Take advantage of the super-deduction from 1 April 2021

At the start of April, the Government will introduce the new super-deduction and special rate first-year allowance to help businesses invest in qualifying plant and machinery, as the nation looks to rebuild.

This new capital allowance scheme will be available to companies from 1 April 2021 to 31 March 2023, offering them an incentive to invest in their recovery.

If you are looking to purchase eligible equipment it may be worth waiting for the introduction of this relief next month, as you will be able to claim:

  • A super-deduction providing allowances of 130 per cent on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances
  • A first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for special rate writing down allowances

This super-deduction effectively allows companies to their tax obligations by nearly 25p for every £1 they invest.

Similarly, companies that are entitled to the first-year allowance for plant or machinery could access a reduction in tax of nearly 10p for every £1 spent.

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances and as such there is not an exhaustive list of plant and machinery assets.

However, the following may be able to benefit from these new capital allowances:

  • Compressors
  • Computer equipment and servers
  • Electric vehicle charge points
  • Foundry equipment
  • Ladders, drills, cranes
  • Office chairs and desks
  • Refrigeration units
  • Solar panels
  • Tractors, lorries and vans.

To benefit from the relief the assets purchased must be new and not second hand or refurbished equipment.

The relief is only available to incorporated companies, but unincorporated businesses continue to benefit from the Annual Investment Allowance (AIA) which permits a deduction of 100 per cent for qualifying plant or machinery expenditure up to the threshold of £1 million.

If you are looking to invest in plant and machinery in the near future then it may be worth waiting until after 1 April 2021 . If you would like advice on these and other existing capital allowances, please contact us.

Preparing for the upcoming changes to furlough

The Coronavirus Job Retention Scheme (CJRS), more commonly referred to as furlough, will now be extended until the end of September 2021  following confirmation in the recent Chancellor’s Budget.

First introduced a year ago, the scheme has provided an essential lifeline to employers, helping them shoulder the employment costs for employees  who work reduced hours due to the pandemic and its restrictions.

The level of grant available to employers under the CJRS will be maintained until 30 June 2021, under the latest extension, meaning employers will only be responsible for paying pension and National Insurance contributions.

To prevent an abrupt end to the support available, from 1 July 2021, the level of the grant will be reduced so that employers start making additional contributions to the scheme.

To be eligible for the CJRS, employers must continue to pay furloughed employees 80 per cent of their wages, up to a cap of £2,500 per month for the time they spend on furlough. However in July 2021,  the amount of support given by the Government will be limited to 70 per cent (capped at £2,187.50), with the remaining 10 per cent provided by the employer.

From 1 August 2021 until the end of the scheme on 30 September 2021, employers must contribute 20 per cent, with the Government covering the remaining 60 per cent of a person’s regular wage (capped at £1,875).

In addition to the 10 per cent and 20 per cent contributions made in July, August and September 2021 , employers must continue to pay employer’s National Insurance and pension contributions on the full amount being paid to employees.

For CJRS claims from 1 May 2021, employees on an RTI submission before 2 March 2021 will be eligible for furlough.

Employers can claim before, during or after they process their payroll, as long as a claim is submitted by the relevant claim deadline.

Claims must be submitted by 11.59pm, 14 calendar days after the month being claiming for unless this day falls on the weekend or a bank holiday, then claims should be submitted on the next working day.

Employers must prepare for these upcoming changes and consider the impact that the additional employment costs may have on their business.

In some cases, businesses may need to consider redundancies, which may require a lengthy consultation process, so preparations should be taken now.

If you would like assistance with managing these changes or have any queries about the CJRS, please contact us.

Newly self-employed asked to complete pre-verification checks before applying for fourth SEISS grant

Newly self-employed taxpayers may be required to undergo pre-verification checks before they can access the fourth self-employment income support (SEISS) grant, it has been revealed.HM Revenue & Customs (HMRC) wrote to over 100,000 businesses recently informing them about the changes.

