Budget 2021 - The Budget Designed for Entrepreneurs?
Announcing the Budget Rishi Sunak unveiled a raft of new measures aimed at boosting both startups and established tech firms.
The government unveiled visa reforms designed to attract top talent, including a new unsponsored points-based visa for science, research and tech workers, as well as an expansion of the existing visa programme for scale-ups and entrepreneurs.
There were also no changes announced to tax reliefs available to individuals when they invest in businesses, including the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and the lesser known Investors’ Relief, which can enable investors to pay a 10% rate of capital gains tax on gains up to £10m.
The Enterprise Management Incentive (EMI) scheme is to be reviewed, with a possible extension of the scheme to support high growth companies. In the meantime, it was confirmed that the furloughing of staff will not affect the working time requirement for EMI share option holders. This remains a potent tool for businesses wishing to recruit, retain and incentivise key employees.
The implementation of the PAYE cap for small and medium enterprises (SMEs), postponed in last year’s budget, is set to launch on 1 April 2021. For research and development claims from 1 April 2021, SMEs will experience a limit to the payable R&D tax credit they can receive.
The payable R&D tax credit is capped at £20,000 plus 300% of its total PAYE and national insurance contributions liability for the period.
There is an exemption to this cap, provided the company can meet both of the following conditions:
- The company must be creating or actively managing intellectual property; and
- it must not spend more than 15% of its qualifying expenditure on subcontracting R&D to, or the provision of externally provided workers by, connected persons.
The UK Government has previously stated its commitment to increase spending in R&D to 2.4% of GDP by 2027. In July 2020, the latest figures reported a spend of just 1.7% so a wider consultation is being run from 3 March 2021 to 2 June 2021 which indicates positive steps towards making R&D more robust, and ultimately more improved and competitive.
Rishi Sunak unveiled a schemes to boost capital through the Future Fund, and to enable SMEs to upskill management and digital skills via the Help to Grow initiative.
There is £375 million for the new Future Fund: Breakthrough, which builds on the success of the Future Fund. This new iteration should give investors and founders the capital and commitment they need to continue to grow and will be focussed on the most innovative, R&D-intensive businesses.
Help to Grow
A desire to support existing businesses across the UK to boost productivity and embrace digitalisation was also present. As part of the Help to Grow Digital programme, SMEs will have access to free digital training and given a 50% discount on productivity-enhancing software, too.
The chancellor’s Budget also included a raft of other measures that have been welcomed by British firms.
There are also Help to Grow Management schemes available to SMEs that wish to upskill 30,000 SMEs in the UK over three years.
Developed in partnership with industry, the programme will combine a national curriculum delivered through business schools with practical case studies and mentoring from experienced business professionals.
Over 12 weeks, and 90% subsidised by the government, this programme will equip SMEs with the tools to grow their businesses and thrive.
There was 'relief' for the UK Hospitality Sector, as the Chancellor described as this sector one of the hardest hit by Covid-19.
Hospitality ‘Restart’ Grants
The chancellor has announced a new ‘restart’ grant to help retail, hospitality and personal care businesses reopen from April.
Retailers, which are due to reopen from April, will be eligible for grants of up to £6,000 per premises. Meanwhile pubs, restaurants and salons, which will be closed until June, will be able to claim grants of up to £18,000.
Business Rates Holiday
The business rates holiday for retail and hospitality firms will continue until the end of June, the chancellor announced today.
Rishi Sunak told the House of Commons that the 100 per cent business rates holiday will be extended for three months. For the remaining nine months of the financial year, business rates will be discounted by two thirds, up to a value of £2m for closed firms.
VAT for Hospitality
The 5% reduced rate of VAT for the hospitality and tourism sectors has been extended to 30 September 2021. A reduced rate of 12.5% will then apply until 31 March 2022.
The temporary 5% reduced rate for the tourism and hospitality sectors, which has applied since 15 July 2020, has been extended for another 6 months to 30 September 2021.
This will be followed by a new interim reduced rate of 12.5% for a further 6 months to 31 March 2022, before reverting back to the standard rate from 1 April 2022.
These measures apply to supplies of restaurant services, hot takeaway food, holiday accommodation and admission to many attractions.
Alcohol Duty was also frozen for another year, the Chancellor revealed that the hospitality and tourism sectors, which he describes as some of the “hardest hit” by Covid-19.
Critical to a swift recovery and for shaping the economy of the future, the Chancellor introduced the extension of the Furlough Scheme which would be welcomed by all businesses, and further changes to taxes. Probably the most notable being the Corporation Tax rises from April 2023.
