In his 2021 budget, UK Chancellor of the Exchequer Rishi Sunak announced Wednesday wide-ranging measures that included an extension of the government’s furlough or Coronavirus Job Retention Scheme until the end of September.
Sunak explained the scheme changes to MPs in the UK Parliament’s House of Commons: “For employees, there will be no change to the terms — they will continue to receive 80% of their salary, for hours not worked, until the scheme ends.”
He added: “As businesses reopen, we’ll ask them to contribute alongside the taxpayer to the cost of paying their employees. Nothing will change until July, when we will ask for a small contribution of just 10% and 20% in August and September.”
Self-employed workers affected by the coronavirus crisis, Sunak said, will be eligible for a fourth and fifth grant with the scheme extended to September.
An estimated 600,000 more self-employed workers who filed a tax return in 2019–2020 are now able to claim for the first time.
Also on Wednesday, independent fiscal watchdog the Office for Budget Responsibility issued forecasts for the UK economy. It said that GDP is expected to grow by 4% in 2021 and to “regain its pre-pandemic level in the second quarter of 2022, six months earlier than we forecast in November”.
It added that unemployment would rise by a further 500,000 to a peak of 6.5% at the end of 2021 — around 340,000 less than the 7.5% assumed in its November forecast, “thanks partly to the latest extension of the furlough scheme”.
Changes to corporation tax
Sunak announced that from April 2023 the UK corporation tax rate will increase from the current 19% to 25%.
However, the rise will be limited in the following ways:
- Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19%.
- A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
In addition, over a two-year period starting in April 2021, “a new ‘super-deduction’ will cut companies’ tax bill by 25p for every pound they invest in new equipment”, the government said. This is worth around £25 billion to UK companies over the two-year period the super-deduction will be in full effect, the government estimates.
Andrew Harding, FCMA, CGMA, chief executive–Management Accounting at the Association of International Certified Professional Accountants, said: “We are pleased to see the Chancellor’s measures on the short-term continuation of grants and loans for SMEs and the wider business community, as well as the extension of the business holiday rates until the end of June.
“We also believe that the temporary relief on expenditure on plant and machinery, including the 130% super-deduction for main-rate assets, will be highly beneficial to stimulate business investment and growth.”
Reduced VAT rate extension
To support the tourism and hospitality sectors, the government has extended the temporary 5% reduced rate of VAT until 30 September 2021. A 12.5% rate will then apply for a further six months, until 31 March 2022.
In addition, the government announced £5 billion for new Restart Grants — one-off cash grants of up to £18,000 for hospitality, accommodation, leisure, personal care, and gym businesses in England.
Sunak announced the government will provide £126 million of new money to enable 40,000 more traineeships for 16- to 24-year-olds, and double the cash incentive to firms that take on an apprentice to a £3,000 payment per hire.
Other measures announced include:
- An extension of the “business rates holiday” for three months from 1 April.
- A new Recovery Loan Scheme “to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million”, the government explained.
- £90 million funding to support government-sponsored national museums in England due to the financial impact of COVID-19.
- £300 million for major spectator sports, supporting clubs and governing bodies in England as fans begin to return to stadia.
- £100 million for a new Taxpayer Protection Taskforce to crack down on fraudsters who have exploited government support schemes.
The chancellor also announced the setting up eight new “English Freeports”, special economic zones with different rules to make it easier to do business. They will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames, and Teesside.
— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.