The pandemic has caused untold human suffering and deaths of more than 120,000 people in the UK, not to mention huge damage to the economy. Government debt increased by a massive £280 billion from March to December 2020 in funding business rates relief, furloughed staff and loans, among other financial benefits.
It was inevitable that chancellor Rishi Sunak was thinking about balancing the nation's books. He has rightly said that he has to be honest with the public and to “begin fixing the public finances”. However, how should he do it?
Although the chancellor’s budget speech this week did not mention pharmacy funding directly, there are many changes that affect community pharmacy professionals. Of course, the devil is in the detail.
COVID-19 assistance for individuals
The chancellor announced the extension of the furlough scheme until the end of September, with employers having to contribute 10% and 20% of employee wages in August and September.
Grants for the self-employed, including eligible pharmacy locums, could benefit over 600,000 more people – if they filed their tax returns for 2019/20 before March 3, the chancellor said.
The minimum hourly wage will increase to £8.91 in April for those aged 23 and over, the chancellor continued. This may be a further financial burden to pharmacy contractors, who are already struggling to pay the costs of COVID-19.
There was no mention of complex IR35 tax reform in the budget. Hopefully, this will be deferred to next year, helping many contractors with recruiting locums for short periods.
The chancellor doubled the incentive offer for hiring apprentices to £3,000 for businesses, which could benefit pharmacy contractors looking for assistance.
It was good to note that there was no mention of change to entrepreneur’s relief, under which individuals selling business assets can save up to £1m by paying a reduced tax of 10%. Many pharmacy contractors will be relieved, particularly those with pharmacy sales in the pipeline.
The chancellor did not mention anything about a new tax on the wealth of high-income households to pay for the costs of COVID-19. This may be one for the next budget.
The Recovery Loan Scheme is replacing the Coronavirus Business Interruption Loan and Bounce Back Loan programmes, the chancellor said. Pharmacy contractors can apply to borrow between £25,000 and £10m until the end of this year.
The 100% business rates relief will continue until the end of June, when it will drop to two-thirds relief for the rest of the year, the chancellor said. This should be a significant help to many contractors.
In April, the basic rate band of taxable income will increase from £12,500 to £12,570. At the same time, the higher rate band will increase from £50,001 to £50,270. However, these bands will then be frozen until 2026, which is effectively a tax increase by the back door as more people will be pulled into paying more tax.
Inheritance tax thresholds, the pensions lifetime allowance and capital gains annual allowance rates will remain the same until 2026. This is also an increase in tax by the back door as more people pay more money to the Treasury.
There will be no increases to income tax, national insurance, or VAT rates.
Corporation tax rates
The VAT registration threshold of £85,000 will remain the same until 2026, rather than its typical increase in line with inflation. This means many more small businesses will fall into the VAT net, as well as having to bear more administration costs.
Corporation tax rates will increase from April 2023 from 19% to 25%, the chancellor said. This is a massive increase that will damage many businesses while they are recovering from the pandemic.
Although tax for companies with profits up to £50,000 will remain at 19%, increasing gradually up to 25% for companies earning £250,000 of profit, this is a huge blow to businesses. The UK had a globally competitive corporation tax rate, but no more.
Businesses will be allowed to carry back losses of up to £2m for up to three years, the chancellor said. There is some relief for large businesses, but most small contractors will pay higher personal and corporate taxes.
700,000 people have lost their jobs since March 2020, the chancellor said. However, the forecast for peak unemployment rates at the end of 2021 by the Office for Budget Responsibility has improved to 6.5%, which is smaller than previously predicted.
Total government borrowing between March 2020 and next year totals £407bn, the chancellor said.
The Office for Budget Responsibility said there is “hope for a swifter and more sustained economic recovery”, thanks to the rapid rollout of COVID-19 vaccines. Indeed, the body expects GDP to grow by 4% in 2021 and 7.3% in 2022, before falling to 1.7% in 2023. GDP should recover to pre-pandemic levels by the end of June 2022, it said.
The end of the stamp duty holiday has been extended from March 31 until June 30. “Then the nil rate band will be £250,000, double its standard level, until the end of September – and we will only return to the usual level of £125,000 from October 1,” the chancellor said.
First-time buyers will be able to purchase a property worth up to £600,000 with a 5% deposit, with the government guaranteeing 95% of the mortgage loan. Many pharmacy professionals will qualify for the scheme.
In my opinion, now is the wrong time to choke any economic recovery through increased red tape or taxes. Higher taxes mean austerity measures, and we all know how long it took to recover from the financial crisis of 2008-2009 because of austerity.
Umesh Modi is a chartered accountant, tax advisor and a partner at Silver Levene LLP