The Chancellor, Rishi Sunak, has extended the SEISS to include those who became self-employed in 2019/20 and who completed a tax return for the same year and submitted it within the appropriate deadlines.

Under the scheme, self-employed individuals affected by Covid-19 could get up to 80 per cent of their average trading profits in a three-month period as a one-off lump sum.

However, the regulator has warned that newly self-employed traders will need to confirm their identity and business activity before they can apply for a grant. According to HMRC, applicants will receive a telephone call over the next two weeks during business hours (8:00 to 17:30) and will be asked to provide an email address and agree to receive a link to a secure Dropbox – an online platform where electronic documents can be deposited securely online.

To complete the pre-verification check, you will need to provide one form of identity, such as a driver’s licence or passport, and three months’ worth of bank statements to demonstrate business activity.

HMRC warned that failure to provide such information could exclude you from the scheme.

For help and advice with related matters, please get in touch with our expert team today.

Repaying COVID-19 Government-Backed Loans

Businesses that have used the Coronavirus Business Interruption and Bounce Back Loan schemes may soon see their 12-month payment-free period end soon.

Generally businesses that took out a loan when they were first launched in 2020, will soon be required to make their first repayment under the scheme, with the first batch starting in May 2021. It is important that businesses consider how they will service these loans, as the repayments will impact on cashflow, we have therefore outlined below the current repayment and restructuring options available to borrowers.

Repaying a Bounce Back Loan

With large parts of the economy facing trading restrictions into June 2021, the Government is offering businesses support to repay the Bounce Back Loan via the Pay as you Grow’ (PAYG) initiative.

Under PAYG, businesses have the option to:

  • Extend the length of the loan from six years to 10 years
  • Make interest-only payments for six months, with the option to use this up to three times during the life of the loan
  • Pause repayments entirely for up to six months.

PAYG is available to all borrowers from their first repayment and offers companies the flexibility to tailor their repayment schedule to meet the needs of their business.

Businesses do not have to use the PAYG initiative and can choose to make loan repayments as they see fit.

As with any lending, an increase to the length of the loan will result in a rise in the total amount of interest that will be paid on the funds, therefore, cashflow permitting, it may be beneficial to consider repaying the loan as soon as possible. Bounce Back Loans are not subject to early replacement fees.

Repaying a Coronavirus Business Interruption Loan (CBIL)

After the initial 12-month interest-free period ends, lenders should provide businesses with an outline of their repayment costs, factoring in interest.

Pricing varies amongst lenders, but interest rates beyond the 12-month interest-free period are likely to take into account the existence of a guarantee from the Government.

With a loan facility, it may be necessary to provide regular capital repayments, but lenders may be able to provide payment holidays subject to discussions with them. Businesses who borrow under the CBIL scheme are also not subjected to early repayment charges, should they choose to repay their financing before its term ends.

However, businesses remain 100 per cent responsible for paying the facility back, as well as interest and fees charged by the lender once the initial interest-free 12-month period ends.

When a business took out a CBIL, they agreed to be liable for the repayments, in the same way as any other type of credit agreement.

If a business is not able to pay back the loan, the lender will need to recover the debt from any personal guarantee used for the loan, up to 20 per cent of the loan value. The remainder is then covered by the Government’s 80 per cent guarantee.

For loans of less than £250,000, no personal guarantee was required and, in this case, the loss is covered by the Government up to 80 per cent of the loan value at the time.

Businesses can approach lenders to restructure a loan if they have issues meeting the prescribed repayment plan.

Businesses that need to restructure a loan, will need up to date figures, financial forecasts, profit and loss reports and a balance sheet before approaching their lender to demonstrate the difficulties they face.

Repaying the Recovery Loan Scheme

The new Recovery Loan Scheme will be open from 6 April to 31 December 2021. It will offer businesses loans of between £25,000 – £10 million over a six-year loan period and is backed by an 80 per cent Government guarantee.