Coronavirus Job Retention Scheme (CJRS)
The CJRS is extended to 30 September 2021. The scheme will continue in its current form until 30 June 2021. Employees will receive 80% of their normal salary for hours not worked. From 1 July 2021 employers will be asked to contribute towards the cost of unworked hours.
These contributions will be:
- 10% in July 2021 (up to £312.50).
- 20% in August 2021 (up to £625).
- 20% in September 2021 (up to £625).
- The scheme will cease on 30 September 2021.
Recovery Loan Scheme
The Recovery Loan Scheme will be available to businesses from 6 April 2021:
- Businesses will be able to access loans of between £25,000 and £10 million, with a guarantee of 80%.
- Businesses who have received support under existing COVID-19 loan schemes will be eligible.
Restart Grants will be made available in England. These will be:
- Up to £6,000 per premises for non-essential retail businesses.
- Up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.
- A further £425 million of discretionary business grant funding will be available from public authorities in England.
- The registration threshold will be maintained at £85,000 up to and including 2023-24.
- The reduced rate for hospitality, accommodation and attractions will extend the 5% rate to 30 September 2021 then 12.5% to 31 March 2022.
- The window for starting deferred payments through the VAT New Payment Scheme is extended by up to three months.
Looking at corporation tax, the headline was the increase in rates from 1 April 2023.
- Corporation Tax: from April 2023 the main rate will be 25%. The 19% rate continues for profits up to £50,000, tapering to the main rate of 25% for profits over £250,000.
- Loss carryback: extended to three years for continuing business with £2,000,000
This will have an impact on how business owners extract cash from their company. For a number of years, dividends have had the edge over salary payments, with a circa 3.5% lower tax rate. From 1 April 2023, that advantage disappears entirely, with dividends being fractionally more expensive in overall tax terms once the annual £2,000 dividend nil rate band is used cap.
Income Tax (IT)
Key measures included in Budget 2021 are as follows:
- In the Spending Review 2020, the following increases were announced:
- Personal allowance 2021/2022: £12,570.
- Basic rate threshold 2021/2022: £37,700.
- Higher rate threshold 2021/2022: £50,570.
- These figures will remain the same until 2025/2026.
- The Upper Earnings Limit and Upper Profits Limit will remain aligned with the higher rate threshold (£50,570) for these years. This will apply to the whole of the UK.
Capital allowances have been given a boost with the introduction of an enhanced super-deduction of 130% for main rate (18%) asset investments, while assets normally qualifying for special rate relief (6%) will attract a 50% first year allowance.
- 130% Super Deduction for main rate assets.
- 50% First Year Allowance for special rate assets for two years.
Both allowances apply from 1 April 2021, but will not be available for expenditure in connection with contracts entered into before 3 March 2021.These changes, along with the increase in corporation tax rates, turn back the clock somewhat, favouring capital-intensive companies.
- The Lifetime Allowance for pension contributions will remain at £1,073,100 until 2025/2026.
Capital Gains Tax
- Maintain the Annual Exempt Amount at £12,300 up to and including 2025-26.
The retention of current CGT rates will be welcome news to entrepreneurs working to eventually realise capital value from their business, especially after the announcement of the erosion of Entrepreneurs relief in the last budget. Although the Chancellor could still revisit the issue in his Autumn Statement.
Comment & Analysis
The Budget has sought to drive investment and growth, but recognises that not all businesses have had a smooth ride in the last twelve months
As reported in City AM: Dom Hallas, executive director of The Coalition for a Digital Economy (Coadec), said the chancellor had “put tech at the core of his plan for growth”.
“From consultations on reforms to the R&D tax credit, EMI share options scheme and pension fund rules to allow more investment in venture capital — to two new visas, incentives for SMEs to spend money on software and a new Future Fund. There’s plenty in this budget for the startup ecosystem to be pleased with.”
As reported in City AM, London Tech Advocates’ Shaw added: “Listings reform will pave the way for a bumper year of tech IPOs and spur innovation and growth in a sector that has massive potential to define this country’s future economy.
“As the City prepares for a year of high-profile floats, we now have a compelling set of proposals which will ensure British scale-ups remain in the UK to pioneer innovation, create jobs and generate growth.”
We believe a resurgent economy will provide opportunity; but it will also provide much needed additional revenue to the Treasury, not least in increased corporation tax rates. Is this budget designed to stimulate growth and opportunity for Entrepreneurs? We think it is.