Covid-19 was unkind to the British economy. Over the past year, Gross Domestic Product has shrunk by no less than 10%. If the government wants to gain back some that lost ground, it will have to incentivize the private sector and stimulate growth.
However, it also wishes to rebalance public finances after losing a great deal of income in the past year.
On 3 March, Chancellor of the Exchequer Rishi Sunak announced the new budget. Read on for an analysis of how the budget will affect business owners and self-employed contractors.
The VAT will remain at its current lowered rate to help the ailing tourism industry. However, this will not last. We can expect a rise of 12.5% in September. From there on, VAT rates will increase in increments until reaching a 20% increase by April 2022.
The corporate tax will rise for businesses profiting more than £50,000. For companies making over £250,000 in profits, the new taxation rate will reach 25%.
A 130% ‘super deduction’ plan for qualifying capital investments will be introduced to stimulate growth.
The government is predicting that unemployment rates will reach 6.5% by the end of the year. To head off the problem, they are offering new incentives to hire apprentices.
The apprentices’ rates are slated to reach a double payment increment of £3,000 in a program that will last until September. Apprentices can also take advantage of the newly launched “Flexi-Apprenticeship” scheme. The program is designed to do away with limitations and allow apprentices to work in multiple sectors.
Income Tax Thresholds
One of the main announcements Sunak made was that the personal tax allowance budget will rise to £12,570, and the higher rate threshold will reach £50,270. Both will remain fixed for the next five years.
The National Insurance Thresholds rates will not change, but the thresholds will. Here are the main changes:
- The Upper-Profit limit increases to £50,270.
- The primary threshold increment for National Insurance will increase to £9,658
- The lower-profit limit for self-employed workers rises to £9,568
- Class 2 National Insurance for small profits goes up to £6,515
Credits and Benefits
The £20 Universal Credit Uplift has been extended, but only for the next six months. Meanwhile, the government plans to pay out a one-time £500 one-time-payment for tax credit applicants.
Housing and Related Tax
The mortgage guarantee scheme will come into effect in April 2022. The plan offers £600,000 worth of assurances for buyers who put down 5% deposits on their properties. The scheme also effectively maintains initial mortgage rates stable for the first five years of payment.
The Nil Rate Band will be reduced to £250,000 from 1 July to 30 September. However, it will return to £125,000 in October.
Much of the existing support for businesses facing pandemic-related challenges will be extended by the government.
The furlough scheme has kept unemployment down while guaranteeing workers 80% of their salary for missed hours. It will remain in place until September 2021.
However, the contribution of employers to the scheme will be increased. In August and September, their share will double from 10%-20%.
However, businesses can defray these and other COVID-19 related costs through participation in the Loan Recovery Scheme. It will offer loans to all businesses at amounts ranging from £25,000 and £10 million.
“It’s important to plan ahead when looking at your business finances this coming year, although we get advanced warning on grants, it’s impossible to know exactly how it will be rolled out.” Paul Reed – Reed & Co
A fourth grant under the Self-Employed Income Support Scheme (SEISS) auspices will be granted to workers who commenced self-employment in 2019-2020. Those eligible can claim £7,500 for three months at a rate of 80%.
It remains to be seen if the 2021 budget will deliver on growth and reduce the deficit.