Chancellor Rishi Sunak made his Budget speech on 3 March 2021.
Clearly, much has changed due to COVID 19. The UK economy has shrunk by 10% and we have the highest borrowing since WW2. The total cost of Government support during the crisis will be £407 billion.
The Chancellor proposed a three-part plan:
- continued support for the economy through the pandemic;
- once on the road to recovery, the public finances will need fixing; and
- using low interest rates to invest in capital projects.
The main highlights of the Budget are summarised below. Some Budget proposals may be subject to change in the 2021 Finance Act. You should contact us before taking any action as a result of the information in this overview.
COVID-19 support schemes
Coronavirus job retention scheme (CJRS)
Some good news for employers is the Chancellor’s decision to extend the furlough scheme in its current form until 30 June 2021.
Employers can continue to claim 80% of each furloughed employee’s usual wages for periods the employee is furloughed, up to £2,500 per employee per month.
The furlough scheme will continue until 30 September 2021, but the costs for employers will increase as follows:
- for pay periods from 1 July 2021, the employer can claim 70% of their employees’ usual wages up to £2,187.50 per employee per month; and
- for pay periods from 1 August 2021, the employer can claim 60% of their employees’ usual wages up to £1,875 per employee per month.
In all cases the employer must continue to pay furloughed staff 80% of their usual contracted wages and pay all of the employer’s Class 1 NICs and any employer’s pension contributions due on those furloughed wages.
Be aware that HMRC now publishes the names of employers who use the furlough scheme and an indication of the total amount claimed each month.
Employees can also check their personal tax account to see if a furlough claim has been made in respect of their wages.
Self-employed income support scheme (SEISS)
Two more SEISS grants will soon be made available, capped at £7,500 each.
Each of these new grants will be based on average trading profits as reported on tax returns for the four years to 2019/20.
You will only be eligible to claim these grants if you submitted your 2019/20 tax return by midnight on 2 March 2021 (it was due by 31 January 2021).
This extension means that if you started your business in 2019/20 you will be able to claim a SEISS grant for the first time, as long as you meet the other criteria and thresholds, which are the same as they were for the first three grants. The online facility to claim the fourth SEISS grant will open in late April.
As part of the claims process you must declare that you have suffered a significant drop in trading profits. HMRC does not quantify what ‘significant’ means but the reduction in earnings need not be enough to put you out of business as you must still be trading, or be intending to continue to trade once the Covid-19 restrictions are lifted, in order to be eligible for the SEISS grants.
The fourth SEISS grant will be paid based on 80% of three months’ average trading profits, capped at £7,500 in total. This is paid in respect of February, March and April 2021. Claims can be made from late April 2021 until 31 May 2021.
A fifth SEISS grant will be available in late July 2021, but the eligibility criteria will be tighter still. The grant value will be determined based on a turnover test in the year April 2020 to April 2021:
- If your turnover has fallen by at least 30%, you may be able get the full grant calculated at 80% of your average trading profits, capped at £7,500.
- Businesses whose turnover has fallen by less than 30% will receive a grant based on 30% of average profits, capped at £2,850.
All of the SEISS grants are taxable income for your business and they will have to be declared as income on your tax returns for the tax years in which they are received.
Statutory sick pay rebate scheme
The SSP Rebate Scheme will be extended until the end of September.
Employers with fewer than 250 employees will continue to be able to reclaim up to two weeks of SSP costs per employee from the Government.
Eligible sickness absence includes COVID-19 illness, self-isolation or shielding.
Business recovery loan scheme
Last year, the Government introduced several Government-guaranteed coronavirus loan schemes.
Access to the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme ends on 31 March 2021.
Budget 2021 announced a new loan scheme, to replace those coming to an end.
From 6 April 2021, the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses.
The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.
Business restart grants
Restart Grants will be available in England. These will be:
- 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.
This will provide the cash certainty needed to plan ahead and safely relaunch trading as we move out of lockdown.
An additional £425 million of discretionary business grant funding will also be available from public authorities in England.
Business taxes
Corporation tax rates
The Chancellor announced that corporation taxes would have to rise, but not quite yet.
Large companies will see their corporation tax rate rise from 19% to 25% from 1 April 2023.
Companies making no more than £50,000 per year in profits will still pay tax at the current rate of 19%. There will be a system of marginal relief on corporate profits between £50,000 and £250,000, above which the tax rate will be set at 25%.
