The Chancellor’s 2021 Budget has revealed that the corporation tax will increase, but not until April 2023. The rate will rise from 19% to 25%. However, smaller companies with profits below £50,000 will be exempt from the increase. The move was to ensure only the top 10% of firms would pay the top rate.
Chancellor Sunak explained to MPs, “I’m protecting small businesses with profits of £50,000 or less, by creating a small profits rate, maintained at the current rate of 19%. This means around 70% of companies – 1.4 million businesses – will be completely unaffected.”
Offpay roll/IR35 still going ahead this April
IR5 employment status for the private sector will apply from this April. According to UK accountancy network MHL, the IR35 Impact Assessment will affect 230,000 Personal Service Companies, 60,000 Employers and 20,000 Recruitment Companies.
In a recent report, The Freelance Informer highlighted the HMRC’s crackdown measures on deliberate IR35 defaulters, which could include being named and shamed.
“Delaying or, better still, scrapping IR35 reform in the private sector would have been the right thing to do,” said Seb Maly CEO of IR35 Specialist Qdos of the Budget today.
“But I’m not surprised the changes will definitely go ahead next month – the government are desperate to roll out reform. My advice to contractors and businesses impacted is to prioritise IR35 compliance immediately,” he said.
IR35 Status Determination Statements
According to an MHL report, the end-client must issue a Status Determination Statement (SDS) directly to the worker and the party they are engaging if this is different (e.g. an agency).
At a minimum an SDS must meet the following criteria:
• Be in writing (an email will suffice)
• Identify all the parties in the supply chain, providing names and addresses and description of the role in the supply chain (eg Contractor’s personal service company, recruitment agency)
• Start with the finding of the determination: within IR35 or not within
• Contain a reasoned argument for why the determination outcome
• Provide details of the process to appeal the determination outcome
Limited company directors still excluded
The DISS tax support scheme aimed at two million actively trading limited companies was not mentioned in the budget, despite that it could keep 7.5 million people in employment if support was provided. How long the company directors running these businesses can survive personally without on-parity SEISS support before going bust hangs in the balance with HMRC.
What are theses super deduction tax breaks?
Sunak wants businesses that can to unlock any cash reserves to feed into the economy. He said on Wednesday, “I can announce the ‘super deduction‘. For the next two years, when companies invest they can reduce their tax bill, not just by a proportion of the cost of that investment, as they do now, or even by 100% of the cost, the so-called full expensing some have called for – with the super deduction they can now reduce their tax bill by 130% of the cost.”
The tax deduction will be put in place for the next two years for those companies that invest in plant and machinery. Mr Sunak is forecasting this business investment boost to bring another £20bn into the economy.
Help to Grow scheme
Tens of thousands of small businesses will be offered free MBA-style management, mentoring and digital training courses to help them boost productivity growth.
Under what has been coined the “Help to Grow” scheme, the government will allocate £520m into free online courses from top business schools, according to a BBC report.
Other perks of the scheme include up to 50% discounts on new productivity-enhancing software.
Freeports, Future Fund and International talent
- Eight new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
- The £375 million UK-wide ‘Future Fund: Breakthrough’ will invest in innovative companies such as those working in life sciences, quantum computing, or cleantech, that are aiming to raise at least £20 million of funding.
- Reforms to the immigration system will help ambitious UK businesses attract international talent. This could be a red flag for IT tech contractors.
MHA/Baker Tilly’s Budget 2021: Quick summary
- Furlough to be extended until the end of September. With the Government to continue paying 80% of employees’ wages for hours they cannot work.
- No changes to rates of income tax, national insurance or VAT
- Personal income tax allowance to be frozen at £12,570 from 2022 to 2026
- Higher rate income tax threshold to be frozen at £50,270 from 2022 to 2026
- Corporation tax on company profits to rise from 19% to 25% in April 2023
- A “super deduction” in tax for companies for the next 2 years that invest in plant and machinery.
- A new COVID recovery loan scheme launched offering 80% guarantees by the government. To replace the Bounce-back and other coronavirus loans for businesses
- £400m to help arts venues in England, including museums and galleries, re-open
- £300m recovery package for professional sport and £25m for grassroots football
- Incentive grants for apprenticeships to rise to £3,000 and £126 for traineeships
- Reduced rate of 5% VAT for the hospitality and tourism sectors has been extended to the end of September
- Business rates holiday for firms in England will continue from April until June
- £5bn in re-opening grants for non-essential businesses of up to £6,000 per premises.
- Eight new freeports with special economic zones and different custom rules
More details of The 2021 Budget can be found here.