Despite Government backing, applications will be subject to full underwriting and affordability checks and unlike the other Government-backed loans there will be no interest-free period.

The information required by each lender to approve a loan varies but they typically require financial accounts for trading periods of between one and three years.

It is not yet known what repayments will be required from businesses via this loan, but it is suspected that this finance may have a higher rate of interest than other Government-backed loans.

Need help? 

If you require help assessing your ability to repay loans or would like assistance with the restructuring of any finance taken out as a result of COVID-19 we can help.

For more information on the various loan schemes and financial support measures download our latest key dates pdf.

Click here to download our COVID-19 key dates guide

To find out more about our services, please contact us

The Coronavirus Business Interruption Loan Scheme is closing soon – Apply today!

The Coronavirus Business Interruption Loan Scheme (CBILS) is due to end on 31 March 2021, after which no further applications for the scheme can be made.

CBILS allows businesses to apply for a loan of between £50,001 and £5 million up to 25 per cent of their annual turnover from lenders accredited by the British Business Bank.

The CBILS come with a range of benefits, rarely available with commercial lending, such as:

  • No repayments for the first 12 months
  • All fees covered by the Government
  • No interest payable for the first 12 months
  • Unsecured lending, with no personal guarantees, up to £250,000
  • No penalties for early repayment of the loan.

However a new loan scheme is to be introduced once the existing Covid- 19 loan schemes close.  The Recovery Loan scheme is due to launch on 6 April 2021 and it offers loans of up to £10 million per business. Based on the information that has been released to date, the terms and conditions of the new scheme seem to be riskier and less attractive option for many businesses, therefore if you are looking for financial support for your business, it is important to act now if you require financial support from the CBILS.

To be eligible, businesses must meet the following criteria:

  • Trading in the UK;
  • Have an annual turnover of less than £45 million;
  • Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic;
  • Self-certify that the business has been impacted by the Coronavirus (COVID-19) pandemic; and
  • Not be classed as a business or ‘undertaking’ in difficulty.

You will need to provide certain documents when you apply for a CBILS-backed facility. These requirements vary from lender to lender, but are likely to include:

  • Loan amount, purpose, and term
  • A short paragraph on the business background and how it has been impacted by COVID-19
  • Last two full sets of filed accounts
  • Bank statements covering November 2019 to present
  • Shareholder and directors’ details
  • Up to date management accounts
  • Current debt position of existing loans and borrowing.

There are a variety of products available under the scheme, from various accredited lenders, including:

  • Term loans
  • Asset finance
  • Invoice financing
  • Property finance
  • Debt refinancing
  • Merchant cash advance

Those who have already obtained one CBILS loan can take out additional finance via the new scheme as well, while those who have previously taken out a smaller Bounce Back Loan can also transfer this into the CBILS and potentially borrow more, depending on the lender and it will be important to ensure the business has sufficient funds to repay both the original and the extra funding. To apply for finance via the CBILS, borrowers need to have started an application by the end of the day on 31 March 2021.

If you think you may need the financial support afforded by the CBILS it is important that you start your application soon.

Budget 2021

In the year since the Chancellor, Rishi Sunak, delivered his first Budget to a packed Commons chamber in March 2020, more than 135,000 people in the UK have died from Coronavirus, there have been three national lockdowns, the economy has shrunk by 9.9 per cent and Coronavirus support measures have cost around £280 billion.

As a result, Government borrowing – the budget deficit – is expected to rise from a forecasted £55 billion to about £355 billion by the end of 2020-21. Meanwhile, national debt is already approaching 100 per cent of GDP at £2.1 trillion and could rise to 120 per cent of GDP during the first half of the decade according to the Office for Budget Responsibility (OBR).

The widely respected Institute for Fiscal Studies (IFS) warned late last year that around £40 billion of tax rises will be needed by the middle of the decade to keep borrowing down to £80 billion a year and debt down to 100 per cent of GDP, prompting intense speculation that they could come as soon as this Budget.

