How the 2021 Budget affects your business.

Whether you are self-employed or running a company, there is something in here that will help answer your questions.

Listen to find out more!

Rishi Sunak, the Chancellor has spoken and presented his 2021 Budget.

I know it can be hard to understand what this means for your business, so we have put together a quick guide on what you need to know about the budget and how it will affect you.

This week on I Hate Numbers, I’m looking at his Budget and the Self-Employed Grant and what it means for your business. I'll also be talking about the Furlough Scheme and changes to that, as well as new Kickstart Grants.

I will cover tax rates and allowances for companies, self-employed people, and the Super Investment Scheme too - so there will be something in this episode of I Hate Numbers for everyone!

Let me help you understand How the 2021 Budget affects your business now and going forward. Listen to this jargon-free podcast to understand the budget headlines!

What is the backstory to the 2021 Budget?

Firstly, it was no shock to know that COVID-19 would feature prominently. Secondly some eye watering numbers. Those numbers in billions for the Self-Employed Grants, Furlough, Universal Credit, and other Grants. Lastly, the state of the UK economy now and in the future.

Above all , does it matter? Absolutely! You and your business need to understand the landscape, when you plan, and move forward. Cash flow is vital to keep your wheels turning.

The 2021 Budget includes a lot of changes to taxes, and financial support programs, that will affect your business.

Listen to find out more!

What are the 2021 Budget highlights?

• Income tax rates have not changed, certainly not at this stage.
• Corporation tax rates set to rise in the future, but not for all companies.
• Tax allowances are effectively frozen for the next few years. This means tax rises for you over the next few years.
• Super Investment allowances introduced for capital investment. It is only for companies, and not on everything you buy for your business.
• Self Employed Grant. Details on the fourth, the same rules as Grant number Three. We got an overview of the fifth and final grant . My prediction for the changes turned out to be correct. An extra 600,000 people now become eligible to claim the Self-Employed Grant. Thanks for listening Rishi.
• Furlough Grants. Changes announced for May 2021 onward. These changes affect how much you claim, who you can claim for and how much it will cost your business.

It was tough gig for Rishi and whether he deserves rotten tomatoes or a well done is a debate for another day - between me and you, rotten tomatoes seems to be the common reaction.

In the words of Laura Kuenssberg "Business will, in time, pay billions more. More than a million people will have to start paying income tax, and a million extra will pay at a higher level"

Subscribe so you do not miss an episode of I Hate Numbers. Use our FREE online business and tax calculators to help make better business decisions. For more business and finance, news, advice and tips

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Every year for the last 270 years, the United Kingdom have experienced a person standing up in Parliament talking money, announcing the government's economic policy, and more importantly, how our pockets are going to be picked to collect taxation, to fund economic policy, and financial support to a variety of groups.

Last Wednesday was no exception and we had the much anticipated, but largely predicted, budget 2021. Hi, folks. My name is Mahmood and I'm here to host your weekly hit of I Hate Numbers. Part of my mission’s to help business owners, sole traders to connect with their numbers to make more money, to improve their money mindsets, and to have the lifestyle and business that they seek.

Now, I was one of the many people who listened to the budget. I know that sounds quite sad, and I'm listening to it, and I'm listening particularly with an eye about all the different client groups that I look after, so individuals, sole traders, companies, and what I've done in today's podcast is to summarise some of the key takeaways and how it affects your business, not just for the next 12 months, but up to 2026. When the dust has settled from the chancellor's statement,

headlines are there. They stay in the ether, and once they filter down, we get a bit more insight into what that means for us as business owners and for individuals as well. In this podcast, I am going to talk about the more immediate financial support that's been provided because of something called Covid

and unless you've been on Mars for the last year or so, it kind of escaped your attention that Covid 19 has had a dramatic impact, not only in terms of the economy, but people's lives, people's businesses as well. In this broadcast, I'm going to go through some of the more immediate support, and there's some good news that came forward, which I predicted last year in a number of publications, on podcasts, and broadcasts.

We're going to be looking at what's going to be happening going forward, and let's start off with the backcloth. So, there's no shock to know that Covid 19 would feature very prominently in terms of underpinning the approach that the chancellor took. Some eye-watering numbers for you and when I talk about billions, we're talking lots of zeros

added to that. We know the UK economy strength by about 10% in 2020. We know that there is a forecast by economists, and like any forecast that goes on, it's subject to variability, but an annual growth rate is 4%. There is a prediction that the economy will go back to pre-Covid levels by around about mid 2022.

An anticipated growth rate is 7.3%. Now, I mentioned those immediate numbers because if you're a business and if you listen to our previous podcast, if you were taking your business seriously, you need to make sure that in there you've got some financial plan, some business plan to take you forward, and look beyond the next few weeks, you need to look in terms of longer timeframes.

