Companies to pay COVID bill – Budget reaction!

Many recent budgets have been something of a non-event; not this one.

The Chancellor announced plenty more support packages, including extensions to the job support and self employment schemes (including help for those who commenced trading in 2019/20), business restart grants, an extension to the 5% reduced rate of VAT and the SDLT holiday. Also of interest to some will be an extension to the loss relief rules permitting trading losses to be carried back for up to 3 years and a new tax super deduction for companies that invest in innovation.

We all knew that the almost incomprehensible amount of spending would inevitably lead to some significant tax rises. I was expecting a slow and steady approach to this, with any particularly bad news to be saved for a later time, such as once the economy had recovered from the shock of the lockdowns etc. Therefore the Chancellor’s announcement regarding a 6% overnight increase in the rate of corporation tax came as something of a surprise.

What this essentially means is it looks like companies will be largely responsible for paying back the Covid support bill. We are accountants for a lot of small businesses that operate via limited companies typically for practical reasons, and I fear this will have a significant impact on these business (the £50,000 small company rate is unlikely to help many). Many owners of small businesses (who typically pay themselves mostly with dividends and basic salaries) have seen profits tumble through no fault of their own, but received negligible support through this crisis and will now controversially also bear the brunt of the tax rises.

This must also be a big gamble so soon post Brexit and represents a massive policy change for a Conservative government who previously had seemed very keen to encourage multi-national businesses to remain in or relocate to the UK. What message does this now send out to these multi-nationals?

The other striking aspect to my mind is the immediacy of the change. In the past we have seen tax rises phased in over a period of time (changes to the taxation of property income for example being phased in over 4 years). This allows people to acclimatise to changes and prevents massive knee jerk reactions from taking place. Could this change not have been phased in? Should the tax rises have been spread out more evenly?

This undoubtedly is a controversial budget with plenty of talking points!

Tomorrow (Friday 5th March at 9.30am) we will be holding our usual LB Weekly Roundup webinar, with our Tax Director Tom Foster joining us to discuss the key announcements from the 2021 budget. To register your place please head to http://LBLink.uk/WKLYRNDUP_REG

If you cannot make the live webinar, then subscribe to our YouTube channel or come back to our Library page, where a recording of the webinar will be made available shortly afterwards!