COVID-19 support measures for businesses announced in Budget 2021.
In addition to the welcome news that the Coronavirus Job Retention Scheme will be extended to 30 September 2021 (covered separately in this edition of Tax Matters Digest), a number of other support measures were announced for businesses in the Chancellor’s Budget. These included the extension of business rates reliefs for retail, hospitality and leisure and the reduced VAT rate for hospitality, hotel and holiday accommodation. This article provides an overview.
The business rates holiday – effectively removing a substantial fixed cost – has been seen as one of the more effective support measures for the high street. The Chancellor confirmed that 100 percent business rates relief will continue to be available for eligible retail, hospitality and leisure properties in England until 30 June 2021 and has included nurseries to fall within the scope of the reduced business rates. A taper will then be applied, such that 66 percent relief will be available from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were forced to close on 5 January 2021 and £105,000 for other businesses. This should help businesses meet the costs of remaining on the high street, although when the rate of relief falls to 66 percent, they will of course need to generate sufficient income to cover the remaining 34 percent. For impacted businesses, the extension of the VAT reduction (discussed further below) may help here – with many firms prior to lockdown passing this saving on to customers in a bid to increase demand, and in turn income. At the present time we do not have full clarity concerning the detail of the caps (for example the precise definition of a ‘business’). Businesses should watch out for a further announcement from the Government in due course.
The fiscal impact of this measure for the exchequer for the 2021-2022 tax year is significant and estimated at £6.8 billion per data published by the Government. This is similar to the cost of extending the Coronavirus Job Retention Scheme.
The woes of the retail sector have not been universal. A number of the largest supermarket groups, for example, have voluntarily repaid business rates relief and the Government has confirmed it will legislate to ensure that business rates relief repayments are deductible for corporation tax and income tax purposes. This will ensure that these businesses are no worse off from a tax perspective than if they had paid the business rates in the first place. This will apply for repayments made to the devolved administrations as well as to those made in relation to England.
Of course, none of the above provides any clarity on the potential fundamental changes to business rates in the medium term, including the introduction of alternative taxes (such as those targeted at the online sector). HM Treasury announced its intention to publish an interim report with respect to its business rates consultation on 23 March 2021. The detail in this report – and any hints to its direction – will be followed closely by the online retail sector, with significant further evidence likely to be submitted to help ensure any change is effective and proportionate. A final report is then expected later in the year, when there is, hopefully, more economic certainty.
Reduced VAT rate extension
The temporary 5 percent VAT rate for hospitality, hotel and holiday accommodation and admission to some attractions, due to expire on 31 March 2021, has been extended by six months to 30 September 2021. This had been lobbied for by a sector that has to a large extent not been making any supplies at all for the last few months meaning the VAT reduction was of no value to them, and the extension had been predicted and anticipated. What was more unexpected was the announcement of a further six month period from 1 October 2021 when the VAT rate on these supplies will be 12.5 percent, so that the normal rate of 20 percent will not apply to them until 1 April 2022.
The policy paper released by HMRC says that the scope of the relief will remain unchanged although there still remains some uncertainty whether some specific leisure operators fall within the relief in respect of ‘admissions to attractions’, where clarity is being requested from HMRC. Businesses may find their systems struggle to deal with a 12.5 percent VAT rate, which is not a rate we have seen in the UK since 1976 (when it was the higher rate that applied to some luxury items), and with the cliff edge between three rates in a year. In line with the existing temporary 5 percent VAT rate, in the absence of any clarification from HMRC, there has not been reference to any anti-forestalling rules to accompany the temporary reduced VAT rate and therefore normal tax point rules will apply.
Benefits-in-kind and expenses
The temporary income tax and NIC exemptions which currently apply where an employer reimburses the cost of employees acquiring home office equipment, or reimburses the cost of employees acquiring a qualifying coronavirus antigen test, will continue until 5 April 2022. The benefit-in-kind exemption for certain employer provided coronavirus tests will also be extended to 2021/22. A temporary easement to the cycle to work scheme, which means employees who joined a scheme and were provided with relevant equipment on or before 20 December 2020 do not need to meet the qualifying journeys requirement until 5 April 2022, was also confirmed.
Enterprise Management Incentives (EMI): ‘working time requirement’ relaxation
Temporary changes to the EMI rules – which mean employees whose working hours have been reduced due to the coronavirus pandemic can continue to meet the ‘working time requirement’ and be granted or retain qualifying EMI options – will be extended until 5 April 2022.
The Government will provide £5 billion of ‘Restart Grants’ in England – one-off cash grants of up to £6,000 per premises for non-essential retail businesses, and up to £18,000 per premises for hospitality, accommodation, leisure, personal care, and gym businesses, to help them relaunch trading over the coming months. The Government will also be providing all local authorities in England with an additional £425 million of discretionary business grant funding.
Recovery Loan Scheme
A new UK-wide Recovery Loan Scheme will be established from 6 April 2021. The scheme will provide lenders with a guarantee of 80 percent on eligible term loans and overdrafts of between £25,001 and £10 million, and asset and invoice finance of between £1,000 and £10 million. Term loans and asset finance facilities are available for up to six years, with overdrafts and invoice finance available for up to three years. Businesses will be required to meet the costs of interest payments and any fees associated with the facility they chose to take out. The scheme is scheduled to run until 31 December 2021 (subject to review) and will be open to all businesses, including those who have already received support under existing COVID-19 schemes. The Recovery Loan Scheme will replace existing Government guaranteed loan schemes which will close at the end of March 2021.
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