Last week Rishi Sunak unveiled the 2021 Budget. Given the twin demands of the coronavirus pandemic and the growing hole in the public finances, the Chancellor introduced many significant changes. Although we blogged the announcements on the day – and created a dedicated Budget section on our website – there’s a lot for business owners to take in. So now the dust has settled a little, today we’re going to look in more detail at the Budget and small business. We hope this post will make the key changes clearer and help you plan your next steps.

1. Coronavirus Job Retention Scheme (Furlough Scheme)

The Furlough Scheme was due to end on 30th April 2021, but will now finish on 30th September.

The scheme will continue in its current form until 30th June. This means you can furlough employees on 80% of their normal wages (up to £2,500 monthly) and claim that money back from the government (you still have to cover NICs and minimum pension contributions).

However, from July you will have to contribute more. Although you will still have to pay furloughed employees at least 80% of their normal wages, in July you will only be able to claim back 70% of wages (up to £2187.50). In August and September, the claim-back figure drops to 60% (maximum £1,875).

Key takeaway: you can furlough employees until the end of September. However, from July 2021 you will have to contribute more. 

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2. Self-Employment Income Support Scheme (SEISS)

If you are self-employed, you’ll be pleased to know that SEISS grants will continue until the end of September.

To qualify, you must have submitted your 2019/20 tax return by midnight on 2nd March. Trading profits from 2019/20 will be used in calculating the grant, meaning people who became self-employed in that year will be able to claim for the first time, as long as they have also traded in the tax year 2020/21.

The fourth and fifth SEISS grants have different criteria. The fourth grant opens for claims from late April to 31st May. If you are currently trading but are impacted by reduced demand due to coronavirus, you can claim 80% of 3 months’ average trading profits, capped at £7,500. You can also claim if you have been trading, but are temporarily unable to do so because of coronavirus.

The fifth grant, which covers May to September, is more complex. How much you get depends on how much your turnover (not profits) have fallen. If your turnover has dropped by more than 30%, you’ll get a grant of 80% of 3 months’ trading profits (up to £7,500). If your turnover has shrunk by less that 30%, you’ll get 30% of average trading profits (up to £2,850).

Key takeaway: SEISS will continue to support the self-employed, but criteria are getting stricter. Ensure you keep records that prove you are entitled to either (or both) of the two grants you claim.

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3. VAT reduced rate for hospitality, holiday accommodation and attractions

This 5% VAT rate, which applies to most sales in the hospitality and tourism sectors, was introduced on 15th July 2020. In the Budget, the Chancellor announced it would continue until 30 September.

From October until 31st March 2022, the rate will rise to 12.5%. After this date, VAT in these sectors will once again be set at 20%.

It’s important to note that the reduced rate does not apply to all sales within these sectors. The rules are also complex. For example, 5% VAT applies to hot takeaway drinks, but not cold ones (unlike those drunk in-house). Similarly, 5% VAT applies to admission charges for tourist attractions and cultural venues, but not to tickets for sporting events or admission to sporting facilities.

Key takeaway: The hospitality and tourism sector will continue to benefit from reduced-rate VAT. However, the rules are highly complex – speak to your THP account manager if you have any queries.

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Budget and small business 1: summary and next post

This post has looked at three key ways in which the Budget and small business interact. However, there are many others. In Wednesday’s post we’ll be looking at the new 130% Super Deduction, Corporation Tax changes and an important factor to consider about Class 2 National Insurance contributions. As always, if you have any queries about the Budget and small business, please get in touch with your account manager.

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About Ben Locker

Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.

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