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Rishi Sunak delivered his second Budget yesterday, with a three-point plan firstly to support business, secondly to fix the public finances, and thirdly to build the economy. The Chancellor’s budget very much intends to continue to provide extra funding to support the economy during the next 3-6 months, with this being paid for by significant tax increases in future years.
Many of the announcements yesterday had been predicted in the media, though there were some surprises. We are still awaiting details of some of the new policies announced, particularly the “super deduction” for investment in new equipment and accordingly will provide a further update when details are known. It has also been announced that there will be important consultation documents issued on 23rd March which will seek views on future tax changes. This may well be the time when major reforms to capital gains tax, inheritance tax, and pensions are announced.
Please continue reading for the major Budget announcements affecting our clients, summarised further in this email. We would also be delighted if you could join us for our Budget 2021 webinar.
Budget 2021 Webinar
Probably the most important budget in decades, the tax team at Harts will guide you through the key features of Rishi Sunak’s budget and how it may affect your business.
- DATE: Tuesday 9th March 2021
- TIME: 9:30 AM – 10:15 AM GMT
- Book Now
Business Support
Furlough scheme extended to 30th September
The Chancellor announced that the furlough scheme which had been due to end on 30th April 2021 will instead run until 30th September 2021. However, while it will continue to pay 80% of employees’ usual pay for hours not worked in May and June, this will be reduced to 70% in July and 60% in August and September. Similarly, employers will be required to contribute a minimum of 10% of a furloughed employee’s regular pay in July and 20% in each of August and September. Employers will continue to need to pay national insurance and pension contributions in respect of furloughed workers.
Self-employed income support scheme extended
A fourth grant will be available at the end of April at 80% of average profits, capped at £2500 per month. This grant will cover the months of February to April. There will then be a fifth and final grant to cover the period from May to September. This will be paid at two different rates depending on the level of impact the virus has had on the business.
In a significant widening of support, both of these grants will also be available to individuals who became self-employed for the first time in 2019/20 provided that they had submitted their 2019/20 tax return by 2nd March 2021.
New grants for high street businesses and the hospitality sector
Businesses forced to close due to the Coronavirus lockdown will be eligible to apply for grants of up to £18,000 depending upon the rateable value of their business premises. Pubs, restaurants, hotels, gyms and hairdressers will be eligible for a grant of up to £18,000 per premises whilst non-essential retail businesses will be eligible to apply for a grant up to a maximum of £6,000. The grants are intended to be a contribution to the fixed costs of the business during the period that they have been unable to trade normally. Staff costs continue to be covered by the CJRS furlough scheme.
The government will also continue to provide eligible retail, hospitality and leisure properties in England with 100% business rates relief from 1st April 2021 to 30th June 2021. This will be followed by 66% business rates relief for the period from 1st July 2021 to 31st March 2022, capped at £2 million per business for properties that were required to be closed on 5th January 2021. Our understanding is that these grants will again be administered by local authorities.
New recovery loan scheme
From 6th April 2021, a new Recovery Loan Scheme will be open to all businesses, including those who have already taken Bounceback or CBILs loans. Loans will be available between £25,000 and £10 million and will again be 80% government-backed. Further details will become available in due course.
The reduced VAT rate for hospitality, accommodation and attractions
The reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30th September 2021. It will also apply to accommodation and admission to visitor attractions. The rate will then increase to 12.5% from 1st October 2021 and revert to 20% from 1st April 2022.
Stamp Duty Land Tax
The Stamp Duty Land Tax “holiday” on properties under £500,000 has been extended to 30 June 2021. There will then be a partial holiday with a 0% rate applying to purchases of the residential property up to £250,000 from 1 July to 30th September 2021 before the nil rate band reverts to £125,000 from 1st October 2021. The 3% supplementary charge for second and subsequent homes in England and Northern Ireland will continue to apply throughout.
Note that there are different rates of tax on property transactions in Scotland and Wales as such taxes have been devolved in those countries.
Tax Changes & Increases
Increase in the corporation tax rate to 25% from 1st April 2023
The government has announced that the headline rate of corporation tax will rise from 19% to 25% with effect from 1st April 2023. However, this will apply only to companies whose profits are in excess of £250,000 and the 19% rate will be maintained for the company’s whose profits are less than £50,000. There will be a tapered tax rate between £50,000 and £250,000. In the period before the tax rise comes into effect the government has announced tax incentives and additional flexibility in loss relief:
Super deduction for investment in new equipment
In order to encourage companies to invest in new capital equipment, the chancellor announced a radical new “super-deduction” of 130% where they invest in the new plant. The full details of how this “super-deduction” have not yet been announced except that the new deduction, which will run for two years from 1st April 2021 to 31st March 2023, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.
Three years carry back of trading losses
Trading losses can normally only be set against profits of the preceding accounting period or previous tax year. However, the Chancellor has announced that the loss carryback period will be extended to three years enabling businesses that have made a loss during the pandemic to obtain a refund of historic taxes paid. For companies, the three-year loss carryback will apply to accounting periods ending in the period 1st April 2020 to 31st March 2022, and for sole traders and partnerships, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.
Freezing of income tax, capital gains tax and inheritance tax thresholds
The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000. There have been no changes to the tax rates applying to dividends.
The personal allowance and higher rate threshold have been increased in line with inflation to £12,570 and £50,270 respectively for 2021/22. These thresholds will then be frozen until 2025/26. This is an enormous tax increase over time which the government expects will yield as much as £19billion.
VAT registration limit
The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 until at least 1st April 2024.
Other Matters Affecting Businesses
National insurance
There will be small increases in national insurance allowances from 6th April 2021. Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit of £50,270, with the self-employed paying 9% on their profits up to the same level. Employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.
Making tax digital
The government has announced that all VAT registered businesses will be required to maintain accounting records in a digital format and submit data to HMRC electronically from 1st April 2022. This requirement currently applies only to businesses whose supplies exceed the compulsory registration threshold of £85,000.
Apprenticeship Scheme Extended
The current apprenticeship scheme will be improved with payments of £3,000 to employers in England for each new apprentice they hire aged under 25 and continue to pay the employer £1,500 for each new apprentice they hire aged over 25. The schemes will now run until 30st September 2021.
Starting in January 2022 there will be a new “flexi-job” apprenticeship which will allow individuals to work for more than one company via an agency.
The “Kickstart” Scheme announced in the Summer 2020 Plan for Jobs will continue to be available for the 2021/22 academic year to create 6-month work placements aimed at those aged 16-24 who are on Universal Credit and at risk of long-term unemployment. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
Eight New Freeports Announced
In eight locations around England, there will be generous tax breaks to encourage businesses to locate there. These tax breaks include an exemption from SDLT, 100% first-year allowances on plant and a 10% per annum structures and buildings allowance. It has been announced that there will be a Freeport in the Liverpool city region (but no others in the North West).
Call or email us at Harts if you have any queries about topics covered above or to find out more about our services at Harts. You may be interested to download the Harts Strategic Planning e-book
