Budget (March 2021) Summary for Entrepreneurs

Here we focus on the key tax changes announced by Rishi Sunak in the March 2021 Budget Statement including corporation tax increase, the new Super deduction and other tax changes

7 months ago   •   4 min read

By Steve Livingston

Picking through the details of yesterday's Budget Statement - despite the headlines - the reality is that it was largely a 'Non-Budget' for most entrepreneurs.

Rather than rehash all the points, I thought it might be more helpful to focus on some key areas relevant to entrepreneurs and provide my take on their potential impact.

1. Corporation tax hike to 25%

The proposed increase to 25% from 1 April 2023 is higher than most expected; however, there are protections for smaller companies with profits up to £250,000.

The cynic in me leads me to believe that this increase is unlikely to come to pass. As we approach the next election, I strongly suspect that this will be watered down to a more palatable rate of around 21% - 23%.

So this higher future proposed rate gives the Chancellor plenty of wiggle room to shower 'gifts' in the form of reductions to these proposed rates as the next election looms nearer.

You should still budget for 25% by April 2023 in case I am wrong!

2. Super Deduction on qualifying capital plant and equipment

Another headline grabber but, I'm afraid, lacking in substance for most UK businesses.

During his Budget speech, Sunak used the example of a company investing £10 million in plant & equipment. For expenditure at this level, there are obvious advantages of a 130% deduction against taxable profits. However, given that the majority of businesses rarely get even close to utilising their full £1m Annual Investment Allowance (eligible for 100% write off against taxable profits), the savings from this further 30% deduction barely touches the sides...

In a nutshell, that laptop that you purchase for £1,000 will receive an extra £57 in company tax relief from April 2021 under this "Super Deduction". So the tax relief goes from £190 to £247.

Is it just me thinking that this new super deduction might not be quite so "Super"...?

A quick way to view this change is that equipment and kit that you purchase from 1 April 2021 will attract tax relief of 25% (strictly 24.7%) within your company. This of course assumes that you have taxable profits.

(For the curious amongst you, this is calculated as: 130% tax deduction * 19% corporation tax relief = 24.70%)

3. Corporation tax loss carry back increase to 3 years

Many of the early stage companies that I advise are incurring annual losses as they work on the development of their innovative product/services (the R&D tax relief often contributes to the overall loss position) so this temporary increase from 1 year to 3 year loss carry back is of limited application.

It really aims to assist those otherwise profitable businesses that have been temporarily hit by COVID-19. For those businesses, I can certainly see the merits of this change and, for what it's worth, it harks back to the rules when I started out in the world of accountancy!

4. Freeze of tax thresholds until 2026

This is the somewhat sinister bit. I have a problem with the taxation of inflation - a factor that people have no control over. This is why we used to have a mechanism in tax called "indexation" that served to eliminate the effect of inflation on the profits on the sale of land and buildings.

"Fiscal drag" (as it is often called) occurs when folk find that the pay rise that is gradually passed on to them to meet increased costs of living has resulted in them unwittingly finding themselves in a higher tax band.

So basic rate taxpayers become higher rate tax payers and higher rate taxpayers become additional rate taxpayers.

Worse is the duration of this freeze in tax thresholds - they are scheduled to remain unchanged until 2026...!

This is cunning and devious as the Government has seemingly made no changes to the tax rates or rules - yet folk are paying a lot more in tax. Expect to see your team becoming more disgruntled over time as they see their payslip and increased PAYE deductions resulting in reduced levels of take-home pay.

[Side note: we all know that the money-printers are whirring away so higher inflation seems inevitable and therefore this could bite hard].

On the plus side, personal allowances (income tax and CGT) have not been curtailed so you should consider how you can make full use of (all of) them - especially where spouse/civil partners.

It may also be a good time to review other team reward mechanisms such as EMI share option schemes and other non-taxable 'perks'.

5. What didn't change - Capital Gains Tax ('CGT')

The biggest talking point in the run up to the Budget was around possible changes to the rate of Capital Gains Tax (CGT) with much talk of the possible alignment with income tax rates and/or the curtailment of Business Asset Disposal Relief (formerly Entrepreneur's Relief).

The good news is that no changes to the UK CGT rules were announced.

I must confess that I am both surprised and a little relieved by the fact that the Chancellor has chosen not to tamper with CGT and relief for entrepreneurs. Long may it continue!

6. COVID support continues until Sept 2021

Good to see confirmation of the extension of the Furlough scheme and SEISS grants to give businesses more certainty over the coming months.

7. R&D Tax Credit Consultation

There will be a consultation to explore how the UK R&D tax credit incentive can remain internationally competitive which is good news (separate post to follow on this).


Please subscribe for future updates.






Spread the word