We wanted to share with our Spring Budget 2021 review, highlighting the main areas the Chancellor touched on following last week’s briefing. With this probably been the most-watched budget in our lifetime there are certainly some key aspects to talk about.
Steve and Pete our Head of Tax have joined together to record a short informative video to discuss their thoughts on the changes announced.
The main points to takeaway
Covid-19 support measures
The Coronavirus Job Retention Scheme (CJRS) and the Self-employed Income Support Scheme (SEISS) have both been extended to September 2021. To reflect the fact that lockdown restrictions will be lifted some time before then, the value of the support will fall towards the end of the schemes. The CJRS will continue in its current form until July, at which point the employer will be asked to contribute towards the cost of unworked hours (10% for July and 20% for August and September). The employee will continue to receive at least 80% of their current salary for hours not worked.
A fourth and fifth grant will be paid under the Self-employed Income Support Scheme (SEISS). The eligibility criteria will remain the same except that the person must have submitted a tax return for 2019–20. This is a significant change as it should mean that around 600,000 individuals – mainly the newly self-employed – who were prevented from claiming grants one to three will now be eligible to claim grants four and five. The amount of each grant is equal to 80% of three times average monthly profit, capped at £7,500; however, there is an added complication for the fifth grant: where turnover has fallen by less than 30%, the grant will be capped at £2,850. The fourth grant may be claimed from late April and the fifth by late July. Grants four and five will be taxable in 2021–22.
The pre-Budget kite-flying exercise had suggested a staggered increase in the rate of corporation tax for all companies from 19% to 23%, beginning in September 2021. Instead, the rate will increase to 25% from April 2023. Importantly, the rate will remain at 19% for companies with profits up to £50,000, and a taper mechanism will apply where profits are between £50,000 and £250,000. However, even at 25% the UK’s corporation tax rate will remain the lowest in the G7, and a significant chunk of that cash will be returned to businesses by way of a new ‘super-deduction’ for capital investment.
Briefly, companies investing in qualifying plant and machinery between 1 April 2021 and 31 March 2023 will benefit from new first-year allowances (FYAs). For main-rate assets, there will be a 130% FYA and for special-rate assets, a 50% FYA. Finally, there will be a temporary extension to the period over which a business may carry-back trading losses, from one year to three years. This extension will apply to a maximum of £2m of unused trading losses made in each of 2020–21 and 2021–22.
A number of allowances and thresholds will be frozen at the amounts applying for 2021–22 for all tax years up to and including the tax year 2025–26. This includes the income tax personal allowance and the basic rate limit, which will be set at £12,570 and £37,700 respectively from 6 April 2021 to 5 April 2026. This is a significant revenue raiser for the Government: freezing the personal allowance and basic rate allowance alone are expected to bring in roughly £19bn.
It will also widen the tax base considerably, meaning that more people will pay income tax than before, and it will significantly increase the number of individuals who pay tax at the higher rate. The Chancellor can expect some hissing here, particularly in light of the manifesto commitment not to raise the rate of income tax and before that, the Prime Minister’s aspiration to increase the point at which the higher rate kicks in to £80,000 (the higher rate threshold is £50,270 for 2021–22).
Other allowances and thresholds to be frozen include the pensions lifetime allowance (£1,073,100) and the capital gains annual exempt amount (£12,300). The Class 1 NICs upper earnings limit and the Class 4 NICs upper profits limit will remain aligned to the higher rate threshold.
Other announcements include:
• the temporary increase in the residential SDLT nil rate band to £500,000 in England and Northern Ireland will be extended to 30 June 2021. The nil rate band will reduce to £250,000 from 1 July 2021 and will return to £125,000 on 1 October 2021;
• the extension of the temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector until 30 September 2021. A rate of 12.5% will apply between 1 October 2021 and 31 March 2022;
• the extension of the business rates holiday for businesses in the retail, hospitality and leisure sectors in England to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022;
• the payment of restart grants in England of up to £6,000 per premises for non-essential retail businesses, and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses; and
• a new Recovery Loan Scheme under which the Government will provide an 80% guarantee on eligible loans between £25,000 and £10m. The scheme will be open to all businesses, including those who have already received support under the existing Covid-19 guaranteed loan schemes.
• To combat fraud relating to Covid-19 support measures, in particular the CJRS and SEISS, and including the Bounce Back Loan Scheme, the Government will invest over £100m in a Taxpayer Protection Taskforce of some 1,265 HMRC staff.
We will ensure we keep you up to date as further information is released, in the meantime, if you wish to discuss any of the above, contact us today on 0330 22 33 660 to speak to a member of our team who would be happy to assist.