Budget Summary – March 2021

More has been disclosed, leaked, of this year’s Budget announcements than in previous years. But we now have the details and there is a lot to consider. The following Budget summary is split into four sections:

  1. COVID-19 related support measures for UK businesses
  2. Support for the UK housing market
  3. Taxation changes
  4. Other announcements

Please call if you need to discuss how these changes may affect your business or tax affairs in the coming months.

COVID-19 related support measures for UK businesses

The Treasury is to continue the two existing major support schemes in an attempt to hold back a significant increase in unemployment rates as business owners grapple with the effects of COVID-19 disruption. Details are set out below.

Coronavirus Job Retention Scheme 

This scheme, nicknamed the Furlough Scheme, was due to end 30 April 2021. It is now being extended to 30 September 2021.

The judgement must be that there will be enough control over COVID by autumn 2021 to stimulate demand and give employers more confidence to retain staff. The Chancellor has obviously crunched the numbers and considers employment support in this way a more attractive strategy than increasing unemployment costs.

In more detail:

  • For employees, there will be no change to the terms – they will continue to receive up to 80% of their salary, for hours not worked, until the scheme ends.
  • Employers will be asked to contribute 10% towards wages for hours not worked from July 2021, rising to 20% in August and September 2021.

Self-Employed Income Support Scheme (SEISS)

There has been much criticism of this scheme as it has not been possible for self-employed businesses that commenced trading during 2019-20 to claim.

To counter this, the following changes to SEISS have been announced.

  1. All qualifying self-employed businesses can continue to claim SEISS grants if they continue to be adversely affected by COVID lockdown measures. The present scheme was due to end 30 April 2021. This has now been extended to 30 September 2021.
  2. Businesses previously excluded from claims because they commenced during the 2019-20 tax year will now be eligible to claim the fourth and fifth SEISS grants as long as their tax return for 2019-20 was filed by midnight 2 March 2021.
  3. For the fifth grant claims can be made from July 2021. Self-employed persons whose turnover has fallen by more than 30% will continue to qualify for the 80% grant. Those with decreases in turnover of less than 30% will be restricted to a 30% claim.

Restart grants

£5bn of funding is being allocated for these grants. They will support businesses obliged to close during much of lockdown. The grants will consist of:

  • A one-off grant of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England. 
  • Non-essential retail that have tended to open first, can apply for a one-off £6,000 grant.

Business rates holiday continued

This year, government will continue with the 100% business rates holiday for the first three months of the 2021-22 financial year, in other words, through to the end of June 2021 for the retail, leisure and hospitality sectors.

For the remaining nine months of the year, to 31 March 2022, business rates will still be discounted by two thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.

Exemption for COVID-19 related home office expenses

The temporary Income Tax exemption and Class 1 National Insurance Contributions disregard for employer reimbursed expenses that cover the cost of relevant home office equipment is extended and will have effect until 5 April 2022.

Exemption for reimbursement of antigen test costs

The government will legislate in Finance Bill 2021 to introduce a retrospective Income Tax exemption for payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen test for the tax year 2020-21.

A new Recovery Loan Scheme

The Recovery Loan Scheme ensures businesses of any size can continue to access loans and other kinds of finance between £25,000 and up to £10 million per business once the existing COVID-19 loan schemes close. This will provide further support as businesses recover and grow following the disruption of the pandemic and the end of the transition period.

Once received, the finance can be used for any legitimate business purpose, including growth and investment.

The government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses.

The scheme launches on 6 April 2021 and is open until 31 December 2021, subject to review. Loans will be available through a network of accredited lenders.

Reduced rate of VAT

The temporary reduced rate of 5% for hospitality, holiday accommodation and attractions will be extended until 30 September 2021. This is a welcome bonus for this sector badly affected by COVID lockdown restrictions.

This will be followed by the introduction of a new reduced rate of 12.5% from 1 October 2021 that will be in effect until 31 March 2022 at which point it will revert to the 20% standard rate.

Other support measures

Other measures outlined in the Budget include:

  • Extension of the apprenticeship hiring incentive in England to September 2021 and an increase of payment to £3,000.
  • £7 million for a new “flexi-job” apprenticeship programme in England, that will enable apprentices to work with a number of employers in one sector.
  • Additional £126 million for 40,000 more traineeships in England, funding high quality work placements and training for 16-24 year olds in 2021-22 academic year.

