Following the release of the highly anticipated budget by the Chancellor, many businesses will be wondering how they will be affected. Most importantly, they will be wondering how the government plans to support them as lockdown measures are eased. This article highlights various key points from the budget and how they will impact businesses.
Furlough scheme extended
Although it was announced prior to the budget announcement, perhaps the most important aspect of the budget was the extension of the furlough scheme. As the case has been, the extended scheme will continue to pay 80% of employees’ wages for the hours which they cannot work in the pandemic. With the hardship faced by businesses throughout the pandemic, this extension could be vital. Recently, the government announced plans to lift lockdown restrictions on 21st June 2021. This means that once again, business could face increased costs as they prepare to open Covid-friendly physical shops which minimise the health risk to customers and employees. This increased cost reduces profits which has led to many business failing as a result. Therefore, by relieving the employers of the burden to pay 80% of the employees’ wages until September, this allows businesses to meet the additional “Covid-costs” without having to worry about employee wages.
Nevertheless, employers will be expected to contribute 10% in July and 20% in August and September.
Grants and support for businesses
The budget announced various ways in which the government plans to continue supporting struggling businesses. Among other things, the government has vouched to provide £5bn in Restart grants for shops and other businesses in England which were forced to close down; nearly £400m to help arts venues in England re-open; £300m recovery package for professional sport; and widening access to grants for the self-employed.
This support will be vital to business survival as many businesses are facing major cash flow issues which means that they may not have readily available funds to invest in their growth.
However, it is not all good news for businesses. It was also announced that the rate of corporation tax paid on company profits is set to rise to 25% from 19% starting in 2023. As the increase in tax is an increase in expenses for businesses, it will clearly reduce profits for businesses moving forward. However, it can be argued that company contributions are essential to fuelling economic growth post-pandemic and post-Brexit. Increasing the tax rate will provide the government with more funds to invest in infrastructure and other affected industries such as education which can create jobs. Also, the tax revenue could be used to facilitate benefit payments which would benefit those who are less fortunate or have lost their jobs as a result of the pandemic.
On the other hand, it could be argued that by reducing company profits, this could lead to lower business investments which could have a negative effect on employment. As businesses will be mainly focused on recovering and maximising profits post-pandemic, it is likely that they will be reluctant to invest in major projects in the short term. This may lead to a lack of jobs, redundancies and may also hinder economic growth.
However, the Chancellor also introduced a “small profits rate” which would maintain the previous 19% rate for companies with profits of £50,000 or less. This means that approximately 70% of companies will not be affected by the increased tax rate which minimises its negative effect as only the big companies – who can afford to pay the increased rate – will be subject to it.
Also, the tax increase will take effect in 2023 which provides companies with 2 years at the current 19% rate. This means that business profits will not be affected in the short term which can facilitate investments and wider economic recovery.