UK Budget
2021

Budget 2021

Spend it now and pay it later is the theme concept of our Chancellor Rishi Sunak’s UK budget 2021. The budget 2021 announcement is aiming to create thousands of jobs, economic recovery, and economic growth for post-Brexit United Kingdom. This is probably the most challenging budget for any Chancellor in the UK as the government’s borrowing has now exceeded £270 billion which is the highest level of debt in British history apart from the emergency period of WW1 and WW2. 

As lockdown restrictions have occurred due to the coronavirus pandemic, many jobs have been lost, reducing people’s income and further impacting business survival, even forcing some to shut. The 2021 budget is a plan to restore economic growth, and this blog will consider and critically evaluate this approach.

Although the government is planning to initiate the start of the coronavirus debt from 2023 by increasing corporation tax and freezing personal allowance to £12,500, there is a corporation tax loophole that has been introduced in this budget.  

Budget for self-employed

  • The support for self-employed grant is extended until September 2021.
  • The fourth self-employed grant will be available from end of April 2021.
  • Those who could not manage to apply for the grant in 2020 can now apply. These changes will make 600,000 more self-employed people become eligible for government help as access to grants is widened.
  • The fifth self-employed grant will be available from end of July 2021. The fifth grant will be worth 80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more. For those with a turnover reduction of less than 30%, the grant will be worth 30% of 3 months’ average trading profits, capped at £2,850.

Further impance on self-employed and income tax

  • Basic allowance will increase to £12,570 until 2026.
  • Higher rate threshold will increase to £50,270 until 2026.
  • Inheritance tax and pension lifetime allowance will remain constant.
  • Capital gain tax will remain constant.
  • Apart from the self-employment support grants, the income tax personal allowance threshold will remain the same at £12,500. This will add £7bn a year to pay some of the coronavirus debt.

Budget 2021 for small businesses

  • If you own a limited company, this is bad news as you are required to pay a corporation tax of 25% from April 2023. However, if your business net profit is less than £50,000 then you only pay at the current rate which is 19%. This is good news for small and start-up companies. There is a marginal corporation tax rate for companies whose annual profit is between £50,000 and £250,000. You only pay 25% corporation tax if your annual profit is more than £250,000.
  • In our opinion, increasing the corporation tax to 25% will increase the risk of losing many large companies in the UK as they may decide to move to an offshore location.
  • Capital allowance super deduction: one of the greatest perks businesses can take advantage of now is to invest in plant and equipment. You will get a 30% return on every £1 you spend on plant and equipment. For example, if you purchase a computer for £1,000 in May 2021, you can potentially claim up to £1,300 from HMRC.
  • £150m to help communities take over pubs in danger of closing.
  • An increase to the limit on contactless payments from £45 to £100.
  • £5bn to help High Street firms reopen.
  • A further ‘Help to Grow Scheme’ will be available for small to medium sized businesses in terms of providing managerial and technological tools to improve innovation and to help in growth opportunities.

Budget 2021 summary

Coronavirus support

  • Furlough scheme is extended until September 2021 with the government continuing to pay 80% of workers’ wages for the hours they are unable to work. Employers are asked to contribute 10% in July, and 20% in August and September.
  • £20 weekly uplift for Universal Credit worth £1,000 per year will be extended for 6 months.
  • Minimum wage will increase per hour from April 2021.

Business support

  • Tax-free personal allowances will be frozen at £12,570 from April 2021 to 2026.
  • The higher rate income tax threshold will be frozen at £50,270 from April 2021 to 2026.
  • Rates of income tax, national insurance and VAT will remain constant.
  • £520m to help UK businesses improve their software and training.
  • VAT cut for hospitality firms such as restaurants, hotels, and leisure attractions to remain at a 5% rate until September 2021. A 12.5% rate will then apply for the next 6 months.
  • Incentive payments for hiring new apprentices are doubled to £3,000. £126m to be invested in tripling the number of new traineeships.
  • New visa scheme introduced to assist start-up business and tech firms to source overseas talent.

Housing

  • A mortgage guarantee scheme will help home buyers purchase properties that are worth up £600,00 – only a deposit of 5% is required. The government will underwrite the remaining percentage.
  • Stamp Duty holiday is extended on homes worth up to £500,000 until the end of June 2021.

Health

  • £10m funding to support armed forces veterans with mental health needs.
  • £19m for domestic violence programmes and funding respite rooms for vulnerable, homeless women.

Arts and sport

  • Nearly £400m funding to help art venues reopen in England, such as galleries and museums.
  • £300m for professional sport and £1.2 million to hold the Women’s Euros football tournament next year.

Alcohol and fuel

  • All alcohol duties will be frozen for the second consecutive year, with no extra tax on beer, cider, spirits, or wine.
  • Fuel duty will be frozen for the 11th year running.

Analysis of Budget 2021

The 2021 budget is seen as a major step to increase economic growth to the optimum with forecasts predicting that the economy should recover to its normal size by the middle of next year. It has been estimated by the Office for Budget Responsibility that the GDP will grow by 4% this year and increase to 7.3% next year.

However, Sir Keir Starmer has claimed that the budget is unreasonable as it does not account for the loans which are in excess of £70,000, and businesses are required to pay this back regardless of whether their company is profitable or not, which is economically illiterate. The budget is considered by many as a quick fix and not a long-term solution.

It has also been argued that, although the Chancellor has recognised that the bricks and mortar retail businesses require support, the business rate relief is only a temporary fix. There is no equivalent relief on empty units which seems unsound to many retail property owners.

The Chancellor’s decision has been repelled on the basis that license fees, inheritance tax and capital gain tax should be abandoned as these taxes affect economic activity and there’s an uneven affect on different parts of the economy.

Overall, the budget gives rise to hope for UK economic recovery, helping distressed businesses, but there are still some problems such as improving stamp duty taxes and widening information that relief businesses, such as airports, could receive due to losses faced.

Conclusion

According to the government’s plan, the economic growth rate is positive if the economy opens up in accordance to the government’s current plan for the COVID-19 lockdown roadmap. If the coronavirus pandemic is out control again then the budget will need to be revised. The 2021 budget is different from any other budget in the UK’s history; the budget is definitely good news for small businesses and the overall UK economy.

However, the government should have allocated more focus on a greener economy and renewable energy. In order to revolutionise the UK’s post-Brexit manufacturing industry, the government needs invest more on renewable energy, develop more IT infrastructure and green technology.

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