Recovery or more turbulence in 2021?


We’re all hoping for a better year in 2021 but in terms of business, tax and innovation, what might that mean in practice? Next month’s Spring Budget should tell us more on that.

Rishi Sunak will make his second Budget speech in a whirlwind first 12 months as Chancellor on 3 March 2021, in which the 40-year-old has some tough decisions to make.

Following unprecedented levels of public spending to contain the economic fallout of COVID-19, the Chancellor’s under pressure to increase revenue without raising the UK’s three main taxes.

UK economy

Armed with recommendations from the Office for Tax Simplification, the Chancellor could turn his attention to changing capital gains tax, and corporation tax next month.

There’s also talk that stamp duty land tax and council tax might be merged to form a new proportional property tax. This might be an annual levy in the form of a fixed percentage of a main residence’s value.

The Conservative manifesto from 2019 prohibits Sunak from raising the rates of income tax, national insurance or VAT for the duration of this Government, which has a mandate until 2024.

Working from home

Many employees, except for the key workers, have been working from home for almost a year now and in that time they’ve shown employers they can be just as effective working from home as they are in the office.

With much of the 28 million-strong UK workforce being among the last to receive the COVID-19 vaccine, the working-from-home culture looks here to stay at least until the end of 2021.

Even beyond lockdown restrictions being fully lifted around the UK, many employers look set to embrace the new norm of combining a few days each week working for home and a couple in the office.

Factor in uncertainty over business rates for 2021, which will surely be addressed in the next month’s Budget, and you can see why saving on the expenses of running a workplace would be attractive to employers.

Raising finance

With interest rates being held at historic lows of 0.1% and high street banks being told to prepare for negative rates potentially coming in from September 2021.

Corporate debt and equity markets have been unfazed by COVID-19, allowing companies to use these low and stable rates to raise finance, reorganise shareholders or cash out.

Bounce-back loans remain available to small and medium-sized businesses until 31 March 2021 at the time of writing, although that might be extended in due course.

No interest or fees apply for the first 12 months after taking out up to £50,000 in a bounce-back loan, with a 2.5% interest rate applying thereafter. The loans need to be repaid within 10 years.

‘Doughnut’ cities

With many city centres already feeling pretty dead, that’s prompted talk of the rise of ‘doughnut’ cities with all the economic activity on outer-rim industrial and science parks. That is, all the good stuff on the outside and a hole in the middle, American style.

That’s bad news for retailers and hospitality, which in less strange times rely on passing trade and footfall from office workers. It’s also thrown the commercial property market for a loop.

More generally, there’s talk of city populations shrinking as professionals seek out homes in the country with garden offices. That’s causing turbulence in the housing market, with regional house prices rising and big city rental crashing.

Brexit in practice

Even though the UK secured a last-minute trade deal with the EU, it means business owners that trade with the EU have to make trade declarations when they import or export goods. An EORI number is required to do this.

In a month since we left the EU, we’ve already seen:

●      huge queues of trucks on both sides of the English Channel

●      European businesses refuse to register for and pay UKVAT and withdraw their products as a result

●      the prices of exotic fruits, such as mango, shoot up

●      restaurants in the UK struggle to get their hands on the best goods, like buffalo mozzarella from Italy.

There certainly seems like there’s more turbulence to come in 2021, both in terms of COVID-19 and Brexit. Strap yourself in for survival mode.

Whatever challenge your business faces this year, talk to us.

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