The business rates holiday and 5% VAT rate will be extended in their current state until the end of June, and phased out over the coming year, the Chancellor has announced.
In his Budget statement earlier today (3 March), Rishi Sunak announced businesses will be granted a 100% rates holiday until the end of June, and rates will be reduced by two thirds for the remaining nine months of the year, up to £2m for closed businesses, with a lower cap for businesses who have remained open.
The 5% VAT rate will be extended for six months, to the 30 September 2021, at which point it will move to an interim rate of 12.5% for a further six months, returning to the standard 20% rate in April 2022. Planned increases in alcohol duties will also be frozen for the next 12 months.
As well as confirming that the furlough scheme will be extended in its current state until the beginning of July, followed by a phasing out period with employer contributions of 10% in July and 20% in August and September, Sunak announced two new fiscal support initiatives – restart grants and the recovery loan scheme – intended to aid businesses facing restrictions through the reopening period.
As initial grants come to an end this month, new restart grants will come into place in April, with hospitality businesses able to apply for up to £18k per premises. Simultaneously, to coincide with the end of CIBLS and the bounce back loan schemes, businesses of any size can apply for loans from £25k to £10m through to the end of 2021, backed by a government guarantee to lenders of 80%.
To encourage investment, Government will implement a two-year “super deduction” on investments, granting companies actively investing a 130% tax reduction on the cost, and new £150m ‘levelling up’ fund will be created to help support communities to take ownership of local businesses.
For the next two years, businesses will be able to carry back losses of up to £2m for three years, meaning they can claim additional tax refunds of up to £760K.
The Chancellor also announced training and digital ‘Help to Grow’ schemes set to come into place in the autumn, intended to help small and medium-sized businesses access management training through a UK-wide development program, with Government contributing 90% of the costs, and free digital training and 50% discount on new digital software.
Whist income tax, national insurance and VAT rates will not be increased to support the financial burden of the crisis, Sunak announced a freeze on personal tax thresholds for a year, and corporation tax will increase to 25% for certain businesses in April 2023.
Small businesses, with profits of less than £50k will be protected by a small profit rate which will remain at the current level of 19% and a taper will be introduced for businesses earning above £50k, so only those with a profit of £250k or more will be taxed at the full 25% rate.
Finally, in response to altered trading conditions post-Brexit, a series ‘Free Ports’ - economic zones with different rules to encourage infrastructure, improve transport links and implement favourable tariffs, VAT, duties and taxes – will be implemented in eight locations across the country.
“This time last year, we set out to deliver on the promises we made to the British people,” Sunak said. “But the most important promise was implicit, and in truth, is made by every Government irrespective of their politics, and that is to do what must be done when the danger is imminent, and when no one else can.
“An important moment is upon us. A moment of challenge and of change; of difficulties, but of possibilities too. This is a budget that meets that moment.”
Reacting to the announcement, UKHospitality CEO Kate Nicholls described the measures as “crucial support” that will help businesses “at a critical time,” but added that it is now vital that Government stick to its proposed 21 June reopening date.
Nicholls welcomed the business rates holiday and VAT cut extensions, but called for the interim 12.5% VAT rate to be implemented permanently, and said the forthcoming revamp of the rates system will have to deliver a “wholly new system of business tax that no longer unfairly penalises our sector.”
She noted the “peace of mind” the furlough extension will bring to the sector, but expressed concern that it could place unnecessary pressure on fragile businesses, and said the Treasury must ensure that the newly announced grants find their way to businesses as soon as possible, that interest rates are capped, and that EU State Aid rules don’t apply to the funds.
The scrap of alcohol duty, the move to increase recruitment incentives and encourage investment were all welcomed, but Nicholls noted the clear gap of rent support.
“We need the Government to announce an extension of the moratoria at the earliest opportunity and work with industry to establish a landing zone to resolve this £2bn millstone around our recovery,” she said.
NEWS & FINANCE
Chancellor’s Budget unveiled
The business rates holiday and 5% VAT rate will be extended in their current state until the end of June, and phased out over the coming year, the Chancellor has announced. In his Budget statement yesterday, Rishi Sunak announced businesses will be granted a 100% rates holiday until the end of June, and rates will be reduced by two thirds for the remaining nine months of the year, up to £2m for closed businesses, with a lower cap for businesses who have remained open.