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Budget comments

Budget comments

I like to wait a week to let the dust settle after the Budget before taking a view. This was always going to be a tricky one for Rishi Sunak - on the one hand he wanted to support a fairly fragile economy only just emerging from lockdown, and on the other he needed to set the scene for re-balancing the books after spending unprecedented billions in economic support.

There was a lot of speculation about immediate tax rises, such as aligning CGT with income tax or scrapping higher rate relief for pensions. In the event there were absolutely no immediate tax increases. Instead he has gone for a bit of taxation by stealth by freezing allowances from April 2022. This softly softly approach means that, as incomes rise, people will pay tax on a higher proportion of their income, and more middle-earners will fall into the 40% tax rate with loss of child benefit etc.

As far as companies are concerned the main bombshell was the rise in corporation tax from 19% to 25% from 1 April 2023. That is an enormous increase. However, it is proposed that only businesses with profits in excess of £250,000 will pay the full 25% rate, and profits up to £50,000 will still be taxed at 19%. That is probably fine for a typical one-man limited company, but more profitable businesses, or companies with more than one shareholder/director, will be significantly affected.

Where company profits are between £50,000 and £250,000 there will taper adjustments which will undoubtedly add complication and require planning.

The one big give-away to sugar the pill is the super-deduction for all businesses investing in plant and equipment, which will run for two years from 1 April 2021. Where a business invests, say, £10,000 in some equipment they would normally get a £10,000 deduction from their profits - this will be increased to 130% giving a £13,000 deduction. For larger businesses investing more than £1 million in a year it is doubly generous as the 100% capital allowance was normally capped at £1 million.

Apart from these tax rises it was mostly give-aways:

  • re-start grants for all businesses that have been closed
  • extension of the 5% VAT rate on hospitality
  • extension of the rates holiday for the first quarter of the next fiscal year and 2/3rd relief for the rest of the year
  • furlough extended to September 2021
  • a fourth round of SEISS grants for the self-employed

It seems to be generally accepted that Rishi got the Budget about right. He needs to see how the economy settles down after things get back to more like normal, but it is difficult to predict exactly what the new normal will look like and how the economy will rebound. It would not surprise me at all if taxes were further increased this time next year.

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