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Like most people, I get several excellent emails and budget summaries every year and I would guess you do too. I will leave you to read whichever source you prefer for the information on the general budget commentary, but I have now had a couple of days to consider the details from the insolvency perspective.
I thought I would provide some thoughts on how the change may affect you because, despite the budget not quite producing the fireworks some were predicting, it did have a lot worth discussing in there.
· The extension to furlough may well be an important lifeline to many, especially those businesses that have been closed by the latest lockdown. However, I am concerned that many people who are on furlough are effectively redundant but just do not know it yet. For example, one cannot help but wonder how many businesses could not afford to make staff redundant initially and instead have furloughed them to ‘kick the can down the road’. Only time will tell, and after the last 12 months we are used to the unexpected, but I am concerned that a pretty hefty amount of taxpayers' money could have been wasted on roles that effectively no longer exist.
· We all anticipated tax rises and the increase in Corporation Tax has been in the press for a while now. It is interesting that we have a return of the small company tax rate and the impression given was that this would help small businesses. So, if your profits are below £50,000 then you are still paying 19%. Is that good news? Well, it is certainly a better result than expected but it does raise a question.
What about the many some SME’s who use the minimum salary/dividend route to pay themselves? For example, a consultant who provides his services via a limited company and similar business models. In my experience these consultants are looking for a combined salary (salary/dividend) of more than £50,000 so clearly pay more tax. As a rough example, if you have profits of £90,000, depending on your year-end, you will be paying £2,250 more in tax or an increase of 13%. No doubt accountants will be warming up their spreadsheets and looking for ways to move that profit around. Will we start to see more directors return to an employed role? Probably, but again, time will tell.
· We have a new loan scheme dubbed ‘the Recovery Loan’, Details are still rolling out but it seems like previous government guarantee loan schemes. It will involve better ‘checks and balances’ and so should reduce fraud but will also mean that the banks will have to perform these checks so the processing will be longer. As we are already aware the banks, despite their best efforts, are already under extreme pressure so I can see problems with obtaining funding moving forward.
· One great surprise to me was that there was no change in CGT. This is one of few taxes that the government did not guarantee to change in the last election. Therefore, it has been my ‘top tip’ for change in recent budgets. For example, Business Asset Disposal Relief (BADR) or formerly known as entrepreneur’s relief is still 10%, if you qualify. The reason for my surprise is that the Treasury has already been through consultation on this area which recommends increasing CGT to the same level as personal tax rates. Further details about these consultations are due to be published on 23 March so we could still see a change. On the positive side, those directors/shareholders looking to either sell or wind down their business can still get this relief. I still think they should act soon though as it is highly likely those changes will be coming.
If you feel like you are heading for a rough time financially after the budget, and you could be facing insolvency, then talk to us. The first consultation is free and whether it results in comforting reassurance, a rescue plan, or an insolvency process, the sooner we start, the better your result will be.
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