With the budget 2021 announced on the 3rd of March, some significant changes are happening that will affect limited companies in the UK. Here’s our summary of key points that limited companies need to be aware of, including the increase of corporation tax.
What is the Restart Grant?
A £5 billion Restart Grant has been revealed by Chancellor Rishi Sunak in the budget 2021 announcement. This grant begins in April and its purpose is to help businesses that have closed due to lockdown restrictions, open again.
Non-essential retail businesses can receive up to £6,000 per premises to help them re-open shops. Other businesses in hospitality, accommodation, leisure, personal care, and gyms that are due to open later, according to the government’s roadmap, can receive up to £18,000.
The grant will replace the monthly Local Restrictions Support Grant that will be closing at the end of March 2021.
Who can apply for the Restart Grant?
According to government guidance, your business may be eligible if it’s:
• Based in England
• Occupies a property which it pays business rates and is the ratepayer
• Hasn’t been able to provide its usual in-person customer service for the premises
• Has had to close due to lockdown restriction from 5th January 2021 or between 5th November and 2nd December 2021
You can’t apply for the Restart Grant if your business:
• Doesn’t depend on providing in-person services from premises
• Has not been required to close due to restrictions but has
• Is in administration, insolvent, or struck off the companies house register
How to apply for the Restart Grant
The Restart Grant will be managed by local councils. To apply and check your eligibility, click here. Applications for the Restart Grant will close at the end of March 2021.
Recovery Loan scheme
What is the Recovery Loan Scheme?
The recovery loan scheme was revealed in the budget 2021 announcement. It is set to launch on 6th April 2021 and will remain open until 21st December 2021 subject to review. It’s designed to ensure businesses of any size affected by Covid-19 can access loans and other kinds of finance. The loan can be used for any legitimate business purpose.
The government will guarantee 80% of the loan to the lender to encourage confidence lending to small businesses. There are two types of finance that will be made available:
• Term Loans and overdrafts between £25,001 and £10 million per business
• Invoice finance and asset finance between £1,00 and £10 million per business
A term loan is a loan for a specific amount that has a set repayment schedule with a fixed or floating interest rate. Invoice finance is where you borrow an amount of money against the value of unpaid invoices. Asset finance is often associated with purchasing expensive equipment or using assets your business owns as security against a loan.
Who can apply for the Recovery Loan Scheme?
According to government guidance, you can apply for the Recovery Loan Scheme if:
• Your business is trading in the UK
• Your business is viable or would be viable if not for the Covid-19 pandemic
• Your business has been impacted by the Covid-19 pandemic
• Your business is not insolvency proceedings
You can’t apply for the Recovery Loan Scheme if:
• You’re a bank, building society, insurer, and reinsurers (not including insurance brokers)
• You’re public sector body
• You’re a state-funded primary or secondary school.
How to apply for the Recovery Loan Scheme
As stated above, the Recovery Loan Scheme will start on 6th April 2021, more information and details of lenders will be released closer to the time.
Corporation Tax Increase
It was announced in the budget 2021 that there will be a Corporation Tax increase, but not until 2023, to 25% for some limited companies. This is to help pay for the government's Covid-19 response and support.
A key point on the rise of Corporation Tax is that this will not apply to all limited companies. Limited companies with profits under £50,000 will still pay 19% corporation tax.
Businesses that have over £50,000 will not jump straight to 25% Corporation Tax, this applies to those who have over £250,000 profits. For businesses that are between £50,000 and £250,000, their Corporation Tax percentage will increase as their profits increase.
Freeze on the tax-free personal allowance
To help recover debt from support and the government’s response to the Covid-19 pandemic, there will be a freeze on tax-free personal allowance according to the budget 2021 announcement. Currently, the tax-free personal allowance is £12500 and this will increase to £12,570 in April 2022 and then be frozen until 2026.
For limited companies, this is a blow, especially if your salary is paid as the max tax-free personal allowance. This means that your salary won’t be able to increase until 2026. However, there was no mention of an increase in tax on dividends.
