This article was written by Robin Powell of Rock Wealth, partners of Approved Finance.
Chancellor Rishi Sunak has been delivering his Budget speech, and, as expected, there were plenty of announcements affecting businesses.
Robin Powell has been asking Greg Durkan, Director of Approved Finance, and Matt Frary from RockWealth’s Norwich office, for their thoughts on what it all means.
RP: Starting with you Greg Durkan, is this a positive Budget for businesses?
GD: Yes, I think the Chancellor has done as much as he can do to assist businesses. Now it’s down to the success of the road map and hitting the required milestones. If we can hit those in the timeframes stated, then it all starts to feel more encouraging.
However there is a lot of ingrained debt within the system. The question now is how that debt is going to be serviced going forward.
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RP: Let’s begin with the furlough scheme. What’s happening with that?
GD: The furlough scheme is being extended until September, and that’s a real positive. It supports those sectors hardest hit by the pandemic and will allow businesses to plan and budget their way out of lockdown. Most importantly it will keep workers in employment.
However I do feel though that with many businesses carrying staff now for nine or ten months, due to utilisation of the furlough scheme this extension means there is still going to be a cliff edge, if a little less severe, depending on how many staff are going to be needed at that point of exiting lockdown.
RP: These are especially challenging times for the retail sector. What help is on offer there?
GD: The Restart Grant is being extended and rebranded, and that’s definitely a positive. That takes affect in April. The Government is offering £6,000 per premise for non-essential retail sector, and £18,000 per premise for the hospitality and leisure sector. That’s going to help the those businesses with existing costs and also help them come out of the slumber of being in lockdown and gear up to open again. But as before the grant’s effectiveness will be down to its accessibility and the speed that funds are distributed.
The sector will also benefit from an extension of the existing VAT reduction from 20% to 5% until the end of September 2021, and from continuing business rates relief.
RP: What about the self-employed?
GD: There’s good news on that front too because the Government is making the support scheme for the self-employed simpler to access. That has been a particular bone of contention for those directors who’ve been self-employed and haven’t been able to access help. The fourth and fifth tranche of grants, from May to July, will pay up to 80% of 3 months trading profits. This will now be accessible by over 600,000 additional individuals, soo that will be of benefit to them.
RP: Your business specialises in corporate finance. What did the Chancellor announce on that front?
GD: The big news is that the Government is introducing a Recovery Loan Scheme until the end of 2021. This new scheme replaces Bounce Back Loans and the Coronavirus Business Interruptions Loan Scheme (CBILS). It’s going to be very similar to CBILS, but with different finance limits. There’s been no confirmation yet as to whether are any payment-free or interest-free periods with the new loan scheme; that was a fundamental benefit of the CBILS scheme. We expect to see a large uptake in the CBILS scheme this month prior to its demise.
All sectors are eligible again, which is very good news. With finance available from £25,000 to £10,000,000, the hope is that companies will take advantage of the beneficial terms on offer to aid their recovery. It’s now down to the lenders to show what appetite they have for business in general and specifically those sectors hardest hit.
RP: Did Rishi Sunak say anything about the terms of existing loans?
GD: No, he didn’t provide any clarity in regard to repayments for those business that took either a Bounce Back Loan or finance through the Coronavirus Business Interruption Loan Scheme at the start of the pandemic in March last year.
Repayments on these are now due to start for many businesses, despite many of them still being unable to trade. Although the initial interest-free and repayment-free period has been a life saver for many businesses, the effects of the pandemic have lasted longer and been more far reaching than anyone could have expected.
RP: Clearly much has been made of the need to help those worst affected by the pandemic, not least younger people. This seems to be a good Budget for them.
GD: Yes, the increase in the minimum wage will certainly help younger people. From an employer’s point of view, it’s going to be an additional cost, but in the grand scheme of things it’s a good outcome. The Chancellor has also announced that the incentive grants for apprenticeships are to rise to £3,000 and this will aid both the short-term and long-term recovery.
RP: Matt Frary, what’s your reaction to the Budget?
MF: From a business owner’s perspective, the fact that Corporation Tax is going to 25% in two years’ time is the headline. Thereafter it’s going to be tapered. For small businesses, with profits of £50,000 profits or less, which covers about 70% of businesses, they’ll stick with a 19% Corporation Tax. So it seems good news for the small business owner, but bigger businesses will be more affected.
RP: Before the Budget, as usual, there was plenty of speculation as to what might happen. But many of the measures talked about didn’t materialise.
MF: That’s right. Income Tax thresholds have been frozen, and Capital Gains Tax has been left alone for five years. Some were concerned that CGT and Income Tax rates would be levelled up, but that hasn’t happened. Inheritance Tax allowances have been frozen. There’s no change either to Dividend Tax, and no change on the allowance. So that’s another small comfort. He could have chipped away at that but he hasn’t. All told then, it could have been much worse.
RP: It’s as you were on pensions as well, isn’t it?
MF: Yes, there no change to pensions, to the lifetime allowance or the annual allowance. Again, if they remain frozen for a long time they will become smaller in real terms, but there’s no immediate reduction as some had feared there would be. Sometimes new information comes out in the few days after a Budget, so we’ll see.
So, with Corporation Tax going up, it makes tax-efficient pension planning even more important. Employer contributions will become an even better way of taking profits out of your business going forward. And you also want to be using your tax-free ISA allowances.
You can access full information on all of the announcements in the Budget here.
This article has been written by Robin Powell of Rock Wealth, partners of Approved Finance.
For media enquiries please contact mark@approved-finance.co.uk