Support for the UK housing market

Support will include a mortgage guarantee scheme that will help home buyers purchase properties up to £600,000, and an extension to the existing stamp duty holiday that was due to end 31 March 2021.

The detail:

Mortgage guarantee scheme

The government will underwrite 95% of the risk of default. It will apply to home acquisitions up to £600,000 and set deposits required to 5%.

Stamp duty holiday

The present £500,000 threshold for paying Stamp Duty Land Tax (SDLT) was increased on a temporary basis and was due to end 31 March 2021. 

The nil rate band will continue to be £500,000 for the period 8 July 2020 to 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000. The nil rate band will return to the standard amount of £125,000 from 1 October 2021. This applies to England and Northern Ireland only. The devolved administrations have not announced any further extension beyond 31 March 2021 when this summary was written on Budget Day.

Non-resident SDLT

A 2% SDLT surcharge, above existing rates, for non-UK residents purchasing residential property in England and Northern Ireland is to be introduced from 1 April 2021. 

Taxation changes

Many of the tax changes announced are for a fixed period, generally, from April 2021 to April 2026. This does provide welcome certainty for businesses. Announcements made include:

Income Tax 2021-22 to 2025-26

The basic rate threshold is increasing to £37,700 for 2021-22 (2020-21: £37,500) and then frozen until April 2026. For the same period, the personal tax allowance is set at £12,570 (2020-21: £12,500) and will apply to all regions of the UK.

Taxpayers who will benefit from annual increases in their earnings up to April 2026 may find themselves paying tax at the higher rates if these increases breach the £37,700 annual basic rate limit.

Regional variations to Income Tax rates apply in Scotland and may apply in Wales.

National Insurance

NIC Upper Earnings limits and Upper Profits limits will also remain at a fixed amount until April 2026 and will be based on the Income Tax higher rate threshold of £50,270.

Starting rate for savings

The band of savings income that is subject to the 0% starting rate will remain at £5,000 for 2021-22.

Lifetime Allowance for pension pots

From April 2021 to April 2026 the pensions lifetime allowance will be frozen at £1,073,100.

Cycle to work scheme change

The government will legislate in Finance Bill 2021 to introduce a time-limited easement to the employer-provided cycle exemption to disapply the condition which states that employer-provided cycles must be used mainly for journeys to, from, or during work. The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020.

The change will have effect on and after Royal Assent of Finance Bill 2021 and be in place until 5 April 2022, after which the normal rules of the exemption will apply.

Van benefits for zero carbon emissions

The government will legislate in Finance Bill 2021 to reduce the van benefit charge to zero for vans that produce zero carbon emissions. The change will have effect on and after 6 April 2021.

Capital Gains Tax

Any attempt to align CGT rates with Income Tax rates seems to be off the table for the time being. Apart from anti-avoidance changes, the only announcement on this tax that has general relevance is capping the annual exempt amount. This will be fixed at £12,300 from April 2021 to April 2026 for individuals, personal representatives and some types of trusts for disabled people; and £6,150 for trustees of most settlements.

Corporation Tax

As expected, there will be increases in Corporation Tax, but not yet and only for larger companies. Company owners will be relieved that there are no imminent increases in CT rates until April 2023.

From 1 April 2023, there will be two rates of CT.

  • Taxable profits up £50,000 will continue to be taxed at 19% under the new Small Business Profits Rate
  • Taxable profits in excess of £250,000 will be taxed at 25%
  • Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.

Carry back of trading losses

The present provisions that restrict the carry back of tax losses is being relaxed, temporarily, extending the period over which incorporated and unincorporated businesses may carry-back trading losses from one year to three years.

This extension will apply to a maximum £2,000,000 of unused trading losses made in each of the tax years 2020-21 and 2021-22 by unincorporated businesses. The £2,000,000 maximum applies separately to unused trading losses made by incorporated companies, after carry-back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and a separate maximum of £2,000,000 for periods ending between 1 April 2021 and 31 March 2022.

The £2,000,000 cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of £200,000 to apportion the cap between its companies. Further detail on the group limit will be published in due course.

R&D tax credit cap to be introduced

For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability, in order to deter abuse.

