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Impact of the Spring 2021 Budget on the Retail sector

While the package of measures aimed at the Retail industry that were revealed by the Chancellor in today’s Spring Budget are broadly welcome they go only part of the way to meet the needs of the sector. The sting in the tail is the increase in Corporation Tax from April 2023.

Our Retail team has produced a commentary article covering the key announcements, along with their thoughts on their impact, which you can find below.

Furlough Scheme extension

The extension of the flexible furlough scheme through to September 2021 is welcome. This will enable businesses to manage how and when they bring back employees to match the reopening timetable and anticipated demand as foot fall into stores may not reach pre-Pandemic levels until after the vaccination programme has been rolled out.

The furlough scheme remains unchanged until July when businesses will start to contribute 10% of the cost in August and 20% in September. The scheme will end in September. This will prove welcome for many retailers as the increase in the national minimum wage from April to £8.91 an hour for those over 23 and similar increases for those under 23 will increase the salary cost as businesses reopen. By keeping furlough, employers will be able to balance the needs of the business with the impact on increased employment costs.

This will prove welcome for many retailers

Grants for non-essential retail

 The Chancellor also announced a new restart grant scheme, with hospitality and leisure businesses receiving upwards of £18,000 and non-essential retail receiving up to £6,000 per premises. Although this grant is welcome, because it is premises-focused it does not support those consumer-focused businesses that are not based on the high street and there is also no equivalent support for those companies who supply the retail chain. This will weaken the supply chains to non-essential retail which could then hinder the recovery of the sector as a whole.

Rates relief and opening up grants

 The Chancellor also announced a continuation of the business rates holiday for retail and hospitality businesses until September with a tapering of the relief to up to two thirds of the cost for the period to April 2022. This is welcome but many businesses will still struggle to meet these costs as it coincides with the removal of furlough and will come at a time when the landlords will be due their rent and businesses will be investing in stock for the Christmas period. The Chancellor could have been bolder and given another year’s grace to a sector which is vital to the social and economic landscape of the country.

Rates relief still does not address the business rates imbalance with bricks and mortar retailers being disadvantaged at the expense of those online stores. Hopefully, the promised review in the Autumn will go some way to address that imbalance.

Although retail businesses are receiving an opening grant, this will be used by most to meet the current rent commitment and does nothing to support business’ ability to adapt to the changing economic landscape, including going digital. These measures could still leave many businesses short of cash to grow their way out of the pandemic as working capital will still be needed to invest in stock, meet rent and invest in the future.

VAT deferral

Many retail businesses will have taken advantage of the VAT deferral on VAT returns for the period from 20 March to 30 June 2020. These businesses can now 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 previously announced. Businesses should adopt this scheme in order to manage their cashflow.

However, the Chancellor should have extended the VAT deferral scheme for the June 21 quarter allowing those businesses to use the VAT generated to invest in new stock and meet ongoing liabilities at a time when cashflow will be constrained.

Investment in digital

The budget outlined a system of grants for businesses to invest in digital to grow their businesses. While this is welcome for traditional retailers to access funding to grow a digital platform it will only be useful if this investment includes support for those businesses to decide what uses digital can have on their businesses in terms of marketing and product delivery. Many such businesses do not have the expertise to be able to understand what is needed without proper support, so it would be hoped that the grant covers such advice as well as the software.

Loss relief

The announcement of the extension of a maximum £2 million loss carryback for three years for accounting periods after 1 April 2020 is again welcome but it will be interesting to see how that is played out in groups of companies or where there is common ownership. Also, what is needed is a mechanism to get the cash to those businesses quickly so that it can be used for working capital rather than waiting until after the year end. What is needed is an ability to make a claim based on estimated losses so that the cash can be utilised to finance growth now which can then be clawed back if needed when businesses file their tax returns.

Investment incentives

The Budget was big on investment incentives for plant and machinery. The super deduction for capital investment is welcome and gives businesses an opportunity to invest in the future, especially those online businesses which have benefited from lockdown to invest in making their offering more efficient. However, many smaller retailers already struggling will need next year to repair their balance sheets before considering the ability to invest.

Increase in Corporation Tax

The increase in Corporation Tax to 25% from 1 April 2023 will be when businesses will start to repay the giveaways today. While there is a starting rate of 19% for those companies with profits below £50,000, the interaction of the associated companies rules means that many small and medium sized retailers will be caught with paying tax at 25%.

However, many retail businesses will focus on the short-term gains now to help them now and worry about that tomorrow.

Would you like to know more?

If you have any questions or would like to discuss your specific circumstances, please get in touch with your usual Blick Rothenberg contact or one of the Partners whose details are on this page.

You can also visit our Budget Hub, where you can find our commentary and a range of tools to help you better understand how the Budget may affect you.

Check the impact of the Spring Budget Statement with our Tax Calculator Visit our Spring Budget Hub