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Budget 2021 – What does it mean for you?

Budget 2021 – What does it mean for you?

The Chancellor announced a wide range of spending commitments and tax policies in his Budget for which the headlines affecting businesses and individuals are summarised below.

Key Tax Changes

There has been much speculation on how the Government will fix the public finances given that current levels of borrowing now are comparable only to the levels seen during the two world wars.

This Budget has not introduced sweeping tax reforms and income tax, national insurance and VAT rates have remained unchanged. Notably, no changes were made to Capital Gains Tax despite expectations that changes were imminent. It is possible that changes to Capital Gains Tax and Inheritance Tax could take place later in the Parliament.

Instead, the Chancellor chose to make the following changes:

Personal allowances and thresholds

The Chancellor has opted to freeze thresholds until April 2026 as follows:

  • The personal allowance will be frozen at £12,750 from April 2021.
  • The income tax higher rate threshold will rise to £50,270 from April 2021.
  • The annual capital gains exemption will remain at £12,300.
  • The inheritance tax nil-rate band will remain unchanged at £325,000.

 

Whilst the freeze on the income tax thresholds will mean net income levels will not change, the effect of wage inflation will mean more individuals being brought within the income tax regime as well as others being dragged into the higher rate tax brackets. This is expected to raise significant revenue for the Treasury over the period.

Pensions

The annual pension allowance and lifetime allowances remain unchanged with the lifetime allowance frozen until April 2026 at £1,073,100. However, individuals can still take advantage of the Fixed Protection 2016 or the Individual Protection 2016 based on pension values as at 5 April 2016. 

Stamp Duty Land Tax - Nil Rate Band

There is good news for those intending to move to a new house, as the nil rate band of £500,000 for residential property has been extended to the end of June 2021, with it decreasing to £250,000 until the end of September when it will return to £125,000. Properties purchased before the end of June will give rise to a tax saving of £15,000.

Business Tax

By far the most radical changes are those affecting companies.

  • Corporation Tax is to increase to 25% from April 2023 for companies whose taxable profits are £250,000 or more and close investment companies. We will see the reintroduction of a ‘small profits rate of tax’ such that companies whose profits are £50,000 or less will remain at the 19% rate. Where profits are between these thresholds, the rate of tax will be tapered.
  • An extension to loss relief for incorporated and unincorporated businesses will allow up to £2 million of losses realised in the 2020/21 and 2021/22 tax years to be carried back for three years in addition to the current one year carry back rules.  Additionally, where losses are less than £200,000 it may be possible to expediate claims without the need to file the tax return.
  • Companies within the charge to corporation tax incurring expenditure on qualifying plant and machinery between 1 April 2021 and 31 March 2023 qualify for a new 130% ‘super deduction’ of the expenditure on plant and machinery. In addition, there will be a 50% relief for expenditure on ‘special rate’ assets. With these new reliefs available, the timing of capital expenditure should be carefully planned in order to maximise the benefit of these generous reliefs over the next two years. Unincorporated businesses can still benefit from the £1 million Annual Investment Allowance.

 

Although the Corporation Tax increase in rates is a significant change, it is being deferred until 2023 and will obviously only affect profitable companies. Although it is a planned increase, clearly the Government still have flexibility on the timing and extent of the increase depending on the state of the economy in 2023.

The ability to claim loss relief from previous years and potentially accelerate smaller current year loss claims will be a welcome boost to cashflows coupled with the “super deductions” for capital expenditure to encourage business investment.

VAT for the hospitality sectors

There has been an extension of the 5% VAT rate for the hospitality sector until the end of September which will rise to 12.5% until 31 March 2022 returning to pre pandemic levels of 20% from 1 April 2022.

COVID Response Measures

As expected, the Government are continuing to support UK business and livelihoods during this pandemic with the following measures:

Furlough

The furlough scheme has been extended until the end of September 2021, well past the Government's planned date of ending Covid-19 restrictions.

Employees will continue to receive 80% of their wages until the scheme ends, but firms will be asked to contribute 10% in July and 20% in August and September as the scheme is gradually phased out. Employers will continue to pay the national insurance contributions.

Self-Employment Income Support Scheme (SEISS)

The SEISS has been extended to provide a fourth and fifth payment. For those individuals who qualify, the fourth grant will provide three months of support at 80% of average trading profits. The fifth grant will be based on a turnover test so that support is provided to where it is most needed.

Taxpayers whose first year of self-assessment was 2019/20 and previously could not apply for SEISS grants, are now able to make claims for the fourth and fifth grants, subject to having filed a tax return and qualifying for the scheme.

Restart Grants and Recovery Loan Scheme

From April, non-essential retail businesses that are due to reopen can apply for new “restart grants” of up to £6,000 per premises or £18,000 if in the hospitality or leisure sectors. These grants are intended to support businesses until the restrictions are lifted.

The Bounce Back Loan and CBIL (Coronavirus Business Interruption Loan) will be replaced by a Recovery Loan Scheme enabling businesses to apply for government guaranteed loans (of up to 80% of the value) for between £25,000 and £10 million.

Call to action

If you consider any of the Budget announcements potentially affect your ‘Big Picture’ plans, please get in touch with your usual Creaseys contact and we would be pleased to discuss the implications and opportunities with you.