The Budget – Initial view for businesses and the CGT “red herring”

3rd March 2021 Corporate

Overall I was pleased with the budget although it felt like a “halfway house” and I suspect bigger changes may follow later in the year when the cost of covid, and the impact of brexit, becomes more apparent and the pressure mounts for already long overdue investment into infrastructure and the public sector. The freeze on CGT, and no mention of business disposal relief (ER), is good news and business owners will breathe a sigh of relief (for now). The speculation surrounding CGT reforms was quite heavy leading up to the budget, and given the reviews that have been carried out in the last year, I would not be surprised to see changes in the near future so the message to business owners planning their exit will still be to bring forward their plans as it does feel like the days are number for the current regime.

I was very pleased to see furlough extended until September and a much welcome, and specifically directed, package of support measures for some of the industries most affected over the last year – I hope the support is enough, and not too late, for those who’ve been hit the hardest. The sufficiency of the measures will, in large, depend on the ability of us all to follow the guidance and sure we hit the medical data targets so the restrictions can ease in line with the roadmap. The extension of furlough to September highlights that there may be a few speed bumps along the way!  

I’m not surprised by the increase in CT (from 2023) and it makes sense that the most profitable business will be called upon to contribute in a greater proportion. The rate of increase is significant and will have a big impact but, hopefully the freezing of the rate below 50k profit and tapering to £250k profit will give some comfort to SME’s, but it will mean that, for most, there is much more to pay.

The full details will follow but, for me, the super deduction was the “nice surprise” of the budget as far as businesses are concerned, allowing businesses to claim 130% relief on qualifying investments. I think it was included , in part, to mask the pain of up to a 31% hike on corporation tax (the “not so nice surprise” for businesses) and to deter businesses from stockpiling cash so it is reinvested in growth and the economy. I’ll be interested to see what investments qualify and how well received it is amongst the business community, particularly those planning an exit and would often be looking to strengthen cash balances pre-sale rather than spend.

No doubt the CT tax increases will push those business owners/directors who take salary by way of dividends to look at moving to PAYE, which is a continuation of past practice where the benefits of dividends versus salary have become marginal. Hopefully business owners will still see the benefit to taking the risk of running their own business, even if there are less rewards than there have been in the past from a tax perspective.

A further a summary of the detail coming out of the budget will follow from our corporate team.

Please feel free to contact me if you want to discuss any of the issues referred to above.

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Mark Heppell is a Partner located in Manchester in our Corporate department

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