Like me, you’ve probably been waiting for Rishi Sunak’s recovery Budget with some trepidation.
Were we all going to be facing huge tax hikes? Were businesses on the brink going to collapse with a final financial burden? How could we possibly keep propping up the economy to see us through to the end of lockdown?
If so, I can imagine you were pleasantly surprised.
In a nutshell
Here are the main points of Rishi Sunak's Budget today:
The Office for Budget Responsibility (OBR) predicts economy will return to pre-Covid levels by the middle of 2022, six months earlier than previously thought. Big tick!
Unemployment is now expected to peak at 6.5 %, down from the predicted 11.9%. Also, great news!
The furlough scheme is to be extended to the end of September under current 80% of salary rate. Employers will be asked to pay 10% in July, then 20% in August and September. Support for the self-employed also goes on until September.
Apprentice grants for employers will be doubled to £3,000.
There is a £5 billion fund for Restart Grants for businesses. Retailers will get up to £6,000 per site from April. Hospitality and leisure open later and will be able to claim up to £18,000.
There’s also a new recovery loan scheme for businesses of £25,000 to £10 million - with 80% guaranteed by the Government.
The business rate holiday will stay in place until June and then be discounted for the remaining nine months of 2021-22 financial year.
A 5% VAT rate for hospitality and tourism will be extended to September, then at 12.5% until April 2022 before returning to 20% regular rate.
Tax free income threshold will rise to £12,570 next year and then will be frozen until 2026. Higher rate threshold rises to £50,270 next year and will then be frozen until 2026.
Corporation Tax will be increased from 19% to 25% in 2023. Those with profits of £50,000 or less will continue paying corporation tax at the current level and a taper above £50,000 will be introduced. Only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
Easy does it
The UK's total public spending bill is now estimated at £407 billion and the UK has borrowed £355 billion - 17% of GDP - the highest since the Second World War.
But the Chancellor is planning on taking a “softly, softly catchy monkey” approach to paying off the deficit.
He knows we have to pay it back. We know we have to pay it back. But none of us are ready to put our hands in our pockets just yet.
So how will this work?
Well in short, the Government has laid out a realistic proposal for recouping the debt over a longer period of time.
They will do it by hiking up taxes (this is to be expected) but are giving us plenty of notice until the charges increase.
Corporation tax is being increased from 19% to 25% from 2023, for example.
Those with profits of £50,000 or less which will be protected from the hike and will continue paying corporation tax at the current level and a taper above £50,000 will be introduced to ensure only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
The rise puts the UK above the EU average of 21.7% but remains below the US corporation tax level of 27%.
France’s rate is 26.5%, Germany has a rate at 30%, Canada at 26.5%, Japan at 30.62% and Italy at 24%.
I’m not for one minute suggesting tax increases are welcome. Any tax increase – even a future one – is a bit depressing.
But Sunak is combatting any future negatives with plenty of immediate positives – demonstrating that the support is in place to adapt to these hikes once the economic recovery is well established.
The hope is that by the time we have to dig deep from a personal and business point of view, we will be in a position to do so without feeling the pinch as acutely.
What’s in it for me?
Some of the little perks to the budget include efforts to get people shopping, including raising the contactless payment limit from £45 to £100, freezing alcohol duties and dropping the idea of raising fuel duty.
The £20-a-week boost to Universal Credit will stay for another six months, the stamp duty cut has been kept on until the end of June, and eight new 'freeports' will also be created across England to step up economic growth.
On top of this, inheritance tax thresholds, pensions lifetime allowance, and annual exempt amount in capital gains tax will be maintained at current levels until April 2026.
But the biggest benefits by far are those for businesses and the self-employed – and let’s face it, those are the ones you are really interested in.
Supporting businesses
Key to the Chancellor’s plan is protecting businesses and encouraging growth.
The furlough extension is key to this, allowing those businesses – particularly the ones who haven’t been allowed to open yet – to protect their staff and livelihoods for when they can.
Further business bailouts and VAT and business rates breaks for hospitality, leisure and tourism are also a vital component.
Those of you who are self-employed workers will also benefit from another round of support. And, in a surprise move, the scheme will be extended to cover 600,000 'excluded' workers who did not qualify before because they did not begin trading until 2019.
One major measure to fuel growth that was also announced was the tax 'super-deduction' for companies that invest in the UK - meaning that they will be able to claim relief of 130% of the value of their investment.
Insisting that the UK will have a “pro-business tax regime” after Covid, Sunak told MPs the new super deduction will unlock investment and specifically reward firms with bold expansion plans in the wake of the pandemic.
Though little detail is yet clear about the new policy, Sunak said in the Commons: “While many businesses are struggling, others have been able to build up significant cash reserves. We need to unlock that investment; we need an investment-led recovery.
“So today 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.”
How we can help
As with all government announcements, the finer detail is yet to be divulged.
But as we get to grips with it all, we will pass on those details to you to help you manage your finances.
We are also here to provide you with advice on your accounts now – and in the future when any changes take effect. Be sure to speak to the team to make sure you get every benefit available.