2021 Budget: Major changes, What this means for accountants
Chancellor Rishi Sunak delivered the highly anticipated 2021 budget. After a challenging covid-infused year, many accountants have been on the edge awaiting the key changes, provisions, and support measures that are to be put in place. The major highlights include Covid-related schemes and the rise in Corporation Tax.
Let’s dive into the key changes, and what that means for accountants today.
Chancellor Sunak announces the Coronavirus job retention scheme will be extended to September. July will be the turning point in the furlough scheme, where support is predicted to gradually dwindle.
From July employers will be required to pay for 10% of a furloughed worker’s wage in July, rising to 20% in August and September.
Furlough has been a critical safety net, keeping not only the economy but businesses, employers, and employees in checks and balances.
In response to the pandemic outbreak in 2020, the furlough was the government's response to help employers keep their employees and help employees keep their business afloat given the government’s national lockdown paying 80% of employee wages.
It’s no surprise that furlough had taken the centre stage in Chancellor Sunak’s announcement. The impact of Covid on businesses, particularly small and medium businesses has been immense. In light of this, since being extended in November, Chancellor Sunak announced the scheme will yet again be extended into the foreseeable future.
What does this mean for accountants?
Accountants managing payroll should expect to still extend support to their clients as before in response to the scheme for businesses, however, accountants should take note of the upcoming changes in July and adjust their payroll for payroll clients whether with accounting software such as Capium’s payroll software or from a manual system.
Covid self-employed grants (SEISS)
Chancellor Sunak announces continued support for those who are self-employed with an additional two grants covering February to April, and a further grant covering May onwards which will go live from July. The grant covering February to April is 80% of average trading profits, up to £7,500.
Similar to the date the furlough scheme was introduced in response to Covid-19, grants were implemented to support those who are self-employed. Chancellor Sunak stated that more than £33 billion have been allocated for the investments and support of self-employed.
A record number of VAT increases
In response to the increased pressure of Covid and its impact on various industries, a record number of VAT rates have been introduced and set to go live from October. All in a six-month window changes to the 2021 budget mean that four rates of VAT will be introduced.
The 5% reduced rate of VAT will be extended for six months to 30 September followed by an interim rate of 12.5% for another six months. The standard rate will not return until April next year.
Key changes can be seen in the hospitality sector. The new rate of VAT for the tourist and hospitality will be 12.5% from 1 October 2021 to March 31, 2022. Further to this, the treasury also announced eligible retail, hospital, and leisure businesses pay no business rates for three months, with up to 66% relief for the rest of the year in 2021 to 2022 worth over £6 billion.
For the last nine months of the year, business rates will still be discounted by two-thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay, Chancellor Sunak stated.
What does this mean for accountants?
Accountants who specialise in mentioned industries, should communicate these changes to clients and further adapt work practices to ensure compliance.
In 2023, the rate paid on company profits will increase to 25%. It won’t take effect until April 2023. Chancellor Sunak said this was still lower than all the G7 countries.
It’s important to note that only businesses with profits of £250k or greater will be taxed at the highest rate. Ultimately 10% of companies will pay it.
Small businesses with profits of £50,00 or less will come under a new small profits category. They will pay the current rate of 19%. Chancellor Sunak stated that as a result, 1.4 million businesses are unaffected, the chancellor.
Looking to tomorrow
Overall, the release of the 2021 Budget will require many changes that need to be implemented over the coming months and the coming years. So accountants should ensure they are aware of the key changes to move forward efficiently.