Complexity is added for groups and associated companies as the profit thresholds of £50,000 and £250,000 will have to be divided by the number of associated companies. The companies counted as being in a group or associated will be those which are under the common control of a person, a company or a group of persons.
Family companies which are not trading will also pay corporation tax at 25% on all profits.
Trading tax losses
Many businesses have made losses during the Covid-19 pandemic. Normally trading losses can be carried back one year to set against profits and generate a repayment of tax.
The Government has announced that they will permit businesses to carry back losses for up to three years.
For companies that means if you make losses in accounting periods ending between 1 April 2020 and 31 March 2022, you will be able to carry back up to £2 million of extra losses for three years with the normal unlimited carry back for one year, followed by the additional £2 million to the two preceding years.
Unincorporated businesses (e.g. sole traders, partnerships) will be able to carry back losses made in the tax years 2020/21 and 2021/22 for three years, setting the loss against the profits of the latest year first. For example, a business which made a loss in 2020/21 can carry that loss back against its profits made in 2019/20, 2018/19 and 2017/18, setting off the loss against the profits of 2019/20 first, before setting the loss against the two earlier years.
Super-deduction for capital expenditure (companies only)
Because of the proposed increase in corporation tax, larger companies may have opted to wait until April 2023 before making major investments in plant or machinery to achieve tax relief of 25% on those costs.
However, the Government wants to encourage those companies to invest sooner, so is offering a super-deduction of 130% of capital expenditure on new qualifying plant and machinery. The contract to buy such assets must be entered into on or after 4 March 2021 and the purchase must be made between 1 April 2021 and 31 March 2023.
This 130% deduction will only apply to assets eligible for the main capital allowances pool with writing down allowances normally given at 18%. Cars do not qualify for this super-deduction, unless they are specially adapted for use in a driving school.
Expenditure on other new assets such as fixtures and integral features in buildings will qualify for a 50% deduction in the year of purchase if acquired before 1 April 2023. The remaining cost of these assets will qualify for a writing down allowance at 6% per year.
These new super-deductions are not available to unincorporated businesses.
The super-deductions for the cost of new assets apply alongside the 100% deduction available under the annual investment allowance, which covers up to £1 million of expenditure per year until 31 December 2021.
VAT
Registration and de-registration thresholds
The registration and de-registration thresholds are frozen at £85,000 and £83,000 until 31 March 2024.
VAT deferral payment scheme
Businesses that deferred their VAT liabilities between 20 March and 30 June 2020 can now opt in to use the VAT Deferral New Payment Scheme.
The service opened on 23 February 2021 and will close on 21 June 2021.
There will be a penalty of 5% of the deferred VAT outstanding, if businesses have not opted into the payment scheme or made an alternative arrangement to pay by 30 June 2021.
VAT rates for hospitality
Many hospitality venues have been closed for almost a year and are still unable to open under the Covid-19 restrictions.
To help them survive, the Government has given them a 15% VAT reduction on most sales. Where businesses would normally collect 20% VAT, they only have to pay 5%.
This 5% VAT rate has applied in the hospitality and tourism sectors since 15 July 2020 and will continue to apply until 30 September 2021. This will then gradually increase, with sales made from 1 October 2021 to 31 March 2022 in these sectors applying 12.5% VAT (up from 5%), before returning to the usual 20% from 1 April 2022.
These reduced VAT rates broadly cover restaurant meals or hot take-away meals (not sandwiches); hotel and similar accommodation; entrance fees for tourist attractions and cultural venues. The lower rate does apply to soft drinks taken with a restaurant or café meal eaten in-house.
The reduced VAT rates do not apply to tickets for sporting events nor admission to sporting facilities.
A special low rate applies to gross sales under the VAT flat rate scheme for small businesses, such as pubs, hotels and catering services. The flat rate scheme rules will be revised to take account of the 12.5% rate that applies until 31 March 2022.
R&D tax relief credits
The proposed cap on R&D SME tax credits from 1 April 2021 has been confirmed.
Before the introduction of the cap, loss-making SMEs incurring qualifying expenditure on R&D activities are allowed to claim to surrender the unrelieved loss for a payable tax credit of up to 14.5%.
