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EAMA Budget Summary

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Budget 2021 – highlights, commentary and request for feedback

Chancellor Rishi Sunak has delivered an historic budget, with UK borrowings rising to unprecedented levels, other than during major wars.  He made clear that he would do what was necessary to protect jobs and businesses so far as possible through the pandemic, but also warned that debt levels had to be managed, as interest rates could rise in future.

The budget said little about environmental sustainability or capital spending projects, which have been announced elsewhere.

Personal and other allowances are largely set to remain little-changed over the next few years, rather than increase with inflation, but the minimum wage will rise by 2.2% to £8.91 form April 1.

This summary does not aim to be comprehensive, but rather selective and with comment.  Feedback welcome, now and in the future.

 

Coronavirus Job Retention Scheme (CJRS)

The CJRS is extended for a further five months until the end of September 2021. Employees will continue to receive 80% of their current salary for hours not worked.  From July, an employer contribution will be required towards the cost of unworked hours: 10% in July, 20% in August and 20% in September.

 

Recovery Loan Scheme

From 6 April 2021, the new Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes, which it in effect replaces.

This scheme follows the model of the CBILS scheme.  We are seeking confirmation as to policy regarding personal guarantees.  Under CBILS, they were not required for loans below £250,000, but were usually demanded for part of the excess over £250,000 for larger loans.

EAMA has had feedback from members that has criticised CBILS for relatively high interest rates over the term, despite low first-year rates.  Nonetheless, CBILS and BBLS loans to the manufacturing sector accounted for more than 8% of the total by value, although the business manufacturing business population was estimated at just under 5%.  (Source, Commons Library/British Business Bank.)

EAMA had lobbied over several months for a continuation of loans under CBILS principles, after feedback and evidence from member companies that they were increasing the number of companies investing in new equipment, and the extent of those investments.

 

Freeports

It is apparent that the chancellor’s speech has raised the profile of freeports among companies, who will now want to consider them in relation to future investment.  I am exploring whether we can put on a webinar with government.

The chancellor announced the location of eight freeports in England and stressed their importance.  Freeports will also be located in other parts of the UK.  Timescales have yet to be announced, although it is intended that the first freeports will be operating this year.

The English freeports are to be:  East Midlands Airport; Felixstowe & Harwich; Humber; Liverpool City Region; Plymouth & South Devon; Solent; Thames; and Teesside.

Tax incentives are to include an enhanced structures and buildings allowance, enhanced capital allowance (ECA), stamp duty land tax relief and full business rates relief, as well as a possible employer national insurance contribution relief in respect of for employees in freeports.

However, significant clarity is still needed. The government says it will legislate for powers to create ‘tax sites’ in freeports in Great Britain; it will bring forward legislation to apply in Northern Ireland at a later date.

Tax sites within freeports will need to be approved and confirmed by the government. Businesses in these tax sites will be able to benefit from a number of tax reliefs related to projects up to deadlines in 2026.

  • An enhanced 10% rate of Structures and Buildings Allowance for constructing or renovating non-residential structures and buildings.
  • An enhanced capital allowance of 100% for companies investing in plant and machinery
  • Full relief from Stamp Duty Land Tax on the purchase of land or property within freeport tax sites in England, once designated. Land or property must be purchased and used for a qualifying commercial purpose.
  • Full Business Rates relief in England
  • Subject to Parliamentary process and approval, the government also intends to make an employer National Insurance contributions relief available for eligible employees in all freeport tax sites from April 2022 or when a tax site is designated if after this date. This would be available until at least April 2026 with the intention to extend for up to a further five years to April 2031, subject to a review of the relief.

All these provisions will apply only within designated freeport tax sites.

Freeports are controversial.  Critics, such as former Treasury minister David Gauke, say they only re-arrange the location of firms.  He told a CBI event this week that they would create new projects for ministers to visit.  The government says they will help to attract foreign investment and boost trade and innovation.

Freeports are also a source of potential friction with the EU in relation to level playing field concerns, as the UK wants them to have subsidies that are not allowed within the EU.  The EU, which still has some freeports, has attacked the concept as centres for money laundering and is seeking to phase them out, within its boundaries.

The government published a prospectus on freeports recently: https://www.gov.uk/government/publications/freeports-bidding-prospectus 

We would welcome feedback from firms on freeports, and whether you will be considering their relevance to your business.  For example, will they have any impact on the timing or level of investment?

 

VAT Deferral New Payment Scheme

Any business that took advantage of the original deferral on VAT returns from 20 March through to the end of June 2020 can now opt to use the VAT Deferral New Payment Scheme to pay that deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021, as originally announced.

 

Trade Credit Reinsurance scheme

The Trade Credit Reinsurance scheme, introduced last year after lobbying by business, including EAMA, has helped to maintain “up to £190 billion of cover on around half a million businesses”.  The government will continue to review the impacts of the scheme to assess whether there is a case for further interventions beyond the scheduled end date of 30 June 2021.

Corporation tax

The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for profits under £50,000 will remain at 19% and businesses with profits under £250,000 will pay less than the main rate. In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 so that it remains an effective deterrent against diverting profits out of the UK.