Enterprise Management Incentives

As announced on 21 July 2020, the government will legislate in Finance Bill 2021 to extend the time-limited exception that ensures that employees who are furloughed or working reduced hours because of coronavirus (COVID-19) continue to meet the working time requirements for EMI schemes.

The change will apply to existing participants of EMI schemes and it also allows employers to issue new EMI options to employees who do not meet the working time requirement as a result of COVID-19. This measure will have effect until 5 April 2022.

Major new investment reliefs

A new “super-deduction” and a 50% first year allowance are to be introduced that will allow businesses to increase the tax relief they can claim for qualifying investments in plant and other equipment. It will apply to expenditure between 1 April 2021 and 31 March 2023.

The super-deduction will mean that assets will qualify for tax relief based on 130% of the actual cost of expenditure incurred. 

Assets that qualify for the special rate relief will qualify for the 50% first year allowance.

The existing Annual Investment Allowance £1m limit will continue to be available until 31 December 2021. 

Freeports

In an attempt to reposition the UK as a global player a raft of tax incentives are to be provided to the eight freeport locations in England announced in the Budget. They will include enhanced structures and buildings allowances.  

Inheritance Tax

No changes in the present rates and allowances that are all frozen at current levels until April 2026.

This means the nil-rate band will be £325,000 and the residence nil-rate band at £175,000 for this period. 

VAT

There be no changes to the standard 20% rate. 

The £85,000 registration limit and the £83,000 deregistration limit will be frozen until 31 March 2024.

Other announcements

Universal Credits

The recent increase in benefits of £20 per week is to be extended for a further six months.

Working Tax Credit claimants will receive equivalent support via a £500 one off payment.

Duties

There will be no increases in duty on alcoholic drinks or fuel.

Vehicle excise duties will see a small increase in line with the Retail Prices Index (RPI).

Air Passenger Duty long haul rates will also increase in line with RPI as will gaming duty and Landfill Tax.

ISA investment limits for 2021-22

The limits set for 2021-22 are:

  • Adult ISAs the limit remains at £20,000
  • Junior ISA limit remains at £9,000
  • Child Trust Funds remain unchanged at £9,000

National Living Wage increase

The NLW will increase to £8.91 per hour from 1 April 2021.

Visa reforms

There will also be new reforms to the immigration system that will help ambitious UK businesses entice top talent. These reforms will include a new unsponsored points-based visa to attract highly skilled migrants and a new, improved visa process for scale-ups and entrepreneurs.

Help to Grow schemes

Two new Help to Grow schemes are set to launch by the autumn to help support 130,000 small and medium sized businesses. The Help to Grow: Management scheme will help small and medium sized businesses get world-class management training with the government contributing 90% of the cost. 

In addition, the Help to Grow: Digital scheme will help small businesses develop digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software, worth up to £5,000 each.

Single contactless payments

Our final comment on the Budget seems to anticipate a coming consumer spending bonanza. The legal limit for single, contactless payments is increasing from £45 to £100.

Do you send goods to Northern Ireland?

As the EU withdrawal transition period draws to an end (completes 31 December 2020) UK businesses face yet more adjustments in addition to those presented by COVID disruption.

Businesses that trade with the EU should by now have matters in hand to cope with cross-border trading from 1 January 2020. But what about businesses that move goods between the mainland and Northern Ireland? 

The government have issued instructions for traders moving goods from the mainland to Northern Ireland. If affected, you should be receiving a letter with details of a Trader Support Service and its benefits for UK businesses.

The service will:

  • provide a free end-to-end support package to manage import and safety and security declarations on behalf of traders.
  • educate businesses on what the protocol means for them, and the steps they need to take to comply with it. This will include online training sessions and webinars, with information being continually updated as we move closer to 1 January 2021
  • be available to businesses moving goods into Northern Ireland under new processes in the Northern Ireland Protocol that start from 1 January 2021

It can help if you:

  • are moving the goods yourself
  • act on behalf of someone
  • send parcels between Great Britain and Northern Ireland, or bring parcels into Northern Ireland from outside the UK

If your business trades with Northern Ireland you should consider signing up for the Trader Support Service. Google the service to sign up online.

Spring 2020 Budget Summary

In the face of Brexit uncertainties and the recent Coronavirus outbreak the new Chancellor, Rishi Sunak, was faced with falling economic indicators, the need to boost NHS services and was consequently limited in his options to spend on plans to improve business confidence and fund infrastructure projects.

