The spring Budget included a string of announcements that will impact veterinary businesses. There are new business support grants to consider and a new level of tax relief that could save companies thousands when it comes to investing in new surgery equipment. We’ve pulled out some of the key areas that will affect businesses in the sector.
Corporation tax hike
Businesses with profits of £50,000 or less will be exempt from the corporation tax increase that will come in from April 2023. A tapered rate will be introduced for profits above £50,000 so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
This change is likely to hit successful veterinary companies as most businesses will be operating a low director salary and high dividend strategy.
One immediate observation will be the increased benefit of making employer pension contributions for directors/shareholders. A company pension contribution versus dividend could give you an instant return on investment of 97.5%/115% as a 40%/45% taxpayer or a whopping 160% return if your income is between £100,000 and £125,140, the range in which you lose your personal allowance.
These changes only affect limited companies, income from LLP, partnerships and sole traders are subject to income tax and there were no material changes to these tax rates.
Super-deduction tax break for investment
A big Budget announcement was the “super-deduction” tax break for companies investing in new equipment from April 2021. This will cut companies’ tax bills by 25p for every pound they invest meaning they can reduce taxable profits by 130% of the cost.
Veterinary surgery equipment can be very expensive so this new level of relief will have a significant impact. A £200,000 investment in equipment from April 2021 will receive £49,400 of tax relief compared with £38,000 previously.
This is a two-year relief by which point the new corporation tax level will rate will kick in and relief for investment will be at 25%.
Furlough
As expected, the Chancellor extended the furlough scheme until September. This will not impact hugely on veterinary businesses as most will be seeing increased demand due to increased small animal ownership fuelled by lockdown and increases in the large animal side due to increased prices in livestock allowing for more investment in animal welfare.
It is, however, is worth bearing in mind that flexible furlough is available for workers that are struggling to get into work or for roles within the business that are still impacted by social distance.
Help to Grow scheme
This scheme will support businesses by providing digital and management tools to make the business more efficient and training on anything from marketing to financial management.
Any small business can apply for a £5,000 grant to pay for Government-approved productivity software. Whilst this may not be enough to cover the true ambition of this project, veterinary businesses could look to overhaul their finance function or invest in a new veterinary front-of-house system.
Xero cloud accounting has made a huge impact on creating affordable and impactful changes on older desktop-based accounting packages and being cloud-based means you can integrate with other software being used within the business.
Extension of incentives & new £3,000 grant for employers
Perhaps the biggest announcement to affect the world of apprenticeships is the extension of the incentive scheme to hire apprentices. The scheme was originally due to end on 31 March but will now continue until 30 September 2021.
Employers will now also receive £3,000 for every new employee (of any age) who starts employment and is enrolled onto an apprenticeship before the cut-off date. In addition to this, there is no employer's NI payable for any member of staff doing an apprenticeship up to the age of 25, so there are more employer savings to be made. The new cash incentives will be paid directly by the Government to employers.
Whilst there are veterinary-specific apprenticeships such as veterinary nurses and care assistants it also worth considering areas such as administration, marketing and finance.
Recovery Loan Scheme (RLS)
The Recovery Loan Scheme (RLS) has now replaced the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). More information is now available at www.gov.uk/guidance/recovery-loan-scheme.
What does this mean for Veterinary businesses? Due to the strength of this sector, we believe you would be better applying for a conventional loan as the rates and charges will likely be lower than the RLS. If you don’t have the level of security to support the loan you require then the RLS may be a good option as the Government will guarantee up 70% of the loan.
Core scheme features:
Up to £10m facility per business: The maximum amount of a facility provided under the scheme is £10m per business (maximum £30m per group). Minimum facility sizes start at £25,001 for term loans.
Term Length: 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.
Interest and fees to be paid by the borrower from the outset: Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility.
Access to multiple Covid-19 schemes: Businesses that have taken out a CBILS, CLBILS or BBLS facility can access the new scheme although the amount they have borrowed under a previous scheme may in certain circumstances limit the amount they may borrow under RLS.
Personal Guarantees: Personal guarantees are not permitted for facilities of £250,000 or less. Above £250,000 the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied. No personal guarantees can be held over Principal Private Residences.
Guarantee to the Lender: The scheme provides the lender with a government-backed guarantee against the outstanding balance of the facility. The borrower always remains 100% liable for the debt.
