Spring Budget 2021

3rd March 2021

In Rishi Sunak’s second Budget since becoming Chancellor, he faced an extraordinary economic challenge – to somehow balance the need for continuing financial support due to the pandemic, the problem of a staggering level of debt, and a desire to deliver more sustainable public finances and support the recovery of the economy. Many feared a tax raising Budget with radical changes to capital gains tax but overall Rishi’s Budget lacked any immediate bombshells, with tax rises deferred and the extension of many COVID support measures until September 2021.

Extension of COVID support measures

The Coronavirus Job Retention Scheme will be extended until 30 September 2021. The position for employees will continue as at present, with them entitled to up to 80% of their salary for hours not worked. Employers will remain liable for National Insurance Contributions and pensions in April, May and June. In addition, from July employers will be asked to contribute 10% towards the cost of unworked hours, raising to 20% in August and September, in recognition of the economy reopening.

Two further Self-Employment Income Support Scheme (SEISS) grants have been confirmed. The fourth grant will cover February to April, and will be worth 80% of three months’ average trading profits, capped at £7,500 in total. The fifth and final grant will cover May to September and the value will be based on a turnover test to help target support at the businesses that need it most. For those whose turnover has fallen by 30% or more, the grant will be worth 80% of three months’ average trading profits, capped at £7,500. For those whose turnover has fallen by less than 30%, the grant will be worth 30%, capped at £2,850.

There is good news for younger businesses, as the fourth and fifth grants will be available to people who started self-employment in 2019/20, provided they filed their 2019/20 self assessment tax return by 2 March 2021. However, as always for SEISS, businesses will need to carefully review the eligibility criteria before they claim.

Restart Grants will be provided of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for businesses that are reopening later under the roadmap, i.e. hospitality, accommodation, leisure, personal care and gym businesses.

As the existing COVID loan schemes end, a new Recovery Loan Scheme starts on 5 April 2021, providing lenders with an 80% guarantee on eligible loans of between £25,000 and £10 million. This scheme is open to all businesses, including those who have already received support under the existing loan schemes.

Eligible retail, hospitality and leisure properties will continue to benefit from 100% business rate relief until 30 June 2021, followed by 66% relief until 31 March 2022, subject to applicable caps.

The reduced rate of 5% VAT for tourism and hospitality will be extended to 30 September 2021, with a 12.5% rate until 31 March 2022, before returning to the standard 20% rate.

The temporary increase in the Stamp Duty Land Tax nil rate band to £500,000 is extended to 30 June 2021, reducing to £250,000 until 30 September 2021, and returning to its usual level of £125,000 on 1 October 2021.

Allowances frozen

Despite much speculation to the contrary, Rishi has stuck to the Conservative party manifesto pledge not to raise the rates of income tax, VAT and National Insurance Contributions. However, for income tax, by freezing the levels of the personal allowance and the higher rate threshold, he has still managed to increase the amount of income tax that people will pay. The levels will remain at the planned 2021/22 levels up to and including the 2025/26 tax year.

The following have also been frozen:

  • Inheritance Tax thresholds will remain at current levels until April 2026;
  • The Pensions Lifetime Allowance will remain at £1,073,100 until April 2026;
  • The Capital Gains Tax Annual Exempt Amount will remain at £12,300 until April 2026; and
  • The VAT registration threshold will remain at £85,000 until 31 March 2024.

Three year loss carry back

There is good news for businesses that have been pushed by COVID into a loss-making position, with a temporary extension in the trading loss carry back rule from one year to three years. This applies to companies and unincorporated businesses.

The losses that can be relieved will be capped at £2 million in each of 2020/21 and 2021/22. For companies in a group, there will be a £2 million cap across the group as a whole.

Corporation tax rates to increase

The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19% with a tapered rate for profits from £50,000 to £250,000.

Whilst the increase seems high and will come as a shock to some, Rishi assured us that it remains an internationally competitive rate.

Super-deduction

In order to stimulate investment, from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first year capital allowance. They will also benefit from a 50% first year allowance for qualifying special rate (including long life) assets.

Given the likelihood that companies will wish to capitalise as much as possible, whereas in the past a revenue deduction as repairs was often preferable, it will be interesting to see the detailed legislation on this. No doubt it will contain anti avoidance provisions to ensure that the super-deduction only applies as intended.

Help to Grow

In order to help SMEs grow their businesses, the government has announced two new initiatives:

  • A UK-wide management programme to upskill 30,000 SMEs over three years, consisting of a 12 week business school programme, 90% subsidised; and
  • A voucher for up to £5,000 towards up to half the costs of approved productivity-enhancing software.

And now the Budget is over …

It is just under five weeks until the end of the tax year so time to make sure that you consider any pre year end planning.

Easy wins might be:

  • Use your ISA allowance
  • Top up pension contributions
  • Use your capital gains tax annual exemption
  • Use your dividend allowance

If you would like to discuss what else you could consider, let us know.

Insights

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Spring Budget 2021

3rd March 2021

Bessler Hendrie's easy to read summary of the Budget announcements

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