Interestingly, there were a number of measures that will directly benefit those affected by the current COVID-19 outbreak and these are reported in this update.

Details of other changes for 2020-21 – for individuals and businesses – are set out in our Budget Summary below. 

Personal Tax and miscellaneous matters

Statutory Sick Pay (SSP)

SSP will be temporarily payable from day 1 instead of day 4 for affected individuals and will include those infected and those self-isolating, who are not infected.

Those who cannot claim SSP, the self-employed for example, are to be provided with easier access to Universal Credits and the Contributory Employment and Support Allowance.

Local Authority Hardship Fund

Government is providing a new £500m Hardship Fund so local authorities can support economically vulnerable people and households.

Most of this funding will probably support the extension of council tax relief.

Personal Tax allowance

The personal Income Tax allowance for 2020-21 is maintained at £12,500 (2019-20 £12,500). 

Income Tax bands, rates and the dividend allowance

The Income Tax bands for 2020-21 have also been maintained at 2019-20 levels. They are:

  • Basic rate band £37,500 (2019-20 £37,500)
  • Higher rate band £37,501 to £150,000 (2019-20 £37,501 to £150,000)
  • Additional rate, no change, applies to income of more than £150,000.

Consequently, the higher rate threshold will stay as £50,000 from April 2020. There is no change in Income Tax rates, and the tax rates applied to dividend income.

Changes to these Income Tax bands apply to England, Wales and Northern Ireland. The Scottish parliament now set their own Income Tax bandings. 

Earlier payments of Capital Gains Tax (CGT)

As previously announced, from April 2020, UK residents will be required to make a payment on account for CGT due on a chargeable residential property sale. For example, the sale of a buy-to-let property. A formal computation of any gains and payment of CGT due on the disposal will have to be made within 30 days of the property disposal.

The changes have applied from April 2019 for non-UK residents.

Capital Gains Tax Private Residence Relief changes

From April 2020, the government is making two changes to the private residence relief:

  1. The final exempt period will be reduced from 18 months to 9 months, with no change to the 36 months available for those disabled or in care homes, and
  2. Lettings relief will be reformed so that it only applies in certain circumstances where the property owner is in shared occupancy with the tenant.

CGT Entrepreneurs’ relief

One of the significant announcements in the budget speech was the reduction of the lifetime allowance for this relief from £10m to £1m. This will apply to all relevant business disposals on or after 11 March 2020. The Chancellor has avoided the abolition of the relief but has restricted lifetime claims to £1m.

Special provisions may apply to disposals contracted for sale before 11 March 2020, but when the sale was not completed at that date.

Business owners and their advisors will need to consider other options to reduce CGT on business sales in excess of this £1m limit.

CGT annual allowance

The annual tax-free allowance is to be increased to £12,300 for 2020-21 (£12,000 2019-20).

The equivalent allowance for trustees is £6,150 (£6,000 2019-20).

Tax benefit charges for low CO2 vehicles

In an attempt to support new regulation in this area, the listed benefit rates will be cut by 2% for vehicles that qualify for the new standard (Worldwide harmonised Light Vehicle Test Procedure (WLTP) for all new cars registered from 6 April 2020).

Tobacco Duty Rates

All tobacco products will see an increase in duty by 2% above the current rate of inflation.

Hand-rolling tobacco will see an increase of 6% above the rate of inflation.

These changes will impact prices from 6pm, 11 March 2020.

Vehicle Excise Duty

Rates are due to be increased in line with the Retail Prices Index from April 2020.

Fuel Duty

Is frozen for another year.

Alcohol duty rates

Alcohol Duty rates remain unchanged for 2020-21. This will be welcome news for pubs and bars.

ISA limits 2020-21

Adult savings limits remain unchanged at £20,000.

Junior ISA limits are increased to £9,000.

Zero-rating of VAT for women’s sanitary products

This measure is to be introduced from 1 January 2021.

Bank support from mortgage lenders

Although not a budget announcement, a number of banks and other mortgage lenders are offering a moratorium on mortgage repayments to those directly affected by the Coronavirus. This is welcome support for individuals whose income may be diminished by absence from work. At least one High Street lender has committed to a three-month moratorium.