For accounting periods commencing on or after 1 April 2021, the maximum amount a company can claim will be £20,000 plus three times the company’s total PAYE/NICs.
Business rates
Business rates have been devolved to Scotland, Northern Ireland and Wales. All four nations have introduced 100% business rates relief mainly aimed at retail, leisure and hospitality businesses. Such businesses have not had to pay business rates from 1 April 2020 to 31 March 2021.
The Chancellor announced a continuation of 100% business rates relief for eligible retail, hospitality and leisure properties in England to 30 June 2021.
For the remainder of the period from 1 July 2021 to 31 March 2022, these properties will receive a 66% discount, with a cap of £2 million per business for those that were required to close as at 5 January 2021 and a cap of £105,000 per business for those that were not required to close.
Nurseries will also qualify for relief in the same way as other eligible properties.
Businesses who do not feel that they were impacted by COVID-19, or who are altruistic, can opt-out of the relief.
First-year capital allowances for business cars from April 2021
The 2020 Budget announced the extension of 100% first-year capital allowances for zero-emission cars, zero-emission goods vehicles and equipment for gas refuelling stations by four years from April 2021.
CO2 emission thresholds will also be amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down.
The thresholds will be reduced from:
- 50g/km to 0g/km for the purpose of the first-year allowances for low CO2 emission cars; and
- from 110g/km to 50g/km for the purpose of writing down allowances (WDAs) for business cars.
Personal taxes
From 6 April 2021 (2021/22), the personal allowance increases to £12,570 from £12,500.
The basic rate income tax band will be £37,700, so that the threshold at which higher rate 40% tax applies will be £50,270 for those who are entitled to the full personal allowance. There is no change to the additional tax rate (45%) threshold of £150,000 in 2021/22.
There will be a freeze on the personal allowance and higher rate threshold at 2021/22 levels up to and including 2025/26.
The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years. This will apply to the whole of the UK.
The Class 4 (self-employed) NIC lower profits limit increases to £9,568 for 2021/22.
The Class 2 (self-employed) NIC small profits threshold for 2021/22 is set at £6,515.
The Blind person’s allowance increases to £2,520 for 2021/22, from £2,500.
No changes to the following were announced:
- rates of income tax: basic (20%), higher (40%) and additional (45%);
- NI contribution rates – Classes 1, 2 and 4;
- 0% income tax savings rate – £5,000;
- personal savings allowance – £1,000;
- transferable Marriage Allowance – £1,250; and
- the ISA, junior ISA and Child Trust Fund limits.
Employers
National minimum wage
The national living wage increases to £8.91 per hour from April 2021 (£8.72 in 2020/21). See: National Minimum Wage and National Living Wage rates
National insurance
The Class 1 National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270.
No changes to Class 1 NI contribution rates or the Employment Allowance (£4,000).
As previously announced, from April 2021, a NIC holiday for employers of veterans in their first year of civilian employment exempts employers from any NIC liability on the veteran’s salary up to the Upper Earnings Limit of £50,270.
Off-payroll working in the private sector (IR35)
It was confirmed that the off-payroll working rules would be extended to the private sector, from 6 April 2021, as previously announced.
The off-payroll working rules apply where an individual (a worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the end-client).
The end-client will be required to make a determination of a worker’s tax status and communicate that determination. If the IR35 rules apply to the engagement, the fee-payer (usually the organisation paying the worker’s personal service company) will need to make deductions for income tax and NICs, and pay any employer NICs.
The change, from 6 April 2021, will only apply to engagements with medium or large end-clients.
Personal service companies working for small engagers will be unaffected and will continue to self-assess under the existing IR35 rules.
Apprenticeships and traineeships
The Chancellor announced various initiatives to encourage high-quality work placements and training. This includes extending and increasing payments to employers in England, who offer such opportunities in 2021/22.
Home office equipment expenses
The COVID-19 homeworking exemption to income tax & NICs, where the employer reimburses the home office equipment expenditure of employees, will be extended until 5 April 2022.
Car and van benefits
For 2021/22:
- the amount to which the appropriate percentage is applied in calculating the taxable benefit of company car fuel is £24,600;
- the cash equivalent benefit of a company van is £3,500; and
- the cash equivalent benefit of company van fuel is £669.
Capital Taxes
Capital gains tax
No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% after that. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties except for any element that qualifies for Private Residence Relief.
