The Chancellor in last week’s Budget sought to walk the line between continuing to support the economy in the short term and starting to balance the books over the longer term. With a mission to pay back the high levels of debt being accrued by the UK during the pandemic, the Chancellor announced several measures including changes to taxation. In this article we will look at those specific measures that could affect small businesses and business owners and look forward to the 23 March and the rumours expected to be announced on what has been dubbed ‘Tax Day’.
In his speech, Rishi Sunak announced that the headline rate for Corporation Tax would rise for the first time since 1974. However, small businesses with profits under £50,000 can breathe a sigh of relief as this change won’t affect them at all. The corporation tax rate for these businesses will stay the same and they will continue to pay 19%.
However, for businesses with profits over £50,000 the rate of corporation tax will be changing from 2023. The rate will be tapered up for businesses, with the highest rate of 25% for companies with a profit of over £250,000. The Chancellor stated in his speech that it was ‘fair and necessary’ to ask businesses to contribute to the economic recovery given the amount of support provided by the government as part of the coronavirus measures.
However, Rishi balanced the announcement of the corporation tax increase with the news of a two-year tax Super Deduction for businesses investing in a new plant or machinery. As part of a drive to improve the UK’s productivity, which has traditionally seen little growth, companies will receive a tax cut worth 130% of investments made between 1 April 2021 and 21 March 2023. It is expected that this deduction will be worth over £25 billion over two years for UK businesses.
For Business Owners
Small Business owners, too, will have listened carefully to the Chancellor’s announcements as it related to personal tax allowances. With freezes to the income tax, inheritance tax, capital gains tax and lifetime pensions allowances many individuals will also be paying higher amounts of tax in the coming years if inflation rises as expected. For those owners considering selling their business in the coming years considering what these freezes may mean for their plans will be key. This will be particularly vital for those planning to pass on any wealth created from a sale to loved ones through inheritance.
According to reports, 3 March was not the end of announcements either. Indeed, a ‘Tax Day’ has been announced for later this month on the 23 March where the government will look to publish a range of tax consultations and calls for evidence. All businesses will be watching closely on the 23 March to see how these announcements will affect their future tax burden. While there could be good news for SMEs with rumours circulating that the chancellor will be raising taxes for multi-national tech giants like Amazon, there are also concerns that the ‘Tax Day’ will be used to introduce more significant tax changes for all.
2020 and the start of 2021 has been a difficult period for many businesses as social restrictions continue to impact their ability to trade. This period has also seen numerous measures introduced by the government to support businesses and drive the economic recovery. As we all continue on this journey, Close Brothers remains committed to supporting small businesses navigate this period.