Chancellor hails ‘business-friendly government’, despite Corporation Tax hike
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The Chancellor said the UK has a “business-friendly government” and a “pro-business tax regime” as he unveiled a raft of measures aimed at helping the SME sector recover from the devastation of three lockdowns.
This included a recovery loan scheme of between £25,000 to £10mm to replace support such as CBILS, and guaranteed by government by up to 80%.
The Business Rates holiday will extend to the end of June, followed by a two-thirds discount for the following nine months, which Mr Sunak said is a £6bn tax cut for business.
For businesses in the hospitality and tourism sector the five per cent VAT rate is extended to September 30, after which it will increase to 12.5% for another six months before returning to normal from next April.
Support for training and increasing skills among SMEs has been increased through two specific schemes. Help to Grow Management will provide training for SMEs, with the Government meeting 90% of the cost, while Help to Grow Digital will offer training and 50% discount on new productivity-enhancing software for SMEs, which will benefit an estimated 100,000 small firms.
Also, through a ‘Super Deduction’ measure companies will be able to offset 130% of the cost of new machinery over the next two years, the biggest business tax cut this century, according to Mr Sunak, and one that is expected to boost business investment by 10%, according to the Office of Budget Responsibility.
But, the Chancellor said more than £100bn of support for business must, at some point, be repaid, and from 2023 corporation tax on company profits will rise from 19% to 25%.
However, SMEs with profits of less than £50,000 will continue to pay 19%, which means that 70% of companies will be unaffected.
Mr Sunak also confirmed there will also be a doubling of incentive payments for companies to employ apprentices, up to £3,000.
Becky Maguire, partner at Garbutt + Elliott said: “The biggest shake up of the day from a tax perspective was for corporation tax with two major measures announced to boost investment in the short term but tax profits in the longer term more heavily.
“In a surprise move, the government announced a temporary super deduction for companies investing in qualifying new plant and machinery assets from 1 April 2021 to 31 March 2023. For every £1 spent on qualifying main pool assets companies will be able to deduct £1.30 for corporation tax purposes (effectively reducing their tax bill by 25p for every £1 they invest). For qualifying special rate pool assets including long life assets companies will be able to claim a 50% first year allowance.
“This new measure seems to sit alongside the annual investment allowance (AIA) which has already been increased to £1m until the end of 2021 at which point it is set to revert to £200,000. The AIA allows a 100% deduction for qualifying plant and machinery. It is perhaps a shame that the new super deduction hasn’t at least in part been targeted at investment in environmentally friendly expenditure but nevertheless it will be a significant incentive for businesses who are in a position to invest, to do so in the next 2 years.”
Mike Cherry, Federation of Small Businesses (FSB) national chairman, commented: “This Budget will help many small firms with their final push through to September, but there is little here to aid job creation or help people return to work.
“Thousands of small businesses are on the brink of collapse and thousands more are suffering from low confidence as cash reserves dwindle. They will welcome both the extension of flagship support schemes that have kept them going over the hardest year they have ever faced, as well as confirmation of new support measures around taxation, employment and cash grants.”
Alan Thomas, chief executive of Simply Business, the UK’s largest provider of SME insurance, said: “We welcome the lifeline for small businesses in today’s budget. It’s positive news to see small businesses rightfully recognised in the nation’s economic recovery plan, but we should know that many self employed people will still be left without the support they need to survive, let alone thrive.”