The Budget 2021: what it means for you

This week's Budget was unprecedented in may ways, with £165bn of extra support announced to help businesses and individuals through the pandemic and speed up the economic recovery.

 

Whilst there were new measures to freeze personal allowances and increase Corporation Tax, which are clearly the start of many future tax rises that the Chancellor says are needed to help repay the country's escalating national debt.

Although some of the Chancellor's key announcements had already been reported in the press, there were still a few Budget surprises, such as the 130% "super tax deduction" on capital investments for businesses and the extension of the normal loss 'carry back' rules, which we've covered in further detail in our Business section.

Coronavirus support

The government's new and extended Coronavirus support schemes will be a financial lifeline to many through the recovery period. Those who became Self-Employed after April 2019 and filed a 2019-20 tax return will no doubt be pleased that they may now be eligible to apply for grant support through the SEISS scheme. Unfortunately, they still have to wait until they can claim the cash and it appears that the previous "cliff edge" threshold for those earning £50,000 or more in profits still applies, so these workers are likely to remain ineligible for the new grants.

FURLOUGH EXTENSION

The Furlough scheme is to be extended until the end of September 2021. It's important to note that for periods ending on or before 30 June 2021, employers can continue to claim 80% of an employee's usual salary for hours not worked, up to a maximum of £2500 per month. However, from 1 July 2021, the level of grant will reduce month by month, to 70% in July and then 60% in August and September. Contributions from employers will also increase to cover 10% of wages for hours not worked in July, rising to 20% for August and September. Employers can also choose to top up employee's wages above the 80% total and £2,500 monthly cap if they wish to.

SELF-EMPLOYED GRANTS

SEISS (Self-Employment Income Support Scheme) grants have been extended for six months, with the 4th and 5th grants announced covering February-April 2021 and May-September 2021 respectively (various conditions apply).

The 4th grant is 80% of the average of three months' profits, up to £7,500 cap in total. The 5th grant will be determined by how much your business turnover has reduced in the tax year ending 5 April 2021. For those with a turnover reduction of 30% or more, it will be 80% of the average of three months' profits (up to £7,500 total cap), and for those with a turnover reduction of less than 30% it will be 30% of the average of three months profits' (up to a £2,850 total cap).

The scheme for these next two grants has also been extended to include those who became self-employed from April 2019 and had filed their 19/20 tax return by midnight on 2 March 2021. The additional grants will apply to self-employed individuals whose trading profits are no more than £50,000, and at least equal to their other income. However, unfortunately online grant claims won't be available until late April, which could be especially difficult for those businesses (e.g dry cleaners) who have been classed as "essential" and remain open, but nonetheless have seen a significant reduction in demand for their service/product.

BUSINESS GRANTS

New Restart grants were announced, with up to £6,000 available for non-essential retail businesses per premises, and up to £18,000 in one-off cash grants for hospitality, accommodation, personal care and gym businesses. We will need to check the fine details, but assume that these will only apply where the business has been within the business rates system for its premises. As per the previous grants, business owners will be able to find further details on their local council website.

RECOVERY LOANS

A new recovery loan scheme to replace the previous Coronavirus Business Interruption Loan Scheme (CBILS) will be launched on 6 April 2021 and run until 31 December 2021. Businesses of any size can apply for loans between £25,000 and £10m. The chancellor also announced that there will be a government "guarantee" to lenders of 80% of the loan.

BUSINESS RATES

The 100% business rates holiday will be extended until the end of June, with rates for the remaining nine months (up until April 2022) reduced by two thirds.

VAT

VAT rate cut for hospitality, accommodation and attractions businesses is to be maintained at 5% until the end of September. This is to be followed by an interim 12.5% rate to then apply until 31st March 2022.

FRAUD TASKFORCE

Finally, it's important to note that the Chancellor announced a new £100m HMRC taskforce to tackle Coronavirus support scheme fraud. As well as bogus claims, this taskforce will be looking to identify where claims have been made in error. Even if a mistake was down to human error, you could still be subject to costly investigations and hefty penalties for making a false claim, so it is vital to maintain full records and to check and recheck the claims you've made, notifying HMRC of any of errors as soon as possible.

OTHER CHANGES

  • The stamp duty holiday and the £500,000 nil rate band for residential property purchases is to be extended until 30 June 2021, with a nil rate applying on the first £250,000 from 1 July until 30 September 2021 (when the nil rate will revert back to £125,000).
  • Incentive grants for apprenticeships will double to £3,000 and £126 for traineeships.
  • £400m has been pledged to help arts venues in England, including museums and galleries, to reopen.
  • A £300m recovery package has been announced for professional sport and £25m for grassroots football.
  • The Universal Credit £20 uplift has been extended for a further six months.
  • The National Living wage is to increase to £8.91/hour from April 2021.

Further details of the new and extended Coronavirus support schemes are expected to be released in the coming weeks and we will update you further when this becomes available.

Personal Tax

Whilst there was no change to Income Tax, National Insurance rates or VAT, with the UK borrowing at a peacetime record of £355bn this year, the Chancellor's move to freeze personal tax allowances and thresholds had been widely expected. This stealth tax is expected to raise £8bn a year for the government by pushing more people into the higher tax brackets as their income increases.