So, having that factor of growth in there, being aware of what the state of the economy, and how that filters down for your customer base is a very important thing to factor in. We also know that the government borrowed a significant sum of money to fund the financial support and just throwing that number at you,

we are talking about 380 billion pounds that was borrowed, and that money obviously has to be paid back somehow. So, we've got a backcloth of tough times, challenging times, which all of you would've experienced in some form or another. Now, let's walk forward in terms of the immediate support, and I'm going to look at three key areas.

There are other elements of financial support they're offered. If you guys want more detail, if you want to dig deeper, in the show notes, I'll show a link to a broadcast I did last Saturday where we've gone into some of these aspects in a little bit more detail. So, let's share some of the headlines. Now,

if you are self-employed and in the context of Coronavirus financial support in the United Kingdom, self-employed is taken to mean somebody who's a freelancer, a sole trader, somebody who runs their business, not through a company, but as themselves as individuals. Now, in the budget announcement, about 600,000 people were now becoming eligible to access what was called grant number four.

Prior to the budget announcement, only those businesses that had registered in 18/19 and have filed the requisite tax return were eligible to make a self-employed grant. Again, if you want more details, check out the show notes and I'll provide a link to that. So, I'm not going to rehash the eligibility criteria, but suffice it to say if your business was registered in the 19/20 tax year and you've also filed a tax return, then you are eligible to claim grant number four.

Now, just as a few things to bear in mind. Number one, there's got to be some evidence you've got anecdotally, something that says your business has suffered because of the Covid 19. There's been a drop in demand, which is filtered through to a significant drop in trading profits. We know the grant is not going to be paid out until around about April, 2021, and it covers the period 1st of Feb, up to the end of April.

Grant number five is going to be significantly reduced for many people, for many self-employed, and that will cover the period from the 1st of May up to the end of September. The government has certainly got their eyes on the fact that September ‘21 will be a major line in the sand where they expect all financial support, mainly to be cut off and terminated.

So, in terms of how your business looks going forward, you need to plan certainly up to September 21, and how all these variables are going to affect you, and then beyond that timeframe. Furloughing is another major scheme that's being provided by the government to support companies who employ staff. It also applies to director companies, directors of companies.

So, if you're a director of your own company and you pay yourself through PAYE, you are eligible for furlough subject to normal conditions. The main headlines for me were that from July 21 to September 21, the employer contributes more towards the furlough grant. So, up to June 21 you claim back 80% of the regular wage. From July up to September

that tapers from a 70% claim, and then August-September it's 60%, so there's going to be an additional cost. The positive thing for me, if you can look at it in those terms, is that up to April 21, you could only furlough staff who you submitted a return for by 30th of October, 2020. Now, once you go for the period May 21, if you've taken on new staff after the 30th of October, 2020,

and you've notified that to HMRC through what's called a payroll RTI return, then you can furlough those new staff, even if they've not been furloughed before. The third major thing, and this is based at what I call property based businesses, is a new set of what is called restart grants. Now, these will be distributed by the local authority.

So, obviously check your own local authorities website where you'll get updates. The details and the date of this podcast have not yet been published, but from what I've read, what I've seen, the documentation is out there. It's largely going to mirror the existing lockdown restriction grants. So, it will be for property based businesses.

So, if you work at home, unless your home office is separately assessed for rates, you won't be eligible. So, these will be for pubs, clubs, gymnasiums, personal care providers, and other business-based premises. Now, the level of grant will be a maximum of 6,000. It's called a restart grant, so it's to inject some oomph to get your business moving,

and there's 18,000 pounds for those businesses that are classified as gyms, personal care providers, and other hospitality in leisure. The government uses this language, by the way, that the lower level grant of six goes to non-essential retail, not my terminology, it's theirs, and the 18,000 goes to others.

It's going to be based on banding. Again, link in the show notes to show the broadcast where this has gone through in a greater level of detail. Now, the last part of this podcast is focusing on taxation, which affects your businesses in some shape or another. So, if you're a company i.e. you trade your business through a limited company, there will be an impact

on your taxation, on your business profits, and also an incentive for you to invest in more plant and machinery and equipment that's seen as a mechanism to actually engineer growth. If you're a sole trader, then you'll be subject to income tax on your profits. The sharp reality will be that you will pay more tax over the next few years.

There's no doubt of that, and I'll explain why in a few moments. If you are a property investor, even if you've got a full-time job, and you've got a side hustle of property investing, there is going to be also an impact on you in terms of what's called capital gains tax. And if you are an individual thinking about your demise and what's called inheritance tax, there will be an impact on that as well.

