UK Budget 2021: when is the Budget and what could be announced?

The next UK Budget is on 3 March 2021. With most of the UK still in lockdown, Chancellor Rishi Sunak is expected to build on the government’s plans to lift Covid-19 restrictions.

So, what could be in the announcement for Britain’s small businesses?

• Autumn UK budget 2021 for small businesses
• A guide to small business grants in the UK and how to apply
• Coronavirus: what support is available for small businesses and the self-employed?
• When is corporation tax due? A guide to UK corporation tax for small businesses
• What business insurance do I need?

Updated 23 February to mention the business rates review delay, the Scottish rates extension, and the report from The Sunday Times on corporation tax.

When is the Budget?

The next Budget will be on 3 March 2021.

The government usually gives two economic announcements a year – the Autumn Budget and Spring Statement.

But with the situation changing quickly because of coronavirus, the government decided to postpone the Autumn Budget last year. Instead, Rishi Sunak delivered a Winter Economy Plan in September 2020.

Budget 2021 predictions – what could be in the Budget?

Following the government’s efforts to tackle coronavirus and support those affected by the restrictions, borrowing has reached £270 billion for the financial year.

So, during the Budget 2021 announcement, Rishi Sunak is expected to outline the first tentative steps towards balancing the books, as well as how else the government will support businesses in the short term.

Some possible announcements include an extension to the furlough scheme, continued business rates relief, and tax hikes for later in the year. We explore these below.

Extending the business rates holiday

As many physical shops have had to shut during the pandemic, shoppers have turned to online giants to get the goods they need delivered quickly.

But while Amazon’s UK sales rose by 51 per cent last year, high-street businesses both large and small disappeared at an alarming rate.

This is why the Chancellor is considering a number of measures designed to boost the UK high street.

This includes extending the business rates holiday for retail, hospitality and leisure businesses, currently due to end in April. The Federation of Small Businesses (FSB) has called for an extension until April 2022.

A wider business rates review was carried out last year. The final report has now been postponed until the autumn, when there's more economic certainty – but an interim report will be published on 23 March.

This makes a fundamental shakeup of business rates on Budget day unlikely. But expect to see more announcements later in the year, including a mooted online sales tax targeting digital giants, which was within the scope of the review.

The Chancellor could also decide to keep the five per cent VAT level for tourism and hospitality in 2021-22.

In Scotland, it's been confirmed that retail, hospitality, leisure and aviation businesses won't pay rates during 2021-22, provided the Scottish government receives the funding already assumed from the UK Budget.

Avoiding the furlough ‘cliff-edge’

As the end of furlough will be tied to the timeline for lifting restrictions, Rishi Sunak is expected to outline an extension to the scheme on 3 March.

A furlough scheme replacement was due to start in November 2020, called the Job Support Scheme. Employees would work, at minimum, a third of their hours, with the government and their employer paying a third of their wages each.

Progressive think tank, the Institute for Public Policy Research (IPPR), says the looming ‘cliff-edge’ of support schemes needs to be removed, by extending them until the economy is fully open.

The IPPR’s George Dibb said: “By extending and improving the current support schemes, and by taking the new route of injecting cash into firms in return for a long-term stake in their future, the government can ensure that our best businesses survive and can leap back into action as our economy recovers from this long hibernation.”

Details of the fourth SEISS grant – and potentially wider eligibility

Business owners who are eligible for the Self-employment Income Support Scheme (SEISS) (and are suffering reduced profits this February) will be waiting for details of the fourth grant.

The fourth grant is meant to cover February-April 2021. But Martin Lewis from MoneySavingExpert has confirmed that any eligibility changes, as well as the level the grant will be at, won’t be announced until the UK Budget.

In a video posted to Twitter, Lewis says that he hopes the reason for the delay is because the Treasury is trying to cover more people with the fourth grant.

For example, as many self-employed have now completed a 2019-20 tax return, people who weren’t eligible for the previous grants because they were newly self-employed might now be able to apply.

Tax changes and increases

A year on from the start of the pandemic, the Chancellor is expected to hint at how the UK might begin to pay for the measures introduced to tackle the virus.

Tax rises have been consistently mooted in the media, including a one-off ‘wealth tax’ on the value of someone’s assets, as well as ‘stealth taxes’. Stealth taxes wouldn’t be new measures – instead, they’d be freezes on planned rises in income tax thresholds.

The Daily Mail has also reported on plans to increase corporation tax from 19 to 24 per cent, as well as fuel duty increases by 1p or 2p a litre.

The Times has since suggested that corporation tax will gradually increase over the course of this government, "rising to 23p in the pound by the time of the next general election".

Ed Molyneux, the CEO and co-founder of FreeAgent, told The Express that rises in corporation tax should target bigger businesses: "if there has to be a future tax rise, I would prefer to see this introduced for larger, stable companies that are capable of contributing, rather than smaller, more vulnerable businesses.

“I hope the government will think carefully about how best to protect small businesses as we approach the March Budget.”

Capital gains tax ‘simplification’

Last year, Rishi Sunak asked the Office of Tax Simplification (OTS) to look at how capital gains tax could be simplified.

The OTS suggested “more closely aligning capital gains tax rates with income tax rates”, as well reducing the Annual Exempt Amount.

You pay capital gains tax when you sell as asset that’s increased in value – this includes property and business assets. Basic rate taxpayers pay 18 per cent on residential property and 10 per cent on other assets. Higher rate taxpayers pay 28 per cent on residential property and 18 per cent on other assets. The capital gains tax exemption for 2020-21 is £12,300.

Increasing capital gains tax in line with income tax could see basic rate taxpayers charged 20 per cent, higher rate taxpayers charged 40 per cent, and additional rate taxpayers charged 45 per cent.

The concern with raising capital gains tax is that it’ll harm business growth and investment, precisely when the country needs it most.

Paul Joyce, head of Mergers and Acquisitions at accounting firm Mazars, said: “In the longer term, it would reduce the incentives for entrepreneurs to invest and build businesses. This may well have a longer-term detrimental impact on innovation and start-ups, as the current differential in tax rates actively encourages the building of capital value vs. extracting value as income.”

He suggested that the Chancellor should clearly outline his plans and the timetable for changes on 3 March, allowing business owners to plan more effectively, rather than making “knee jerk reactions to shorter-term changes.”

We’ve previously reported on how changes to capital gains tax could affect buy-to-let landlords.

What else would you like to see in the upcoming UK Budget? Let us know in the comments below.