Following the Chancellor of the Exchequer, Rishi Sunak’s, statement in the House of Commons, many businesses across the UK will be pleased to see a planned route out of the economic uncertainty caused by the on-going Covid-19 pandemic.
Faye Cook, Partner in our Corporate and Commercial team shares her views:
“Mr Sunak outlined a three-part plan which focused primarily on the need for continued economic support and spending for businesses, whilst also announcing initial steps to repair public finances and plans to help rebuild for the future.
“The Chancellor presented stark figures in relation to the country’s debt, which were comparable only to historic war-time positions. Despite this, the overall messaging was positive, and supported the sentiment that the government will continue to do ‘whatever it takes’ to provide support and financial assistance to help UK businesses survive these challenging times.
“In terms of continued support, the Chancellor announced an extension of the Coronavirus Job Retention, or furlough, scheme (CRJS) to the end of September 2021. Self-employed individuals will also be entitled to claim two further grants over the next 6 months.
“New support packages were also announced in the form of ‘Restart Grants’, which are targeted primarily at retail and hospitality businesses, being some of the worst-hit sectors by the pandemic. The ‘Recovery Loan Scheme’ (RLS) was also introduced to replace the existing Bounce-Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) which are due to end on 31 March. Since their inception, there has been a wide take up of both BBLS and CBILS, with over 2.2 million UK business having taken out facilities totalling £72bn, and no doubt the new RLS will provide comfort that funding will continue to be accessible to help businesses manage and maintain cash-flow.
“The Chancellor also confirmed a number of other tax freezes and extensions to previous concessions, including in relation to VAT, stamp duty and other duties, all of which are aimed at supporting the overall economy, businesses and individuals over the next few months.
“However, despite the above, the Chancellor was unequivocal in his statement that the economic support provided over the last 12 months came at a price. He confirmed that it would take the ‘work of many governments, over many decades’ to pay it back. Therefore, steps needed to be taken now to begin this process,
“From a business perspective, the Budget headline was an increase in the rate of Corporation Tax to 25%. Although this is a significant rise from the current rate of 19%, it is not proposed that the rate will be introduced until April 2023. In addition, the rate will be tapered so that only businesses with profits of more than £250,000 will be taxed at the full 25% rate. Companies with profits of less than £50,000 will remain at the current rate of 19%. According to the Chancellor, this means that around 70% of companies will be completely unaffected, and only 10% of all companies will pay the full higher rate.
“To stimulate economic growth through investment, Mr Sunak also introduced a new ‘Super-Deduction’ which, for the next two years, will allow companies investing in qualifying new plant and machinery assets to benefit from a 130% first-year capital allowance. This will allow companies to cut their tax bill by up to 25p for every £1 they invest. No doubt many businesses will take advantage of the generous allowance, however it remains to be seen whether the deduction is quite as exciting and financially significant as its name would suggest.
“Lastly, to address the third part of his plan, the Chancellor looked to the future and announced a number of additional schemes and funding aimed at supporting business growth and innovation within a ‘greener’ economy. Many businesses have been forced to adopt new and innovative ways of operating during the pandemic, through the harnessing of new technologies and ways of working. The Chancellor’s emphasis on innovation, technology and making the UK a ‘scientific superpower’ fits with his focus on outward-looking business growth and development.
“Overall the messaging of the Budget was positive, and the continued support for businesses ties in with the government’s plans for staged re-opening of different sections of the economy throughout the year. This will certainly provide business-owners with some further breathing space to evaluate how best to streamline and consolidate their businesses without having to worry about any immediate tax or other significant financial changes as they embark along the road to recovery.
“However, it remains to be seen whether the support provided under this Budget, and during the pandemic as a whole, will be enough to enable businesses, particularly those in the worst hit sectors, to survive unscathed. We anticipate that there is likely to be an increase in distressed M&A activity later on in the year. The Chancellor also did not make any announcement in relation to changes to the current Capital Gain Tax (CGT) regime, which were widely rumoured before the budget. The anticipated CGT changes provoked a flurry of pre-budget M&A transaction activity, which may well be repeated if such measures are to be on the agenda in the run up to the Autumn or future budgets.”