Budget 2021: Knill James Tax Partner Mike Chapman comments

Rishi Sunak in his second budget was always going to have to chart a difficult path between protecting businesses and jobs at risk from the Pandemic and putting a brake on runaway public spending. In the end, the Chancellor introduced provisions that dealt with both areas.

On the one hand, the widely forecast (and leaked!) extension of the furlough scheme to the end of September was announced, along with further a new UK-wide Recovery Loan Scheme to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery. Additionally, the extension to the 5% VAT rate for hospitality businesses and a further six month extension to the £20 Universal Credit uplift were most welcome.

Of great interest to capital intensive companies will be the introduction of a tax 'super deduction' in relation to purchases of new eligible equipment. Under this scheme, for a two year period from April 2021, companies will be able to obtain a 130% deduction on purchases of qualifying plant whereas the current maximum is 100%. The detail on this provision and possible anti-avoidance measures will be an interesting read! For those companies who have incurred losses during the pandemic, the extension to loss relief carry-backs which can generate a cash-flow boost of up to £760,000 is also to be applauded.

To help fix the economy, the Chancellor has announced the predicted rise in Corporation Tax (to 25%) for companies earning profits in excess of £250,000, but surprisingly this will only be effective from April 2023, meaning no anticipated influx of tax from larger companies until late 2023. The reintroduction of a marginal rate band of corporation for the first time since 2015 means that every extra £1 of profit that a company earns between £50,000 and £250,000 will be taxed at an effective rate of 26.5% - a fact mentioned nowhere in the Treasury papers!

In summary, the Chancellor's focus in the Budget has remained on job protection but with the first hints of a reversal in Government borrowing through increased taxes in the pipeline.

Read our full report on the Spring Budget here.

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