. This means that only large businesses will be paying the rate of 25% so for most small businesses this is not something to be concerned about.
- A super-deduction is being introduced from 1 April 2021 which will allow a tax deduction of 130% on investment in eligible plant and machinery purchased for the business. This includes things such as vans, tools, computer equipment and many other physical purchases
Recovery Loan Scheme:
- This is a replacement for the bounce back loans and CBILS loans which close for new applications on 31 March 2021. The new loans are 80% guaranteed by the government to encourage banks to lend.
National Minimum Wage Increase:
- From 1st April the national living wage will increase to £8.91 and the age it applies from has been lowered from 25 to 23. For details of national minimum wage for other age groups and apprentices please see here.
- The business rates holiday continues until June 2021, between July 2021 and March 2022 most businesses will be eligible for a 66% discount.
- Non-essential retailers that have been forced to close will be able to claim a restart grant of up to £6,000
- Businesses in the hospitality, accommodation, leisure, personal care and gym industries will be able to claim a grant of up to £18,000 (this takes account of non-essential retailers being able to open up earlier than most other industries currently closed).
If you have any questions please don’t hesitate to get in touch. Clients can book a zoom meeting (or call if preferred) anytime using this link.