This was a positive budget for unprecedented times, with the Office for Budget Responsibility (“OBR”) predicting economic growth of 7.3% by 2022.
The OBR also noted that previously forecast unemployment increases have been mitigated more than expected by the Covid measures introduced by the UK Government. These factors track consumer spending capacity and appetite, which are critical to the consumer sector.
With this in mind, the Chancellor announced a number of targeted measures that will be welcomed by the consumer sector, along with more general measures that will be of benefit to retailers.
Many non-essential retail businesses continue to have the mainstay of their workforce on full or partial furlough. The Coronavirus Job Retention Scheme has been extended to the end of September 2021, with the scheme unchanged for employees and with businesses needing to make an additional employer contribution of 10% for July 2021 and 20% for August and September 2021 (on top of the employer NIC and pension costs).
The National Minimum Wage rates are also being increased from 1 April 2021, with retailers needing to be aware that the top rate of NMW, The National Living Wage, will be increased to £8.91 per hour but will also now be applicable to workers aged 23 and over, rather than those aged 25 and over as is the case up to 31 March 2021. This is likely to create additional costs for retailers. Therefore, utilising incentives like Apprenticeship programmes are likely to be important to help manage this.
Training and Development
The Budget focussed on training to transform the future of businesses and one important announcement was the launch of the Help to Grow Management programme for small and medium-sized businesses, with the first programme cohorts to start from June 2021. This gives specific support to provide Executive Development to upskill key decision-makers or senior members of the management team, in collaboration with business schools who will provide a 12-week programme which will be 90% funded by the Government. The programme is designed to be completed alongside full-time work, with a range of online and interactive curriculum options. Participants would be required to fund just £750 and will be taken through ways to reach new customers, penetrate new markets, boost their profits, develop a strategy and engage and inspire their teams to learn new skills to help businesses grow and thrive in these unprecedented times. UK retailers can benefit, although charities have been excluded. If you have been operating for more than 1 year and have between 5 – 249 employees, this is an exciting and innovative way to develop your people and grow your business.
Grants for retail businesses
Restart Grants will be introduced to replace the existing monthly grant system, with amounts up to £6k per premises for non-essential retail businesses, while hospitality & leisure, accommodation, gym and personal care businesses will be able to access increased grants up to £18k to assist with costs of re-opening safely.
The temporary VAT reduction of 5% for goods and services in the tourism and hospitality sector will be extended until 30 September 2021, with a 12.5% rate for the six months ended 31 March 2022 to help smooth the transition back up to the full rate.
This year’s business rates holiday for eligible retail, hospitality and leisure premises will continue at a rate of 100% for 3 months to the end of June 2021. For the period from 1 July 2021 to 31 March 2022, the rate of relief will then be reduced to 66% (capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties).
A number of more general corporate tax changes were announced that are likely to impact companies operating in the consumer sector. These include:
- An increase in the corporate tax rate to 25% from 1 April 2023; the 19% rate will be retained for business with taxable profits of less than £50k, with a taper relief for profits up to £250k;
- A temporary extension of the trading loss carry-back period from 1 to 3 years, which should be a welcome extension for the many retailers that have suffered significant trading losses during the pandemic. However, whether it is more effective to bank loss relief against past profits taxed at 19%, or use against potential future profits taxed at 25% will be a decision that may depend on particular circumstances of the claimant. The amount available to carry back is capped at £2m in 2020/21 and 2021/22 for companies not in a corporate group, whilst companies that are in a corporate group may carry back trading losses of up to £200k with no group restriction subject to a £2m cap across the group as a whole” From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments and a 50% first-year allowance for qualifying special rate assets.
- For retail businesses with an international footprint, diverted profits tax will increase to 31% so that it retains its 6% margin on corporate tax rate to maintain its status as a deterrent in artificially diverting profits from the UK; and
- A tightening in the rules on tax evasion, tax avoidance and non-compliance. This is an area of ongoing focus for HMRC to encourage businesses to minimise tax leakage from the system.
With all these measures, there is recognition from the Government that the consumer sector has had a difficult trading year and a desire to provide assistance to avoid further damage, as retail and consumer spending will play a significant part of the economy’s recovery post-Covid-19; however, the question remains whether the measures go far enough in supporting the industry. Please get in touch if you would like help in maximising the tax opportunities presented by this budget.
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