What the 2021 Budget Means for Struggling Businesses

It’s been a tough year for everyone, but particularly for businesses that have been unable to trade due to lockdown and businesses that have seen their revenues plummet as a result of COVID-19.

Although lockdown measures are set to continue until summer, there is now a way out of the pandemic, a roadmap ahead. Infection levels are falling across the country and national vaccination efforts are being stepped up.

For British businesses this is welcome news, but it’s not over yet. On 3 March 2021, Chancellor Rishi Sunak delivered the yearly budget speech, announcing his government’s financial plans for the next tax year. For struggling businesses, there’s a lot to be positive about. But the biggest takeaway for all of us is that in the not-so-distant future, we’re all going to be paying a lot more tax to HMRC.

In this article, we take a look at the highlights of the budget announcement and examine what the new budget means for struggling businesses that need the most help.

2021 Budget Highlights

As expected, Sunak’s budget is aimed at delivering continued support for businesses that have been struggling due to the pandemic. Sunak claims that as much as £407 billion has already been spent on pandemic-relief, and this exceptional sum looks set to rise further over the next few years.

Sunak’s budget has outlined the continued support businesses will receive. For those businesses struggling financially or facing insolvency, this support might be the difference between survival and closure in the coming year.

Positive measures to help businesses include the following:

• Another round of income support grants for the self-employed.
• Continuation of the furlough scheme until 30 September 2021.
• £5 billion made available to businesses through the Restart Grant.
• New government-backed loans for businesses (namely, the Recovery Loan).
• Business rates to be lowered for struggling sectors of the economy (including hospitality).
• Continued 5 per cent VAT rate.

Sunak also used the budget to demonstrate a way out of the pandemic for the country’s finances. While inevitable, this of course involves raised taxes in the future and the cutting of several important schemes now.

Businesses need to consider the following negative aspects of the budget announcement, too:

• End of the Bounce Back Loan Scheme.
• End of the Coronavirus Business Interruption Loan Scheme.
• Corporation tax to rise to 25 per cent by 2023.
• Personal income and national insurance tax thresholds to be frozen.

Let’s take a look at these important announcements in more detail, to see what they actually mean for businesses.

Another Round of Grants for the Self-Employed

Another round of grants will be most welcome for freelancers and the self-employed who are struggling as a direct result of the pandemic. The Self Employment Income Support Scheme (SEISS) is running until September 2021 and will offer those eligible up to 80 per cent of their profits, based on previous tax returns (and capped at £2,500 per month).

Unlike previous rounds of grants, this grant will allow anyone who filed a tax return in the 2019/2020 tax year access to support. These are one of the groups that missed out the most, as they fell through the cracks of the scheme previously.

Unlike previous grants though, the rules for this round are stricter. Rather than blanket grants being handed out, the self-employed need to demonstrate that they have lost business due to coronavirus.

The Furlough Scheme Continues Until September

The furlough scheme has been extended until the end of September, a move that gives struggling businesses continued breathing space as the pandemic continues. For companies directly struggling due to a downturn in business or an inability to operate due to lockdown, the furlough scheme is an essential financial lifeline.

Employees who are furloughed are given 80 per cent of their wages by the government scheme, capped at £2,500 per month. Employers are expected to make up the remainder. Furloughed workers can’t work in any capacity (for their employer or anyone else), but the scheme does provide companies with an opportunity to save on large salary expenditures without losing their workforce when they aren’t turning over much or indeed any business.

Restart Grant

The Restart Grant offers access to a portion of £5 billion that’s been made available by Sunak’s government for companies that are starting to get back into business as the pandemic eases. The Restart Grant is aimed at helping those businesses that have been closed for most of the year, including the hard-hit hospitality and retail sectors. The idea is to offer grants in the hope of restarting the high street.

Individual businesses can claim up to £18,000 grant money, which a struggling business owner can then put towards reopening. Retail businesses that are able to open when restrictions ease in April are to be offered up to £6,000 in restart money, while those that must remain closed even longer – until June – can apply for the full amount.

Applications for the Restart Grant must be submitted to your local council authority.

The End of BBL and CBILS Loans, the Start of the New Recovery Loan Scheme

Unfortunately for many small to medium-sized businesses that have been struggling financially, the government has put a stop to Bounce Back Loans and Coronavirus Business Interruption Loans. These government-backed schemes offered quick and easy access to bank loans during the pandemic, with zero interest on the first 12 months.

Businesses could apply for a percentage of their turnover, but these schemes are both ending on 31 March 2021. They are being replaced by the introduction of the Recovery Loan scheme.

The Recovery Loan scheme will be available to all businesses, regardless of size. Up to £10 million funding can be secured between April and December. The loans are government-backed, so will be much easier to secure than a normal bank loan, but interest rates will not be set at zero for the first 12 months, making this a less attractive prospect for businesses.

Hospitality Business Rate Suspension

Businesses operating on the high street, such as hospitality, leisure, and retail, are able to apply for business rate reductions or suspensions if they are unable to continue trading due to restrictions.

This will be much welcomed by businesses that conduct face-to-face transactions and have had to close, but not all will be eligible for the full suspension, for example if your business continues operating in some capacity from its premises (such as takeaway).

5 Per Cent VAT Rates to Remain in Place

For hospitality and tourism businesses, the VAT rate is going to remain at a low 5 per cent until at least September. After this, the rate is set to go up to 12.5 per cent, until it’s gradually taken back to its pre-pandemic level by 2022.  

This helps out those businesses that have been struggling most. They can use the VAT saving to lower prices and entice more customers in, or they can keep the savings for themselves by not passing the cut onto their customers.

Corporation Tax to Rise in the Future

For profitable businesses corporation tax will remain the same, capped at 19 per cent of annual profits. This is only a short-term measure however, and businesses need to plan for increases in the future, and set their budgets and forecasts accordingly.

While Sunak has offered a short-term reprieve, corporation tax is set to rise to 25 per cent of profits by 2023 for businesses with profits above £50,000. As Sunak has stressed though, this would still make this the lowest level of corporation tax in the G7 group of nations.

Good News for Pubs, Bad News for Income Tax!

Pubs and bars are among the hardest hit by the pandemic and ever-changing lockdown laws. Those that have survived until now can make use of Restart Grants, while also taking advantage of reduced VAT rates.

However, the Chancellor has scrapped a planned increase on beer, spirits, and wine duties, giving pubs a small but welcome reprieve from increased overheads.

For individuals, the budget will also have a large impact going forward. Income and national insurance tax thresholds have been frozen, which means that ultimately more people will be paying tax on their income over the next few years. Pensions are also affected, and it looks like the country will inevitably be facing higher taxes in years to come.

Struggling businesses need to take into account these individual factors and the wider state of the British economy when planning for the future.

Contact Irwin Insolvency Today for Your Free Consultation

Are you unsure where your business stands in relation to the new budget announcements? Our expert team is ready to help your business survive the pandemic by making the most of government support and government-backed schemes.

With decades of experience dealing with insolvency matters, our licensed insolvency practitioners can offer impartial advice to help your business through these tough times.

If your business is struggling financially, don’t hesitate to contact Irwin Insolvency for your free, no-obligation consultation.