TAX RATE FREEZES

  • The personal income tax allowance will increase slightly in April 2021 to £12,570 and will then freeze at this rate until April 2026.
  • The higher rate income tax threshold will be frozen at £50,270 from April 2022 until April 2026.
  • The pension lifetime allowance will be maintained at £1,073,100 until April 2026.
  • The Inheritance Tax nil-rate band will remain at £325,000 and the residence nil-rate band will remain at £175,000 until April 2026, with tapering continuing to start at £2m.
  • For Capital Gains Tax (CGT), the annual exemption will be maintained at £12,300 (£6,150 for trusts) until April 2026. Whilst there were no increases announced for CGT rates, a futher report by the Office of Tax Simplification is due to be published soon, which will give an indication of future CGT changes. The concern here is that CGT rate increases may be recommended to bring it more into line with the current rates of income tax.

LOSS CARRY BACK RULES

To help assist Self-Employed and partnership businesses recover, there will be an extension of the normal loss carry back rules, which will allow losses to be carried back three years, instead of one-year. This change will apply to trading losses in the 2020-21 and 2021-22 tax years, so it applies immediately.

OTHER CHANGES

The Social Investment Tax Relief scheme (SITR) which encourages taxpayer investment in qualifying social enterprises, charities and community businesses by providing Income Tax and Capital Gains Tax relief on investments has been extended to 5 April 2023.

Finally, one last thing to remember is that a new penalty regime for personal tax returns will be introduced from April 2023, which coincides with the introduction of Making Tax Digital for Income Tax.

Business Tax

Whilst it’s encouraging that the economic recovery is predicted to be swifter and more sustained than was forecast previously and there are new tax saving initiatives to stimulate business investment, there will still be a lot of financial pain felt by business owners through this period.

REPAYING THE NATIONAL DEBT

CORPORATION TAX

From 1 April 2023, Corporation Tax (CT) on company profits will increase from 19% to 25% for the most profitable companies (earning £250,000 plus in profits), whilst companies with profits of £50,000 or less will continue to pay CT at the 19% rate. A tapered rate will apply for businesses with profits between £50,000 and £250,000, although these limits are reduced proportionately by the length of the accounting period and the number of associated companies.

Although the tax cost for companies is set to increase, there will be no change for around 1.5m smaller companies with profits of less than the adjusted £50,000 limit. Moreover, the UK will still have lowest rate in the G7 and compared with the US, however, it will have a much higher rate than Ireland.


LOSS CARRY BACK RULES

To help companies through the pandemic and recover ahead of the CT rate increases, there will be an extension of the normal loss carry back rules. These changes will apply to accounting periods ending in the period from 1 April 2020 to 31 March 2022, so it applies immediately. The amount of the trading loss that can be carried back to the previous year remains unlimited, but after this, there is a cap of £2m of unused losses that can be carried back to the previous two years. Separate rules will apply to groups of companies.

ENCOURAGING INVESTMENT

THE “SUPER TAX DEDUCTION”

Perhaps the biggest Budget surprise was the introduction of a “super deduction” from 1 April 2021 to 31 March 2023, allowing companies to benefit from a new 130% deduction from taxable profits for capital expenditure on brand new qualifying plant and machinery. At first glance this may seem like a significant tax giveaway, but it is only an extra 30% saving on top of the existing 100% deduction. It is also subject to certain exclusions, such as cars and anything bought second-hand. Regardless of this, however, it could still provide additional cash flow benefits for certain businesses.

Subject to more detail on the exact mechanism, the deduction would appear to be given as a First Year Allowance and leave the £1 million Annual Investment Allowance untouched. Alongside this is a 50% first year allowance for qualifying special rate assets, such as integral features. Whilst the Chancellor called this the "biggest British tax cut in modern post war history”, careful planning will be needed here to maximise the tax benefits for capital expenditure.

GREEN INVESTMENT

Green Growth is being encouraged through the creation of a New Green Infrastructure Bank. This will be launched sometime in the spring, with £12bn of capital growth support, and is looking to make a total investment of some £40bn.


HELP TO GROW FUNDING

A new Help to Grow Fund will be launched to help small businesses access management training (with 90% of the cost funded by government) and go digital by giving firms access to 50% discounts on software and free training. It is expected that this measure will benefit more than 100,000 businesses nationwide.


CONSULTATIONS

RESEARCH & DEVELOPMENT (R&D)

A consultation into R&D is due to be completed by 2 June 2021, with the aim of extending this important tax relief to maintain and enhance the UK’s international competitiveness, boost spending on R&D and tighten up on perceived abuse.


ENTERPRISE MANAGEMENT INCENTIVES (EMIs)

The Government is inviting responses from businesses by 26 May 2021 as part of its review of EMIs. This consultation, which was announced in April 2020, has been created to assess whether the original objective of using EMIs as a tool to recruit and retain key staff is being met.


SUMMARY

The increase in Corporation Tax (CT) to 25% and introduction of new tapered rates from April 2023, may mean that the balance of dividends and salary needs to be reconsidered, depending on your individual scenario and profit levels. However, there’s still scope for directors to look at their options ahead of the change.

Revenue raising measures to help repay the national debt, such as increases to Corporation Tax (CT), are clearly just the start of future tax rises to come. It was expected that changes to Capital Gains Tax (CGT) allowances would be made in this Budget, so many directors will be breathing a sigh of relief that they will remain unchanged for now. However, future changes are likely to be considered by the Chancellor later this year, following the publication of a consultation report by the Office of Budget Responsibility.

We will update you with further details of individual tax planning opportunities from this week’s Budget in the coming weeks, along with any new details of the Coronavirus support schemes as they become available.

For further information or advice on any of the Budget changes and how they affect you, please call your normal Richardson Swift contact on 01225 325580.

Please note that this is only a summary of the main issues and should not be construed as advice. Every effort has been made to ensure factual accuracy at the time of publication (5 March 2021), however, the government response to the Coronavirus situation is changing 24-7 so should not be relied upon completely.