Banks are also considering increasing credit card limits and cash withdrawal limits.

Business Tax changes

National Insurance

It was confirmed that the tax threshold for National Insurance Contributions will rise to £9,500 from April 2020 (was £8,632). This should save £100 a year in National Insurance contributions for some 31 million people.

Relief for Statutory Sick Pay payments

Small and medium sized businesses, those with less than 250 employees at 28 February 2020, will be able to reclaim any approved SSP payments. The actual method for making a claim is yet to be agreed as current payroll processes cannot accommodate this type of refund.

Watch this space as this is a welcome cost saver for smaller businesses.

Business Rates Retail Discount Scheme

The government has already announced that, for one year from 1 April 2020, the business rates retail discount for properties with a rateable value below £51,000 in England will increase from one third to 50% and will be expanded to include cinemas and music venues. 

To support small businesses, in response to COVID-19, the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses.

The government previously committed to introducing a £1,000 business rates discount for pubs with a rateable value below £100,000 in England for one year from 1 April 2020. To further support pubs, in response to COVID-19, the discount will be increased to £5,000. 

Affected businesses should receive amended rates bills for 2020-21 from their local authority. Regional variations may apply.

One-off grant for small businesses

The government is to provide a £3,000 grant to businesses that presently qualify for the Small Business Rates Relief or Rural Rate Relief.

Businesses that think they may be eligible should contact their local authority.

Coronavirus Business Interruption Loan Scheme 

The government will launch a new, temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, to support businesses to access bank lending and overdrafts. 

Government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £1.2 million in value. This new guarantee will initially support up to £1 billion of lending on top of current support offered through the British Business Bank.

HMRC’s Time To Pay Scheme

HMRC are expanding the number of operatives that manage calls from taxpayers that are unable to pay their taxes on time. If readers are concerned about meeting tax payments call the dedicated help-line 0800 0159 559.  

Corporation Tax

The previously announced reduction in Corporation Tax from 19% to 17% – from April 2020 – has been scrapped. Corporation Tax rates are to remain at 19% for the financial year beginning 1 April 2020.

Structures and Buildings allowance

The annual writing down rate is to be increased from 2% to 3% from April 2020.

Digital Services Tax

Despite opposition from various quarters it looks as if the new Digital Services Tax of 2% will be applied to digital businesses from April 2020.

This will be a major revenue raiser for HMRC.

Capital loss restriction from 1 April 2020

For accounting periods ending on or after 1 April 2020, companies making capital gains will only be able to offset up to 50% of those gains using carried-forward, allowable capital losses.

Employment Allowance

The present £3,000 relief that reduces employer’s NIC contributions is to be increased to £4,000 from April 2020. From 6 April 2020, you will only be able to claim if your Class 1 NIC bill was below £100,000 in the previous tax year.

Car and van benefits charges

Van benefit charges and car and van fuel benefit charges will be increased to account for inflation from April 2020.
    
R&D expenditure credit

This “Above the line” expenditure credit is currently 12% of qualifying R&D expenditure. This is to be increased to 13% from 1 April 2020.

Zero-rating of e-publications

From 1 December 2020, e-books, e-newspapers, e-magazines and academic e-journals will be zero-rated for VAT purposes.

VAT reverse-charge for the construction sector

A reminder that the domestic reverse charge process will apply to the construction sector from 1 October 2020.

Affected contractors that are still unsure of the changes they will need to make are invited to call so we can help you set up the relevant systems.

VAT registration threshold – no change

The present VAT registration limit (£85,000) and deregistration limit (£83,000) will continue to apply for a further two years; until 31 March 2022.

Clamp-down on tax evaders

As is usual, the budget includes a number of provisions to reduce the successful application of tax avoidance strategies.

Bank support for small businesses

In concert with the flexibility being offered to individuals, banks are looking at relaxing their criteria that would allow small businesses affected by Coronavirus disruption to obtain loans on favourable terms. 

Climate issues

The government will also invest in the natural environment: planting enough trees to cover an area the size of Birmingham, restoring peatlands and providing more funding to protect the UK’s unique plants and animals. 

The government will also go further to tackle the scourge of plastic waste by introducing a Plastic Packaging Tax, as well as providing further funding to encourage producers to make their packaging more recyclable.