With the Conservatives having committed in their 2019 General Election Manifesto not to raise the rates of Income Tax, National Insurance or VAT, much of the speculation about possible tax rises was focused on Capital Gains Tax (CGT) and Corporation Tax.

At the same time, the Budget came against the background of a growing sense of cautious optimism. More than 20 million people have now been vaccinated against Coronavirus and, just over a week ago, the Prime Minister set out the Government’s roadmap out of lockdown.

In announcing the roadmap out of lockdown, the Prime Minister – echoed by various ministers over the intervening days – all but confirmed the Chancellor would announce further Coronavirus support for businesses and the self-employed at the Budget.

Then, at 10pm the night before the Budget, several major news organisations reported the same details of how the various Coronavirus support measures would be extended, leaving little doubt about what the Chancellor would say on the subject.

The question, then, as Mr Sunak rose to the dispatch box in a virtually deserted Commons chamber, was whether he would increase any taxes immediately or hold off until a later date.

 

Economic outlook

The Chancellor began by noting the way that the Coronavirus pandemic has fundamentally altered our way of life and summarising the Government’s response to the crisis.

After promising to do whatever it takes to support people through the crisis, he said: “It’s going to take this country and the whole world a long time to recover”.

Turning to the economic outlook, the Chancellor said that the OBR is now expecting a swifter and more sustained recovery than it had expected in November, with the economy now expected to return to its pre-Covid level by the middle of next year – six months earlier than forecast.

However, he said that in five years’ time, the economy will still be three per cent smaller than it would have been, had it not been for the pandemic.

He said that growth this year is forecast to be four per cent, rising to 7.3 per cent in 2022, followed by growth of 1.7 per cent, 1.6 per cent and 1.7 per cent in the subsequent years.


Coronavirus support measures

Turning to the Government’s Coronavirus support measures, the Chancellor confirmed, as had been trailed, that the furlough scheme – the Coronavirus Job Retention Scheme (CJRS) – would be extended to the end of September 2021, continuing to pay furloughed workers 80 per cent of their usual wages, capped at £2,500 a month.

However, unlike the scheme as it currently operates, he said employers will have to contribute 10 per cent of a furloughed worker’s wages in July and 20 per cent in August and September.

Moving to support for self-employed individuals, the Chancellor said that 600,000 newly self-employed people would be eligible for the fourth round of the Self-Employment Income Support Scheme (SEISS) as people who have submitted a 2019-20 Self-Assessment tax return will now be eligible.

The fourth round of the scheme will once again provide grants worth up to 80 per cent of trading profits, capped at £7,500. Applications will open in late April.

He then announced a fifth grant worth three months of average profits. This will continue to pay grants at 80 per cent of usual trading profits capped at £7,500 for people whose turnover has fallen by 30 per cent, but it will reduce to 30 per cent of usual trading profits capped at £2,850 for people whose turnover has fallen by less than that.

The Chancellor also announced the extension of the £20 a week uplift to Universal Credit for people who have lost their jobs for the next six months.

Moving to direct support for businesses, he announced the launch of the Recovery Loan Scheme from 6 April this year to replace the Government’s existing Coronavirus loan schemes. The Recovery Loan Scheme will allow any business of any size to apply for a loan of between £25,000 and £10 million backed by an 80 per cent Government guarantee.

He said that new Restart Grants will also be launched in April, making one-off payments of up to £6,000 per premises for non-essential retail businesses and up to £18,000 for businesses in the hospitality sector and others that are reopening later.

The Chancellor confirmed that the current 100 per cent business rates relief for eligible retail, hospitality and leisure businesses will continue for three months to 30 June 2021. There will then be a 66 per cent reduction in business rates for these businesses until 31 March 2022, capped at £2 million for businesses required to close on 5 January 2021 and capped at £105,000 for other businesses.