Let me explain further. Now, let's talk about the headlines. I'm going to talk first of all about companies. Now, companies pay corporation tax on their company profits. So, if you imagine yourself, you’re running your business, and your business is run through a company called Mahmood Reza Limited, any profits that business makes from, say, selling the podcast of I Hate Numbers, selling publications, courses, whatever it sells,

through that mechanism, any profits that are made will be taxed appropriately at corporation tax rates. Now, the headlines are that from April, 2023, if your business that trades for a company makes profits in excess of 250,000 pounds, then you'll be paying corporation tax at 25%. If your company generates profits up to 50,000, you'll still pay corporation tax at the current rate of 19%.

Anything in between those figures will be what's called tapered. So, you'll pay a top line rate of 25% and then, there'll be a reduction in that tax payable depending whether your profits are closer to 250, there'll be less of a reduction, or close to the 50,000, there'll be a bigger reduction. For those who might be interested,

just to throw a little buzzword in there, that's called martial relief, and I remember that very well from the many years that I've dealt with taxation, so this is an old system they're bringing back. In addition, and this one only relates to companies, by the way, there's something that's been called super investment, which sounds very grandiose, doesn't it?

And all that says is that between April, 2021, up to April 23, if you decide to invest in certain assets, in certain equipment, certain what they call qualifying assets, then you will be able to claim 130% of that deduction. Now, if you sit at home thinking, what does that actually mean? If I decide that I need to purchase a certain item, if it meets the criteria, then if I spend a hundred pounds, the reality is, I will be claiming 130 pounds and I'll be saving tax at approximately 25 pounds.

Now, the devil is in the detail that's not been fully published, or it's not even yet been ratified by Parliament, but what we can interpret is that this refers typically to what they call plant and machinery, things like vehicles and cars, even if they're electric, will not be eligible for this 130%. And unfortunately, the government differentiate.

So, if you are a sole trader that actually purchases the same type of equipment, you will not be eligible for this super investment. Check out the show notes. I'll give you a link to previous shows that we've published on limited companies. And again, I think it's worth revisiting whether it's worthwhile to trade for a company

or not. Now, let's look at the other side of the coin. If you are a sole trader, a freelancer, and many successful businesses are, then your profits will be subject to what's called income tax. Now, here's the squeeze. If your income comes from self-employed profits, your income comes from rental profits, your income comes from salary, or a whole combination,

we have what's called a personal allowance, which is currently 12 and a half thousand pounds. Now, that's going to go up by just over half a percent in April 21, and it's going to be frozen until April, 2026. Now, if we take into account inflation, in January 21 was around about 0.7%, that seems quite a mean way.

So, there are tax rises, albeit through the back door. Now, what this means is as each year goes by, if your profits go up, which hopefully they will do, you'll end up paying more tax. Now, the second sting, if you can call it that, is what's called a higher-rate threshold. So, if your total income from self-employment, from rental profits, from salary exceeds a certain figure,

currently that's 50,000, then you all pay tax at 40%. Now, from April, 2021, there's going to be an increase in that threshold. Again, it's the magnitude of half a percent, so it's quite negligible, which means more and more individuals, more and more people who trade as sole traders, if your profits exceed that in total, and your income exceeds that number, you will be paying higher-rate tax.

And what this means to me is that certainly in your planning options, you need to think carefully about what business structure you choose, because those allowance systems thresholds will be frozen until April ‘26. In addition, other headlines. If you are somebody who's got a portfolio of assets, you might have a family at home,

you may have things such as cash in the bank, you may have property investments currently when you pass away, unless you've done some inheritance tax planning, the first 325,000 pounds of your estate is free from IHT. Anything over that is going to be taxed appropriately at 40%. Those thresholds are frozen until April 26, so even if property prices go up as they are likely to, then you are likely to be subject to IHT.

I'm going to be doing a broadcast and a podcast more specifically as some of these other taxes in future shows. Capital gains. If you are a property investor, when you come to dispose of your assets, you are allowed from that disposal. 12,300 is called an annual exemption from capital gains. Again, that's frozen for the next five years.

And again, capital gains tax, by the way, applies to a wide variety of transactions, not just property, but shares and other chargeable items. Again, watch out for future podcasts where we will be diving into these taxes in a bit more detail. Source the headlines. Well, the headlines for me are as follows.

Number one, you will be paying more tax in your business over the next few years. Number two, factor that more discreetly and more actively into your planning. Check out previous podcasts where we've talked about tax, and for me, you need to sharpen your focus on putting money aside each month, each week,

taking out turnover of money to put aside to pay for your taxation. Okay, folks, hopefully you've got some value out this podcast. Check out the show notes for the links. Be sure to subscribe and ideally recommend to your friends and family, even the people you don't like. Until next week, have a fantastic week.

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.