Takeaways from the recent Budget

Chancellor Rishi Sunak presented the 2021 Budget on 3 March 2021.

We asked the expert members of our ‘Finance sector’ peer group to comment with their thoughts.

The press headline was “Corporation Tax increased to 25%”. In fact, the finer details proved to look very different to the headline and not all businesses will pay this rate of tax.

OBCN member, Jessica Mason of Chapman Robinson & Moore Accountants commented The marginal rate of tax for profits in the band £50k-£250k will be 26.5%.  This means that for companies with profits in this band, the effective after-tax cost of spending money on tax deductible items reduces.  This may mean revisiting the salary/dividends calculations, and also considering timing of items like staff bonuses, directors’ pension contributions and discretionary spend on marketing, websites and capital expenditure. 

She added “We do not currently have draft legislation, but we would anticipate that the £50k profit band may be restricted where you have more than one company in a group, or under common control.  If this is the case, there would be an advantage in ensuring careful allocation of losses and managing where reasonable, profit levels between group companies to minimise the overall tax charge within a group.”

Here are some other responses from our members to the budget announcements:

Helen Fraser, Independent Financial Adviser, Orchard House (IFAs) Ltd said “With the rise in corporation tax set out in the budget, directors of small businesses may want to consider employer pension contributions as part of their overall remuneration package.  In many cases, as long as the contribution can pass the “wholly and exclusively test”, an employer pension contribution will benefit from corporate tax relief.  If you would like to find out more, speak to your accountant and/or your independent financial adviser.”

Gary Hamilton of Hamilton Accounts said “The Help to Grow (Management & Digital) schemes will help subsidise the cost of upskilling management or the cost of productivity software. This is an attractive incentive for growing businesses and registration for interest is now open.”

Ian Roberts of Cashflow Creators picked up on a new UK-wide Recovery Loan Scheme to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery. Ian said “This in my book will help stimulate the ability to gain access to funding for the best and for the less fortunate businesses. This will help reduce the worry for a lot of businesses and enable Banks that are unwilling to lend due to the risks involved to lend whilst we are still in uncertain times.”

Carl Tomlinson, VFD and director of Brasenose Business Services, a vfdnet member, said “I’d say Sunak put wise economics before easy politics when he chose to leave BADR alone. No-one would have marched down Whitehall to protest at tax rises for entrepreneurs, but keeping capital moving around the economy is critical at the moment. Hikes in CGT might have led to people holding onto businesses as income streams rather than investing in their growth with an eye on exit value.”

Nick Mason of Wagner Mason Accountants said “Pleased to see that some of the hardest hit businesses will continue to receive support such as leisure and hospitality businesses (furlough, restart grant, rates holiday/reduced rate and lower vat rate) but concerned for other businesses that will continue to have minimal or no support (e.g. Ltd co Directors, self-employed with other income stream or earnings over £50k) whilst their trading continues to be massively impacted.”

Sam Jones of NGI Finance commented “Business can now take advantage of a temporary Tax relief and offset the full cost of new equipment against tax plus an additional 30%. This means for every £1 invested you can reduce your tax bill by 25p as opposed to 19p. Equipment can be as diverse as Commercial vehicles to IT kit, Shop fittings, kitchen equipment or CCTV systems.”

The takeaway by Ady Suter of Timms Wealth Management related to the freezing of the Lifetime Allowance for pensions. Ady comments “Although the initial impact is relatively small, with rising inflation and the removal of compound increases in the allowance over the next 5 years this could have a significant impact, particularly with a top rate of Lifetime Allowance Tax Charge of 55%. The need for sound financial planning for those who have reached or are approaching this limit is therefore greater than ever in order to mitigate the effects.”

An observation from insurance expert, Jo Spencer of Spencer Insurance Brokers was “The chancellor left Insurance Premium Tax (IPT) at 12% (20% on travel insurance).  There were hopes that he would cut the rate or make some sectors such as charities exempt but he didn’t.  A rate cut would have been welcome particularly to businesses many of whom will be facing rising premiums due to the hard market.”

Mike Foster, The Entrepreneurs Mentor and an OBCN Director, said “It was great to hear that government are launching a review of Research & Development tax reliefs to make sure the UK remains a competitive location for cutting-edge research. Such reliefs to stimulate innovation and investment are great.”

As part of the OBCN trusted community it is great to have these trusted experts in our membership, supporting other members with their ‘finance’ decisions.

If you would like to find out more about OBCN or wish to speak to any of our expert members, then please do not hesitate to contact us.

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