Staying with the hospitality sector, he said that the VAT reduction from 20 per cent to five per cent on many goods and services in the hospitality and leisure sectors will now be extended from 31 March 2021 to 30 September 2021. It will then move to an interim rate of 12.5 per cent until it reverts to 20 per cent in April 2022.

The Chancellor also said that the Government will double incentive payments for employers in all sectors to take on apprentices to £3,000.

Moving to the housing sector and the property market, the Chancellor said the £500,000 Stamp Duty Land Tax (SDLT) nil-rate band will remain in place for a further three months until 30 June 2021. It will then fall to £250,000 – twice its normal rate – until the end of September.

He then moved on to announce a new mortgage guarantee scheme, beginning in April 2021. The scheme will offer a Government guarantee to lending offering 95 per cent mortgages on homes worth up to £600,000.

The Chancellor said that the measures set out in the Budget amount to a further £65 billion of Coronavirus support, bringing the total since the start of the crisis to £407 billion.


Personal tax measures

The Chancellor said that the cost of Coronavirus support and the impact of the economic downturn on tax receipts meant that borrowing would reach £355 billion this year and £234 billion next year.

Reiterating his commitment to sustainable public finances, he said it was necessary to take steps to get the public finances back on track.

The Chancellor said that the Income Tax Personal Allowance and Higher Rate Threshold (HRT) will increase in line with the consumer prices index in April 2021 but will then remain at this level until April 2026, cancelling planned increases in line with inflation.

He said that thresholds for Inheritance Tax, the pensions Lifetime Allowance and the Annual Exempt Amount for CGT will remain at their current levels until April 2026.


Business tax measures

Moving to business tax measures, the Chancellor confirmed the widely expected increase in Corporation Tax from 19 per cent to 25 per cent, which will come into effect from April 2023.

However, he also announced a new Small Profits Rate of Corporation Tax for small businesses with profits below £50,000 of 19 per cent, meaning they will see no increase. Businesses with profits of between £50,000 and £250,000 will see a tapered rate, while those with profits of more than £250,000 will pay the full 25 per cent rate.

The Chancellor moved on to say that the Government will extend the trading loss carry-back rule temporarily from one to three years. Loss-making unincorporated businesses and those that are not part of a corporate group will be entitled to relief for up to £2 million of losses in 2020-21 and 2021-22.

Those that are part of a corporate group will have caps on either £200,000 or £2 million across the group in each year.

He also announced a two-year temporary Capital Allowances Super Deduction of 130 per cent for main rate assets such as plant and machinery as well as a 50 per cent First Year Allowance for special rate assets.

Meanwhile, he said that the current VAT registration threshold of £85,000 will remain in place for a further two years from April 2022.

Turning back to the hospitality sector, the Chancellor announced that planned increases in the duties of spirits, wine and beer would be cancelled.

He also once again froze fuel duty.

The Chancellor also confirmed reviews of Research and Development Tax Reliefs and Enterprise Management Incentives.


Public spending

Moving to spending announcements, the Chancellor confirmed the launch of the UK Infrastructure Bank, based in Leeds, which will support investment in public and private infrastructure projects.

He said there would be an additional £1.6 billion to support the vaccine roll-out, £1 billion in local funding for towns, and a £375 million Future Fund: Breakthrough for highly innovative companies.

Again returning to the hospitality sector, he announced the launch of a £150 million Community Ownership Fund for communities to invest in assets such as pubs, theatres, shops or sports clubs.

Finally, he announced the locations of eight Freeports, subject to simpler planning rules, infrastructure grants and lower taxes. They will be at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teeside.


Conclusion

Although most of the key Coronavirus business support measures had been revealed in advance of the Budget, the Chancellor confirmed that taxes will rise in the coming years, as had been widely expected.

As ever, what the Budget means for individuals and businesses will become clearer as more details of the specific policies are announced in the coming days and weeks.

It seems clear, however, that businesses and individuals are about to start meeting the costs of the Government’s Coronavirus support measures.

Link: Budget 2021