This increase is highly controversial and has raised fears that it will undermine efforts to attract inward investment.  The intention of the last government had been to reduce the rate to 17%.

The chancellor said:  “Even after this change the United Kingdom will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.”  However, this has proved controversial.  The CBI clarified in this way:  “On corporation tax, the key point is that whether we remain ‘the lowest in the G7’ rather depends on the choice of measurement. So, technically that’s correct depending on the measurement you use for the headline rate; but not the case in terms of the Effective Tax Rate which looks at all business taxes together.”

 

‘Super-deduction’

The ‘Super-deduction’ measure has sparked keen interest.  The chancellor said: “For the next two years, when companies invest, they can reduce their taxable profits, not just by a proportion of the cost of that investment, as they do now… they can now reduce their taxable profits by 130% of the cost.

A firm buying £10 million of new equipment could reduce their taxable income, in the year they invest, by just £13 million, instead of £2.6 million as now. The OBR have said it will boost business investment by 10%; around £20 billion more per year.

The scheme is forecast to be worth £25 billion over two years.  Commentators have noted that it is aimed at encouraging sp0ending by larger companies that have built up substantial cash piles.

The annual investment allowance policy remains unchanged, with the increased level of £1 million in place to the end of 2021.

I hope to have a more detailed analysis of the super-deduction shortly.  Comment/queries welcome.

Extended loss carry back for businesses

The trading loss carry-back rule will be temporarily extended from the existing one year to three years, for both incorporated and unincorporated businesses; the change is for both 2020-21 and 2021-22.

 

‘Help to Grow’ schemes

EAMA has been lobbying for support for business leadership and for digital adoption, and new schemes appear to be much aligned with those aims.

Help to Grow: Management will fund most of the cost of “ world-class management training” at dozens of business schools, through a new executive development programme with mentoring and peer learning.  Government will pay 90% of the cost for “up to 30,000 SMEs”.

Help to Grow: Digital will offer free training and a “50% discount on new productivity-enhancing software, worth up to £5,000 each”.  We are seeking details, but understand these may not yet be decided.

The schemes will be open to firms with from five to 250 people, which have been trading for a year.   The total budget is just more than £500 million over three years.

Both programmes will commence by the autumn.  To ensure they do not miss out is demand exceeds supply, firms should register interest as soon as possible on Gov.UK/HelpToGrow.

It would be useful to get feedback on the perceived value of these initiatives, and how they work in practice.

 

Apprentices

Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.  This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices.

A £7 million fund from July 2021 will help employers in England to set up and expand portable apprenticeships. This will enable people who need to work across multiple projects with different employers to benefit from the high-quality long-term training that an apprenticeship provides. Employers will be invited to bring forward proposals.

There is no change to the £1,000 for employers who provide trainees with work experience.

 

Hydrogen hub

The government will provide £4.8 million, subject to business case, to support the development of a hydrogen hub in Holyhead which will pilot the creation of hydrogen from renewable energy and its use as a zero emission fuel in HGVs. This could support up to 500 jobs.

 

R&D tax reliefs consultation

The government is to review R&D tax reliefs and has launched a consultation, to which EAMA will most likely wish to respond.  The review will consider all elements of the two R&D tax relief schemes.  The government has also published a summary of responses of the recent consultation on the scope of qualifying expenditures for R&D tax credits across the UK.

The government will consider bringing data and cloud computing costs into the scope of relief alongside a number of other policy options and priorities at the wider

Links: review.https://www.gov.uk/government/consultations/rd-tax-reliefs-consultation 

https://www.gov.uk/government/consultations/the-scope-of-qualifying-expenditures-for-rd-tax-credits-consultation

 

Levelling-Up Prospectus

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/966138/Levelling_Up_prospectus.pdf 

 

Enterprise management incentives (EMI) consultation

The government is publishing a call for evidence on whether and how more UK companies should be able to access EMI “to help them recruit and retain the talent they need to scale up”.  We would welcome input from interested companies.  Consultation link: https://www.gov.uk/government/publications/enterprise-management-incentives-call-for-evidence

 

Build back better – our plan for growth

This paper re-states much that has been previously published, but with stylish presentation.

An important point is that there will be an Innovation strategy this summer.  Much of the thinking is thought to be being led by the Innovation Expert Group, which has little industrial representation: https://www.gov.uk/government/groups/innovation-expert-group

I am concerned that not nearly enough is planned to capture benefits from R&D in UK manufacturing.  I may has missed it, but the HVMC/ Catapults don’t get a mention, which is disappointing in view of its potential.  EAMA has said the HVMC needs a clear direction in support of SMEs, with appropriate management and funding, and we may wish to provide input to the upcoming Innovation strategy, although there is no invitation to do so at present.

Link:  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/966176/Plan_for_Growth_Web_accessible.pdf

 

Main Budget 2021 link:  https://www.gov.uk/government/publications/budget-2021-documents

 

Jack Semple

Alliance secretary

March 4th 2021