Budgeting for 2021

This year the budget was a rather different affair, matching the unique year we've all experienced!

Budgeting for 2021

This year the budget was a rather different affair, matching the unique year we’ve all experienced!  Normally, the Chancellor’s budget is kept a carefully guarded secret until the big day to prevent any rapid company restructuring or other swift measures designed to take advantage of any changes brought in.   However, this year, information was all pretty much covered in the media in advance.  

The other main difference was that the budget was centred around helping and supporting businesses rather than taxing them while they try to get back on track after the crisis that COVID has caused.

There were no real surprises in the 2021 budget and the main content of the measures have been covered elsewhere, so here I will focus on a few nuggets which warrant further examination for franchised businesses.

New equipment

One interesting measure which is to be introduced in April 2021 for the next two years, is a temporary increased tax relief for investment in new equipment. Companies can claim:

  • a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
  • a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances

Designed to stimulate business investment, this credit is available for limited companies buying brand new equipment or assets to carry out their trade from new IT to factory production line equipment, to solar panels.  Basically, the new super-deduction will cut companies’ tax bill by 25p for every pound they invest in new equipment.  

According to HMRC: “Capital allowances allow businesses to write off the costs of tangible capital assets, such as plant or machinery, against their taxable income. They take the place of commercial depreciation, which is not an allowable tax deduction.”   So, if your franchise or franchisees would benefit from new kit this will be of great benefit.  Please note expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.

For further information please see: New temporary tax reliefs on qualifying capital asset investments from 1 April 2021 – GOV.UK (www.gov.uk)

Corporation Tax 

The other main point which requires attention are the upcoming changes to corporation tax.   From 2023, the rate of Corporation Tax will increase to 25%.  Businesses with profits of £50,000 or less, will continue to be taxed at 19% and a taper (the precise details are yet to be confirmed regarding this) above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.  

Early discussion with your accountant will help you take advantage of allowable deductions to manage your tax liability.   This may include taking advantage of a director’s pension scheme which is an efficient and acceptable way for limited companies to withdraw cash from the business and could put profits into the lower band of corporation tax.  The positive news is that implementation of the corporation tax changes do not come into effect for two years so there is plenty of time to plan and mitigate the risk.

Help to Grow Scheme

A further useful scheme was announced as part of the budget measures called: Help to Grow.  This scheme offers a digital and management boost to up to 130k companies across the nation.   A new online platform designed to help businesses learn how to save time and reduce costs will also supply free advice on technology.  Management training will be offered to enhance skills and in addition, eligible businesses can claim up to £5k to secure a 50% discount on software to enhance productivity.

It can be challenging to manage the day-to-day running of your franchise and keeping up to date, to ensure you can take advantage of all the support on offer.   At d&t our friendly, knowledgeable team of accountants and business advisors are always available to discuss how the latest measures can support or impact your franchise and help you navigate the best way forwards depending on individual circumstances.

For further information please visit www.team-dt.com

ABOUT THE AUTHOR
Billy Whitaker
Billy Whitaker
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