Budget 2021: Furlough is extended as Corporation Tax rises
Chancellor Rishi Sunak confirmed a further extension of the government’s Coronavirus Job Retention Scheme (CJRS) in his Budget statement this afternoon.
It was part of a host of measures unveiled in a bid to protect jobs and help businesses on their journey out of lockdown.
Addressing rising government borrowing and spending, Mr Sunak also announced an increase in Corporation Tax from 2023, with a new rate of 25 per cent.
However, that came with plans to create a ‘Small Profits Rate’, for companies with profits of less than £50,000, which will be kept at the current 19 per cent level.
Mr Sunak said that meant 70 per cent of companies would be “completely unaffected”. And he added that only 10 per cent of all companies, with profits of £250,000 or more, would pay the full 25 per cent rate in two years’ time.
In a bid to boost business investment, there will also be a “super deduction” in tax for companies that invest in innovation.
The threshold for paying the basic rate of income tax will rise to £12,570 next year. For higher-rate payers, the threshold will be £50,270. Both rates will stay the same until 2026. The VAT registration threshold will remain at £85,000 until 2024.
The CJRS furlough scheme, which was set to have closed at the end of next month, will now continue until the end of September.
Mr Sunak said the scheme - which pays 80 per cent of employees’ wages for the hours they cannot work in the pandemic - would help millions through “the challenging months ahead”.
The extension to furlough, which has been credited for protecting 11 million jobs at risk from the impact of the Covid-19 pandemic since it was launched last March – had been widely reported prior to his address to the Commons this lunchtime.
The government’s contribution to the scheme will start to be reduced, with employers expected to pay 10 per cent towards the hours staff do not work in July.
Around 600,000 more self-employed people will also be eligible for government help as access to grants is widened. Support for the self-employed will also continue until September.
The Treasury has said hundreds of thousands more people will be eligible because tax return information for 2019/20 is now available.
A fourth grant from the Self-Employment Income Support Scheme (SEISS) will be available to claim from April, which will be worth 80 per cent of three months’ average trading profits up to £7,500.
A fifth grant, which will be available from July, was also announced. Those whose turnover has fallen by 30 per cent or more will continue to receive the full 80 per cent grant. Those whose turnover has fallen by less than 30 per cent will get a 30 per cent grant.
Mr Sunak announced an extension to the £20 a week top-up to universal credit for another six months. It will be given as a one-off £500 payment.
And in an effort to support the struggling high street and hospitality sector, businesses will be able to get a grant from a £5bn fund set up to help them reopen from lockdown.
Non-essential retail businesses will receive grants of up to £6,000 per premises. Hospitality and leisure businesses will get grants of up to £18,000.
The chancellor said the aim of the new Restart Grant was “to help businesses reopen and get going again.”
The business rates holiday for eligible retail, hospitality and leisure companies will be extended through to the end of June.
Mr Sunak said: “For the remaining nine months of the year, business rates will still be discounted by two thirds, up to a value of £2m for closed businesses, with a lower cap for those who have been able to stay open.”
Looking to further protect the hospitality and tourism sectors he confirmed that the five per cent reduced rate of VAT will be extended until the end of September, followed by an interim rate of 12.5 per cent for another six months.
The up-to-£500,000 “nil-rate band” for will finish at the end of June, rather than the end of this month.
Mr Sunak told the Commons the Office of Budget Responsibility was forecasting a “swifter and more sustained recovery than expected” and the economy will return to its pre-Covid level by the middle of next year.
However, he added that the economy will be three per cent smaller in five years than it would have been.
Briefing the cabinet before his Budget speech Mr Sunak said: “While we face challenging times, we will rise to that challenge and we can be optimistic about the recovery.”
Tony Medcalf, tax partner at MHA Moore and Smalley, on business confidence: "Today’s budget will provide a much-needed shot in the arm for the UK economy through a range of measures aimed at getting firms in all sectors back on their feet quickly and promoting economic recovery through business growth.
"The extension of the furlough scheme will provide a safety net to employers over the coming months, particularly those in the hospitality industry who will be unable to trade fully before May 17 at the earliest. This, along with the £5bn restart grants and continued reductions to VAT, will help retail, hospitality and personal care firms to recover as the lockdown is eased."
