Budget 2021: What You Need to Know
Chancellor Rishi Sunak delivered a budget which saw extensions of existing support, and announcements of new schemes, paid for by a delayed hike in Corporation Tax for larger companies, and a freeze on Income Tax thresholds.
A common wager in the accounting and finance world is the length of the Chancellor’s budget, and it was joked that it was a week-long rather than the typical 50 minutes, with leak after leak arising in the week preceding.
The chancellor stuck to the party’s manifesto promise not to increase Income Tax, National Insurance and VAT; a promise made in times when the economic outlook we are currently in was unthinkable. That left taxes such as Corporation Tax, Inheritance Tax, pensions and Capital Gains in the firing line, with all but the company tax untouched.
The furlough scheme is to be extended until September, with the key difference being a phased in contribution towards the wages from employers, alongside the current employers’ national insurance and pension contributions. In July, employers will have to top up 10% of the minimum 80% payment to staff, increasing to 20% for August and September.
The Self-Employment Income Support Scheme (SEISS) will enter its fourth and fifth iteration. The fourth scheme will pay 80% of monthly profits, capped at £2,500 in line with previous support and will cover February, March and April. The fifth, and final scheme will pay out at 80% for taxpayers who have seen turnover fall by over 30%, while those who have been affected, but by less than 30% will receive 30% of monthly average profits. Crucially, for these grants, business owners who were newly self-employed in 2019/20 will be eligible should they meet the other criteria.
A Restart Grant was announced, with non-essential retail shops to receive up to £6,000. Further grants of up to £18,000 will be available for any small business in hospitality, accommodation, leisure, personal care and gyms, depending on their rateable value.
Retail, hospitality and leisure businesses will benefit from a 100% reduction in their business rates bill until June 2021, then see a 66.6% reduction for a further three months to take them to September 2021.
The 31st March will see the end of the CIBLS, CLBLS and BBLS ‘bounceback loans’, and be replaced with Recovery Loan Scheme. These loans will be 80% underwritten by the government and be available at between £25,000 and £10m. The scheme allows the loans for ‘any legitimate business purpose, including growth and investment’ and will be issued at the discretion of approved lenders.
For Universal Credit claimants, the £20 per week temporary increase brought in at the beginning of the pandemic is being extended for 6-months, whereas working tax credit claimants would receive the income in the form of a one-off £500 payment.
The Chancellor didn’t raise the rates of tax on income but did stall the thresholds at which tax is paid, meaning more people will pay tax, through wage inflation. The personal allowance will freeze at £12,570 from April 2022 to 2026, and the higher rate tax threshold will be freeze at £50,270 for the same period. Both thresholds are a small increase on the current levels of £12,500 and £50,000 respectively.
It was little secret that the rate of Corporation Tax was set to rise in the budget, but there were two positives for those expecting the worst. Firstly, there is to be a small companies rate, being 19%, on profits under £50,000, and a tapered rate up to 25% on profits between that level and £250,000. Over £250,000, profits will be taxed at 25%. Secondly, the increase will only take affect from April 2023, allaying fears of an immediate, or even retrospective change to the tax rate.
This two-tier rate system marks a return to the system of 2015 and will leave only 10% of businesses paying the highest rate.
Losses made by businesses can usually be carried back against profits made in the immediately previous year to obtain a refund of tax paid. The Chancellor has expanded this to allow businesses to carry back losses for up to three years of profit to maximise the refunds available.
Businesses will benefit from a 130% capital allowance when purchasing new plant, machinery and equipment for a two-year period from April 2021. This will mean for each £1 of investment in business assets, £1.30 will be deducted from taxable profits.
The 5% VAT rate for the tourism and hospitality industry will be extended until 30th September, and covers pubs, cafes, restaurants, hotels, B&B's, as well as destinations such as cinemas, zoos and theme parks. From October, this will be replaced by a 12.5% rate until March 2022.
With VAT protected by the Governments commitment not to raise VAT rates, the Chancellor opted to freeze the VAT threshold at £85,000, bringing more businesses into registration through inflation.
The National Living Wage will rise to £8.91, up 2.2% from £8.72. This is the rate paid to all employees over the age of 23, which is a reduction from the previous age of 25 and will see 23- and 24-year old’s rate rise by 71p.
Employers will be incentivised to take on apprentices through a doubling in the cash bonus to £3,000.
The Stamp Duty holiday was extended to June, exempting the tax on purchases of less than £500,000. Thereafter, the nil-rate band will remain increased from the normal £125,000 level, doubled to £250,000 until September.
Measures were announced which will help those with small deposits achieve home ownership. The Mortgage Guarantee Scheme can be used on properties costing up to £600,000, and includes is not restricted to new-build homes and first time buyers.
Inheritance Tax could have been in the Chancellors sightlines, with the limited ability to raise revenue after ruling out Income Tax, NI and VAT, but the rate, reliefs and thresholds remained untouched.
Pensions were also rumoured to be at risk, with the lifetime and annual allowances, and the rate of relief on contributions possibly being cut. The Chancellor limited the damage to a long-term freeze in the lifetime allowance to £1.073m, meaning the damage was limited to inflationary real terms cuts.
Capital Gains Tax
Gains on property and company share disposals were earmarked as potential revenue raisers for the government, but no changes were announced and fears of an alignment or narrowing in the gap between taxation of income and capital not realised.
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