This year’s budget has been held under completely unprecedented circumstances. Business owners were waiting with baited breath to see which measures and actions would be revealed.
Among the changes for businesses outlined in Chancellor Rishi Sunak’s 2021 budget were important announcements on capital assets and corporation tax.
So who is likely to be affected by this?
Capital Asset Changes
The new ‘super deduction’ tax relief was announced, aimed at encouraging investment into the UK and accelerating post-pandemic recovery. This will come into effect in April 2021, running until March 2023, and will be a boost for manufacturing and construction firms.
Companies investing in qualifying plant and machinery assets will benefit from a 130% first-year capital allowance and 50% first-year allowance on qualifying special rate assets. This could allow companies to cut their tax bill by up to 25p for every £1 they invest - the biggest business tax cut in UK history.
It’s welcome news for businesses who have been considering investment in plant and machinery assets - details still need to be finalised but it could provide businesses with the confidence to invest cash sooner rather than later.
The Chancellor announced a marked rise in Corporation Tax from 19% to 25%. However, this was to be expected, and the increase will not come into effect until April 2023.
Although the rate remains the most competitive within the G7 nations, it’s not a welcome move for profitable British businesses. But the rise will not affect struggling businesses as it’s a tax on profits. Small businesses with profits of £50,000 or less will be subject to a ‘small profits rate’ at the current rate of 19%.
There will be a threshold for companies earning above £50,000, with only companies earning £250,000 or more paying the full 25% rate.
Tax on losses, IR35 and VAT
Businesses will be able to (temporarily) carry back trading losses from one year to three years. The amount that can be carried back will be up to 2 million for the next two years – 2020/21 and 2021/22. This will give increased flexibility for companies to offset their losses, and give them the opportunity to claim additional tax refunds.
It was announced that the VAT registration threshold will remain at £85,000 until April 2024, and there was no announcement of extending the IR35 off-payroll reforms as it has already been announced that these will go ahead as planned.
However a technical change to the definition of ‘intermediary’ will be made so that umbrella companies or employment agencies deducting employment taxes are not caught out under the new legislation. There will also be changes to the payment of employment taxes following Brexit with new rules in effect for social security payments for workers coming from the EEA and Switzerland now that the transition period has ended.
Remember we’re here to help you with all kinds of matters relating to the above at DNS. Things can get complicated when it comes to issues like VAT, IR35 and corporation tax, and we strongly recommend you seek expert help when necessary.