VAT cut for hospitality and tourism
Businesses in the hospitality and tourism industry will benefit from the 5% VAT cut for another 6 months until the end of September 2021. VAT will then rise to 12.5% for yet another 6 months until the end of March 2022 and return to the full 20% in April 2022 according to the budget 2021.
The VAT threshold for businesses to register for VAT will maintain at £85,000 until it is reviewed in March 2024
Business rates holiday extension
Businesses that have been forced to shut due to the pandemic such as non-essential retail premises, hospitality, and tourism businesses will remain exempt from paying business rates for another 3 months, up until the end of June.
After that, business rates will still be discounted to a third of their normal charge for the rest of the financial year.
Extension of loss carry-back rules explained
Put simply, the loss carryback rules mean you can offset trading losses against profits, which means you pay less tax on your profits. Before the budget 2021 announcement, a limited company could only do this in the same accounting period.
With the new extension of loss carryback rules, limited companies can do this for accounting periods ending between 1st April 2020 and 31st March 2022, not only the same accounting period but going back three years. The new Loss carryback rules for the 2 previous accounting periods are capped at £2,000,000 for each accounting period.
An extended loss carryback claim below £200,000 may be carried outside a return, this means you won't have to wait to submit a company tax return. If your claim exceeds £200,000, your claim must be made in your company tax return. We suggest speaking to an accountant if you have any further questions or are unclear on anything.
Super deduction tax relief
The super deduction tax relief means that businesses can claim 130% capital allowances on qualifying machinery investments made from April 1st, 2021 to the end of March 2023. This means for every £1 you invest in qualifying plant and machinery; your taxes will be cut by up to 25p.
Plant and machinery are classed as tangible assets that are brought new. There isn’t a list of all plant and machinery assets but here‘s a list of some assets that may qualify (but not limited to) for the super deduction tax relief:
• Tractors, lorries, vans
• Ladders, drills, cranes
• Office chairs and desks
• Solar panels
• Computer equipment and servers
For more information on the super deduction tax relief, you can visit the government's website here.
The existing furlough scheme that has paid 80% of employees’ wages up to £2,500 (including limited company directors) has cost around £50 billion so far. The scheme has been extended to 30th September 2021 with gradual reductions in government contributions.
From July 2021 the government will contribute 70% and employers will have to pay 10% for hours that an employee has not worked. In August and September 2021, the government will contribute 60% and employers will have to pay 20%.
Double the incentive to hire apprentices
The previous apprentice hiring scheme was if an employer hired an apprentice, they would receive £1,500 (£2,000) for someone aged 24 and under. The new rules state that if an employer hires an apprentice at any age and between 1st April and 31st September 2021, they will receive £3,000.
This new payment is on top of the £1,000 payment for new apprentices aged 16-18 and those under 25 with an education, health, and care plan. This could mean an employer could receive up to £4000 in total for hiring an apprentice!
Help to Grow
This new initiative from the government will see small business owners learn and develop the skills necessary to make their business a success and help them get the tools to help them and their online presence. The initiative is split into 2 sections, Help to Grow: Management and Help to Grow Digital.
Help to Grow: Management
Help to Grow: Management will be available in June and is a 12-week program that will include support from a business mentor and peer-learning sessions all alongside full-time work. It will give business leaders the chance to develop their strategic skills in key areas of business.
There are 30,000 spaces available over 3 years and the course is 90% subsidized by the government, meaning participants will have to pay £750. Your business has to be operating for more than 1 year and has between 5 and 249 employees. To register your interest in the Help to Grow: Management initiative, click here.
Help to Grow: Digital
Help to Grow: Digital is slightly different to Help to Grow: Management, its purpose is to allow businesses to get free and impartial advice on how technology can help grow their business online. Eligible businesses will get 50% off vouchers for approved software worth up to £5,000 and will help their business increase sales online, manage their accounts and finances digitally, and build customer relationships.
Advice is free to all businesses, but to qualify for the 50% off vouchers your business needs to have been trading for more than 12 months, employ between 5 and 249 employees, and are a registered limited company with Companies House. Click here to register your interest in Help to Grow: Digital.