Our Guide -March 21 Budget

Budget 3rd March -> Our Guide To The 3rd March Budget

It is safe to say that there was an awful lot of information to digest following Rishi Sunak’s latest budget announcement. We certainly didn’t envy him having to come up with a solution to balancing the Government’s books, whilst simultaneously paying out large sums of money to help rebuild the economy. Not only does he have the responsibility of providing ‘whatever it takes’ to protect businesses and jobs during the current economic climate, but he also needed to declare a plan for how to ‘fix the public financial system’.

Taxes Are Safe, For Now

We all expected taxes to be raised to help recuperate these costs, but of course he was bound by an election promise to not raise the rates of Income Tax, National Insurance Contributions or VAT. One thing that is set to rise is Corporation Tax, but luckily for business owners this is not going to be introduced until 2023, and after extra tax reliefs have been offered in the meantime. Personal allowances and other reliefs will also be frozen until 2026, which will gradually increase the tax take year by year.

Key Points Raised

We thought it would be easier to highlight some of the key changes that are going to have the biggest impact on businesses, so here is the list:

1. Further support for individuals and businesses impacted by the pandemic: extensions   for job retention scheme and self-employed income support grants, business rates   relief, 5% VAT rate on hospitality and leisure; new grants and loans announced.

- Small increase in Income Tax thresholds for 2021/22, followed by a freeze until 2025/26.

- Freeze in pension scheme Lifetime Allowance, Capital Gains Tax (CGT) annual exempt   amount and Inheritance Tax (IHT) nil rate band until 2025/26

2. No change to the rates of CGT

3. Corporation Tax rate held at 19% until 31 March 2023, after which companies with   profits over £250,000 will be taxed at 25%

4. ‘Super-deduction’ introduced for companies investing in plant and machinery between   1 April 2021 and 31 March 2023

5. Trading losses up to £2 million in 2020/21 and 2021/22 eligible for carry back against   previous 3 years’ profits, instead of the usual one year

6. Stamp Duty Land Tax ‘holiday’ for the first £500,000 of residential property cost is   extended to 30 June 2021, with a further reduction in charges up to 30 September 2021

Mitigating The Impact Of The Pandemic

As well as the key measures which we have pointed out above, the Chancellor also listed lots of other measures to provide support for both businesses and individuals who have been financially impacted by the pandemic. Let’s have a look at those in a bit more detail:

Employers

Until the 30th September 2021, the Coronavirus Job Retention Scheme will continue to reimburse employers with the salaries of furloughed employees. The employee should receive at least 80% of normal pay for the hours they are not working. Until the 30th June, the employer will only be required to contribute to the employer’s National Insurance & pension contributions.

As of July, the employer will be required to contribute 1/8 of the remaining cost, with this increasing to 1/4 in August and September. Where absence is Coronavirus- related, employers can also continue to claim up to two weeks of Statutory Sick Pay per employee.

Self-Employed

Self-employed people with profits up to £50,000 have been able to claim grants under the Self-Employed Income Support Scheme (SEISS). There have been three grants so far:

1. The first one amounted to 80% of average profits (up to the limit of £2,500)
2. The second one also amounted to 80% of average profits (up to the limit of £2,500)
3. The third one amounted to 70% of average profits (up to the limit of £2,187.50)

A fourth grant, covering February to April 2021 is going to be 80% of three months’ average profit, capped at £7,500 in total. In order to qualify for the first three grants, claimants must have filed a 2019/20 tax return. For the fourth grant, if the claimant filed a 2019/20 tax return before midnight on the 2nd March 2021 they would be eligible.

A further, fifth grant will be available to claim late July, for the period of May-September 2021. For those whose turnover has fallen by 30% or more, they will receive 80% of three months’ average profits capped at £7,500. For those whose turnover has fallen by less than 30%, they will receive a 30% grant, capped at £2,850.

One thing to bear in mind as a business owner is that this budget has confirmed that SEISS grants will be treated as taxable income, in the tax year in which they are received.

Universal Credit

The current uplift of £20 per week for those on Universal Credit is here to stay until September. For those claiming Working Tax Credit, a one-off payment of £500 will be made to provide support over the next 6 months.

Loans & Grants

During the first lockdown in particular, there were several Government-backed loan schemes to support businesses. These are coming to an end on 31st March 2021, but the Chancellor announced a new ‘Recovery Scheme Loan’ as part of the budget announcements.

Lenders will be provided with an 80% guarantee on eligible loans between £25,000 and £10 million in order to encourage supporting UK businesses financially. This will be open to all businesses as of the 6th April.

‘Restart Grants’ have also been introduced, where non-essential retail businesses can claim up to £6,000 per premises. Hospitality, accommodation, leisure, personal care and gym businesses can claim up to £18,000 per premises. The Government will also be providing discretionary grants to the value of £425 million to local authorities for distribution too.

Business Rates

To those who have had 100% business rates relief in 2020/21 will see this extended to 30th June 2021. Following this, there will be a further 66% relief for the period up to 31st March 2022. For businesses that had properties that needed to be closed from the 5th January 2021, the cap for this relief is £2 million. For any other business with eligible properties, this relief is capped at £105,000.

