Financial Update - 9th March 2021

Budget 2021 highlights

The budget of 2021, in my opinion, was a reasonably balanced budget. The budgets supports the extension of the furlough scheme, maintains the reduced VAT rate to support the hospitality sector and provides grants of up to £18,000. The pandemic has had a huge impact on the individual, companies, and government finances. The budget enables companies to borrow money (if required) where lenders may be hesitant to do so, given the impact on various parts of the industry. It enables access to finance for up to £250,000 without a personal guarantee – something that small business owners will be mindful to protect their personal livelihood whilst trying to invest and grow their company. The super deduction scheme enables companies to bring forward their investments and plan to become more product

All of this has to be paid for, and it’s only fair that corporation tax increases to 25% in 2023. This gives companies a plan to recover, invest, and grow over the next two years. I would have suggested directing the allowances to more energy-efficient measures to reduce carbon emissions. The Stamp duty holiday has maintained the housing market at the expense of increasing prices. This gives an opportunity for homebuyers to save up to £15K. It also enables the accidental property investor to consider moving their property to a Ltd company (considering all costs including CGT), and those couples that previously had property in their name only but now wish to add their partner. 

The Mortgage guarantee scheme based on previous experience, is likely to bring forward mortgages that will aid people with small deposit to move homes, or get on the property ladder. However, it remain to be seen what impact this will have until and unless the job market recovers and people have a steady income. Many young people have been hard hit due to being furloughed. I remain of the view, that whilst the schemes are established with a good objective, they have unintended consequences. As such, if we want to increase home ownership – we need to build quality affordable homes.

  • The scheme launches on 6 April and is open until 31 December
  • Term loans and overdrafts will be available between £25,001 and £10 million per business.
  • Invoice finance and asset finance will be available between £1,000 and £10 million per business.
  • Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years
  • No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security
  • The scheme runs from 1 April 2021 until 31 March 2023
  • Allows a 130% super-deduction capital allowance on qualifying plant and machinery investments
  • Allows a 50% first-year allowance for qualifying special rate assets
  • Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to £1 million threshold, until 31 December 2021
  • Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+) and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026
  • Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to Solar panels, Computer equipment and servers, Tractors, lorries, vans, Ladders, drills, cranes, Office chairs and desks, Electric vehicle charge points, Refrigeration units, Compressors, Foundry equipment etc
  • Corporation tax will increase from 19% to 25% from April 2023
  • Small profits rate (where profits will be less than £50,000) will remain at 19% 
  • Main profit rate (where profits will be more than £250,000) will incur 25%
  • A tapered rate will apply between £50,000 and £250,000
  • The current £500,000 nil-rate band in England and Northern Ireland will apply until 30 June.
  • Between 1 July and 30 September, it will be reduced to £250,000,
  • From 1 October, the previous threshold of £125,000 for home movers will be reinstated.

The scheme is designed to help creditworthy households struggling to save for the higher mortgage deposits required by lenders in the current environment. For this reason, a mortgage eligible for a guarantee under the scheme will need to:

  • be a residential mortgage (not second homes) and not buy-to-let
  • be taken out by an individual or individuals rather than an incorporated company
  • be on a property in the UK with purchase value of £600,000 or less
  • have a loan-to-value of between 91 per cent and 95 per cent
  • be originated between April 2021 and December 2022.
  • be a repayment mortgage and not interest-only and
  • meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test
  • The scheme will require lenders to offer a five year fixed rate product as part of their range of mortgages offered under the guarantee.

Current Mortgage Rates

  • Vida Homeloans have announced the return of 80% loan to value lending on their Vida 1 core product range, & reduced their minimum loan size to £100,000
  • Teachers for Intermediaries have increased the use of bonus income for affordability purposes from 60% to 75% for high earning financial services professionals
  • Landbay have launched a new range of products for non-portfolio buy-to-let landlords. Rates start at 3.14 per cent for their two-year fixed rate and 3.44 per cent for their five-year fixed rate mortgages with 75 per cent LTV and comes with a free valuation option for remortgages with a maximum loan size of £1m
  • Zephyr Homeloans, the specialist buy-to-let lender have reduced rates on their five-year fixed-rate, standard buy-to-let loans for a limited time as part of their ‘Spring Special’. The lender’s new rates start at 3.19% for up to £1.5 million for the five-year fixed-rate standard buy-to-let mortgages for individuals and limited companies.
  • Kensington Hero mortgage now up to 90% LTV with 5 x income multiples

Help to Grow: Management Scheme

The budget of 2021 recognised that Too often. smaller firms don’t have the time or resources to acquire the extra skills and training they need to be more efficient, more digital and more productive and hence launched the Help to Grow: Management scheme which will help tens of thousands of small and medium-sized businesses get world-class management training. The government will contribute 90% of the cost – a real commitment to learn more, make more and earn more,” Sunak said

Executive education can be very useful to gain insights into a topic, or a range of topics and build a network to share your knowledge & experience. Having been an alumnus of Imperial business school and undertaken an MBA, as well as executive classes such as Digital Banking & Innovation, and Digital Transformation – I can highly recommend them as a learning exercise.

However, the challenge is always in the implementation and execution of these practices into the organisation. Whilst the business school will provide various practices, frameworks across different areas – adaptation & execution is key. Questions will arise, challenges will need to be overcome. A program of 12 weeks is just too short to execute and engage internally within the businesses to deliver lasting change.

On the other hand, a business coach, or adviser would work with SME owners/CEO over a period of 12 months, and enable them to adopt the best practices incrementally delivering sustainable results. Furthermore, a guarantee that business owners will see real benefit equal to the money invested or their money back means that there is nothing for them to lose.

My recommendation for the government would have been able to provide a choice to the small and medium businesses to either undertake the training or get support via a business coach. With Collabot Growth Consulting being a partner of the Pendleton Growth Network – we will continue to work with our clients to provide business advisory services with a money-back guarantee. We only succeed if you do. 

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