The CGT annual exempt amount will remain at £12,300 for individuals and £6,150 for most Trusts until April 2026.
Inheritance tax
The nil rate band has been frozen at £325,000 since 2009. This will now continue up to 5 April 2026.
An additional nil rate band called the ‘residence nil rate band’ (RNRB), which has been increased in stages and is now £175,000 for deaths in 2020/21, will also be frozen at the current level until 5 April 2026.
A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.
Other matters
Pension lifetime allowance
The lifetime allowance will be frozen at £1,073,100 for 2021/22 and will remain so up to and including 2025/26.
Stamp-duty holiday extended
Stamp duty land tax (SDLT) must normally be paid by purchasers when they buy residential property in England or Northern Ireland for more than £125,000.
This lower threshold was raised to £500,000 from 8 July 2020 to 31 March 2021 and will now remain at that level until 30 June 2021.
It will then be reduced to £250,000 from 1 July to 30 September 2021 and will revert to its permanent level of £125,000 from 1 October 2021.
This means that if you are buying your main home and complete the deal on or before 30 June 2021 you will pay no SDLT where the purchase price does not exceed £500,000. This could save you up to £15,000.
Landlords and companies who buy investment properties to let out will benefit from the SDLT holiday but must pay a surcharge at 3% on the entire value of the deal.
Purchasers of property in Wales must pay land transaction tax (LTT) which normally applies to residential property deals above £180,000. A similar LTT holiday has applied in Wales since 26 July 2020 when the lower LTT threshold was raised to £250,000. This threshold will now stay at £250,000 until 30 June 2021. However, investors, second home buyers and companies cannot benefit from the LTT holiday at all.
The Scottish Parliament also applied a land tax holiday on residential properties purchased between 15 July 2020 and 31 March 2021 where the purchase price does not exceed £250,000. However, that tax break will not be extended.
Making tax digital (MTD)
HMRC are changing the way taxpayers interact with them in a project called making tax digital (MTD).
Most VAT registered businesses are already submitting their VAT returns using MTD-compatible software.
The Budget made no changes to the previously-announced roll-out of MTD, which is as follows:
- VAT. From 1 April 2022, MTD will apply to all VAT registered businesses.
- Income tax. From April 2023, self-employed businesses and landlords with business turnover above £10,000 will have to report to HMRC under MTD.
- Corporation tax. From April 2024, companies can start using a MTD for Corporation Tax (CT) pilot scheme. From April 2026, companies will have to join MTD for CT.
New penalty system
HMRC has announced that they will use a new points-based system to encourage taxpayers to submit MTD updates on time.
The taxpayer will be given points for every late VAT or income tax return and once a defined number of points is reached an automatic £200 penalty will be issued.
This new points and penalty system will apply:
- VAT: accounting periods beginning on or after 1 April 2022.
- Income tax (where business or property income is over £10,000): accounting periods beginning on or after 6 April 2023.
- All other income tax taxpayers: accounting periods beginning on or after 6 April 2024.
Sanctions for late payment of tax will also be harmonised across all taxes.
Freeports
The Budget announced the location of eight new freeports. Once tax sites within these freeports have been designated, businesses within those sites will benefit from a number of tax reliefs, including:
- an enhanced rate of structural and buildings allowance of 10%;
- 100% enhanced capital allowances on plant & machinery; and
- stamp duty land tax relief for the purchase of land or property.
Contactless card payment limit
The Government has approved an increase to the legal contactless payment limits. This will allow banks to support single payments up to £100 and cumulative payments up to £300 without customers’ need to input their chip and pin.
The hope is that the banking industry will implement the new limits later this year.
Mortgage guarantee scheme
The Government will introduce a new mortgage guarantee scheme in April 2021. This scheme will provide a guarantee to lenders across the UK, who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000.
Welfare and benefits
The £20 increase to Universal Credit will be maintained for six months.
There will be a £500 payment to eligible Working Tax Credit recipients.
We hope you find this overview useful. There is a shorter PDF version of this review. Written for our clients and business contacts, it focusses on the key issues relevant to individuals, small business owners and directors. If you would like a copy of this Budget Briefing, send us an email – see our contact us page for how to reach us.
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Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Whyatt Accountancy and the writer accept no responsibility for any loss arising from any action taken or not taken by anyone using this material.