Linda Kirk, director of Lancashire and regional conveyancing specialist Adkirk Law, on the Stamp Duty holiday: “We are seeing high levels of sales with the benefits of the stamp duty holiday and now our clients can see through the process that was started with the clarity that the duty will be exempt.
“A lot of people could have been left with a hefty tax bill they hadn’t planned for if the deadline wasn’t extended because of delays beyond their control. With the current pandemic, we have all been operating in a restricted way and against difficult deadlines.
“We still have a pent-up pipeline of sales and deals but this will allow everyone the time to plan ahead and with more surety.”
Jane Parry, managing partner of PM+M, on the UK's debt: "The biggest challenge for the chancellor over the coming weeks and months is to manage expectations that the Covid debt needs to be repaid but without choking confidence, which will be no mean feat. Balancing being supportive but appearing tough on debt is a tricky balance and today’s Budget threw up no real surprises.
"Like most people, I’m waiting to see the detail on the changes to tax which will be clarified as part of the tax consultations on 23rd March. As painful as it is, the only way to make a dent in the debt will be via tax rises. There was no mention of capital gains tax rates changes, which is welcome news for business owners, but I do think this will happen at some point. Its just a question of when and by how much. Likewise, I think we can expect to see future inheritance tax tightening."
Matthew Johnson, associate partner at WNJ, on reopening the country: "The chancellor’s further support measures for businesses and to protect jobs is welcome, particularly the grants to help retail and hospitality businesses reopen from lockdown. It is vital they get as much help as they can amid all the uncertainty they are facing. Getting these businesses reopened will do much to boost confidence and set them on the road to recovery.
"Further support for the self-employed is also good news, with more people now eligible. That will be a relief to the tens of thousands who have been unable to get any financial aid from the government and have struggled throughout the pandemic."
Rob Wardle, head of tax at Azets in the NW, on the furlough extension: "The furlough extension reflects the need to extend support to employing businesses and follows the 'success' of the scheme to date. Unemployment is now expected to peak at 6.5% and not the projected 11.9%. This is a reduction in people terms of 1.3 million workers. This justifies the extension aimed at keeping people in work.
"The extension protects the employee whilst requiring gradually increasing contributions from the employer in July, August and September through to closure on 30 September. Once businesses are required to contribute however, will this increase unemployment in the region as the cost to employers grow? The number of employees kept on the books will depend on how quickly the North West economy picks up post lockdown."
David Harland, Eden Project International chief executive, on missing out on government funds: "It’s no secret that we were hoping the government would provide funding for Eden Project North in this Budget, but we are not viewing this as a major setback.
"We were encouraged by the Chancellor’s commitments to levelling-up and a green recovery and we feel Eden Project North fits perfectly with these agendas. We are as confident as ever that our case for investment is incredibly strong and we know that many in government feel the same. We will continue making our case and remain hopeful for good news in a future announcement. Our conversations with private and philanthropic investors are also ongoing."
Peter Emery, CEO of Electricity North West, on the support for green initiatives: “We welcome the green initiatives in this Budget and support the new savings bonds that will help everybody play their part in funding the key projects that will drive a green recovery.
"However, to truly set a path for that recovery, we urge the government to build on the 10 point plan announced late last year with even more focused incentives for businesses to invest in green growth. If we are to hit the region’s ambitious net zero carbon targets, we are going to have to invest in the energy efficiency of our housing stock sooner rather than later.
"A new UK infrastructure bank will support large schemes but in line with the 10 point plan published late last year, the government should also be pushing ahead with more schemes like the Green Homes Grant that will transform our use of energy, kick-start a green economy and drive investment in skills."
David Taylor, chair of the LEP, on the increase in Corporation Tax: "The headline announcement – an eye-watering rise in UK corporation tax from 19% to 25% - may have been intended to reassure the public and the markets that the Government is serious about repairing the public finances in the wake of the COVID-19 pandemic. Unfortunately, it will also alarm many in business.
"While UK corporate tax rates will remain the lowest in the G7, the rise will not occur for two years, and tapers are planned to protect smaller firms, the rise still sends a powerful message internationally about the UK being open for business and welcoming for businesses. This is the biggest rise in UK corporation tax since Dennis Healey was Chancellor in 1969 and it could deter foreign firms from investing in the UK and Lancashire."
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