As accountants anxiously awaited the Spring Budget 2021 announcement, the overriding concerns were how the Treasury plans to recoup the £280bn ($384bn) spending spree from the past year, and what the implications of those expected key changes would be. Institute of Financial Accountants CEO John Edwards writes
Chancellor Rishi Sunak’s highly anticipated second Budget aimed to strike a balance between continuing to support people and businesses, while managing government spending following the most turbulent 12 months since World War Two.
There was plenty in the Budget about coronavirus business support measures, but with that, the chancellor warned, would come anticipated tax rises in the coming years.
Business tax measures
It was confirmed there will be an increase in corporation tax from 19% to 25%, which will come into effect from April 2023. This unexpected delay in tax hikes was arguably the biggest surprise to emerge from the Budget. The government support schemes have been a lifeline for businesses, but there is obviously a huge financial burden for the country in delivering them.
Looking back a few months, it seemed inevitable that the government would need to recoup this quickly, and that this would come in the form of immediate tax changes in the Spring Budget.
I am pleased that they have seen fit to delay this, at least for now, and am optimistic about what this means for our overall economic recovery. However, accountants need to advise businesses on the importance of planning and to consider the impact of increased taxes in the future, so that they are able to ensure sustainable economic growth, without creating financial problems further down the line.
It was also announced that there will be a new small profits rate of corporation tax for small businesses with profits below £50,000 of 19%, meaning they will see no increase. Businesses with profits of between £50,000 and £250,000 will see a tapered rate, while those with profits of more than £250,000 will pay the full 25% rate.
The trading loss carry-back rule is being extended temporarily from one to three years. Loss-making unincorporated businesses and companies will be entitled to relief for up to £2 million of losses in 2020-21 and 2021-22.
Interestingly, it was also announced there will be a capital allowances ‘super deduction’ of 130% for main rate assets such as plant and machinery, as well as a 50% first-year allowance for special-rate assets. The current VAT registration threshold of £85,000 will remain in place for a further two years from April 2022.
Other key taxation matters
The income tax personal allowance and higher-rate threshold will increase in line with the consumer prices index in April 2021, but will then remain at this level until April 2026, cancelling planned increases in line with inflation.
The thresholds for inheritance tax, the pensions lifetime allowance and the annual exempt amount for capital gains tax will remain at their current levels until April 2026.
At first glance, most businesses will have gained great reassurance from the Budget, as short-term solutions are provided to their most pressing financial challenges.
However, two things make this Budget extremely interesting, particularly compared with the statements historically. First, the Budget has clearly laid out short-, mid- and long-term policies, far exceeding the normal level of forward planning, in a bid to support economic recovery. This allows businesses time to revisit and align their growth and development strategies with these policies.
Second, the devil really is in the detail. Many spring statements deliver broad-stroke policies that are easily understood, but because we are now in unprecedented times, we need innovative solutions and that is what this Budget has potentially delivered.
…while opportunity awaits
As ever, what the Budget means for individuals and businesses will become clearer as more details are announced in the coming days and weeks, so accountants should ensure they are aware of the key changes.
What this Budget represents for accountants is hope for the future, significant opportunity for them and their clients, and plenty to keep them in work for at least the next decade. Accountants are trusted advisers to clients, and there is huge opportunity in this Budget to build on that trust, providing relevant advice on future policy impacts.
Last month, The Accountant and International Accounting Bulletin team covered industry reactions to the spring budget 2021