Changes To Personal Income Tax

Normal rates of inflation have meant that the Personal Allowance limit has increased from £12,500 to £12,570 for 2021/22. The basic band rate also increases from £37,500 to £37,700. This means that the 40% threshold is now sat at £50,270.

Since January 2013, there has been a ‘High Income Child Benefit Charge’ with regards to claiming Child Benefit if either parent has an income of over £50,000. However, since the 40% threshold has now increased, this charge can apply to a basic rate taxpayer.

Freezing of Tax Rates

The Chancellor announced that Personal Allowance and the rate bands will be frozen at their 2021/22 levels until the end of 2025/26, without being inflated each year as normal. Whilst he is not increasing the tax rate itself, this is where the increased tax will come from in order to help recover some of the costs of the pandemic payments.

Capital Gains Tax will also be fixed at its 2021/22 level of £12,300 until the end of 2025/26. Inheritance tax rates will be fixed at £325,000 until 2025/26.

COVID Tests & Working From Home

These are quite basic - exemptions from taxable benefit charges on reimbursement of COVID tests by employers, and the provision of equipment to enable employees to work from home. The conditions for the Cycle to Work scheme (where a bicycle has to be mainly used for commuting to work in order to avoid an Income Tax charge) have been relaxed for those who were provided with a bicycle by their employer before 20th December 2020.

Company Cars & Fuel

Cars first registered after 5th April 2020 will see their benefit charge rise by one percentage point, and whilst during 2020/21 electric cars had no tax charges associated with them, there will be a 1% charge on their list price in 2021/22. This will increase to 2% in 2022/23.

‘Off Payroll Working’ 

Enterprise Management Incentives

As a general rule of thumb, EMI scheme participants are required to meet a minimum working time commitment of 25 hours per week, or 75% of total working time. Due to the pandemic, lots of workers are either on reduced hours or furlough so are unable to meet these requirements. As a result, there is a time-limited easement of this rule, running from 19th March 2020 to 5th April 2022.

National Insurance Contributions

There have been minimal increases in the thresholds above which both employee and employer National Insurance Contributions become payable. The upper limit is still aligned with the point at which 40% Income Tax is payable (which is now £50,270). The upper limit is frozen until the end of 2025/26.

Savings & Pensions

The investment limits for an adult ISA stay at £20,000 for 2021/22 (within which £4,000 can be in a lifetime ISA), and £9,000 for a Junior ISA / Child Trust Fund.

There were no changes announced regarding pensions. The only thing worth thinking about is that the Lifetime ISA is frozen at its 2020/21 level of £1,073,100 until 2025/26. Back in 2006 when they were first launched, it was £1,800,000. This means anyone looking to draw their pensions over the next few years may need to consider their tax charges.

Business Tax

Businesses are usually able to set their trading losses against profits of the current, or previous 12-month period, or carry them forward against future profits. This carry-back period has been extended to 3 years for those who saw trading losses during 2020/21 and 2021/22. There is a limit of £2 million in each year of loss.

Corporation Tax Rates

This will remain the same, at 19% for companies with profits up to £50,000 until 31st March 2023. For businesses with profits over £250,000 this will increase to 25%. For businesses with profits between £50,000 and £250,000 there will be a tapering calculation that produces a marginal rate of 26.5%.

Super-Deductions For Plant / Machinery

One of the big announcements from the budget was that companies can claim allowances of 130% on new plant & machinery investments between the 1st April 2021 and the 31st March 2023. This 130% allowance would qualify for 18% writing down allowances in the main Capital Allowance pool. There is some small print which you may want to read in this Super-Deduction guide published by the Government.

Research & Development

Companies that conduct qualifying research and development will be able to claim an increased deduction of 230%. Where a loss is produced, it can be surrendered for a payable tax credit equating to 14.5%. This credit is capped at £20,000 for accounting periods beginning on or after 1st April 2021.

VAT

The VAT registration and deregistration thresholds will stay at the current levels of £85,000 and £83,000 respectively until 31st March 2024. The reduced VAT rate of 5% for those within the hospitality, leisure and entertainment sectors will stay at this rate until 30th September 2021. Then this will increase up to 12.5% between 1st October 2021 and 31st March 2022, before returning to the normal rate of 20%.

Deferred payments for VAT that were due to be paid between March and June 2020 initially had to be paid in full by 31st March 2021, but this has now been extended. Businesses can apply to pay it via interest-free instalments up to 31st March 2022.

Stamp Duty

The threshold for charging Stamp Duty on residential property was temporarily raised to £500,000 until the 31st March 2021, and this has also been extended to 30th June 2021. This will then be reduced to £250,000 for any properties purchased between 1st July and 30th September 2021. It will revert back to the normal level of £125,000 from 1st October 2021.

Other Measures Which Are Being Introduced

To help encourage trade, there are going to be ‘Freeports’ at 8 different locations: East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside  and Thames.

As standard with budget announcements, there was also guidance given on the new Income Tax rates and allowances, as well as changes to National Insurance contributions which we have outlined below. If you have any questions on anything that was mentioned within the budget, or would like any financial advice please do not hesitate to contact the team at B2B Accountancy.