• 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
• No change to the rates of CGT
• Corporation Tax rate held at 19% until 31 March 2023, after which companies with profits over £250,000 will be taxed at 25%
• ‘Super-deduction’ introduced for companies investing in plant and machinery between 1st April 2021 and 31st March 2023
• Trading losses up to £2 million in 2020/21 and 2021/22 eligible for carry back against the previous 3 years’ profits, instead of the usual one year
• Stamp Duty Land Tax ‘holiday’ for the first £500,000 of residential property cost is extended to 30th June 2021, with a further reduction in charges up to 30th September 2021
Measures to mitigate the impact of Coronavirus
The Coronavirus Job Retention Scheme will continue to reimburse employers with the salaries of furloughed employees until 30th September 2021. The employee should
receive at least 80% of normal pay for hours not worked. Until 30th June, the employer will only be required to contribute employer’s National Insurance Contributions and pension contributions (as at present); in July, the employer will have to contribute 1/8 of the remaining cost (i.e. 10%of normal salary), rising to 1/4 (20%of normal salary) in August and September.
For the time being, small and medium-sized employers across the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay costs per employee, where the absence is coronavirus-related. The Government will set out steps for closing this scheme in due course.
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 so far been three grants under the SEISS, each covering three months; two amounted to 80% and one amounted to 70% of average monthly profits up to limits of £2,500 and £2,187.50 respectively per month. A fourth grant, covering February to April 2021, will be claimable from late April at 80% of three months’ average profits capped at £7,500 in total.
Claimants must have filed a 2019/20 tax return to be eligible for this grant. People who began self employment in 2019/20, who did not have a record of earnings, could not claim the first three grants, but may be able to claim the fourth grant if they have filed a 2019/20 return by midnight on 2nd March 2021.
A fifth grant, covering the period from May to September 2021, can be claimed from late July. This will be targeted at those who need it most as the economy reopens.
Those whose turnover has fallen by 30% or more will be eligible for the full grant, which will be 80% of three months’ average profits capped at £7,500. The fact that the
grant covers a five-month period appears to allow for the likelihood that the business will be reopening in that time. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. Further details will be published in due course.
The Budget confirms that SEISS grants will be treated as taxable income of the business in the tax year in which they are received.
There have been complaints of unfairness from certain categories of people who fall outside these support schemes, in particular people whose profits were previously
just over £50,000 (who are not eligible for any support) and people working through their own company (who can claim the furlough grant, but that will not replace profits previously paid out as dividends). The Budget does not extend any reliefs to people in these categories.
The uplift of £20 per week on Universal Credit will be extended to the end of September, and some other easements in the calculation of the benefit will continue
for the time being. For those claiming Working Tax Credit, a one-off payment of £500 will be made to provide equivalent support over the next six months.
Loans and grants
There have been several Government-backed loan schemes to support businesses through the pandemic. Some of these are coming to an end on 31st March 2021, but
the Chancellor announced a new ‘Recovery Loan Scheme’. This will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give
them confidence in continuing to provide finance to UK businesses.
This will be open to all businesses from 6th April 2021, including those who have already received support under the existing COVID-19 loan schemes. The Chancellor also announced ‘Restart Grants’: as they reopen after the present lockdown, 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 is also providing £425 million to local authorities to use for discretionary grants to businesses.
Eligible retail, hospitality, leisure and nursery properties in England have enjoyed 100% business rates relief in 2020/21. This will be extended to 30th June 2021, and
there will be a further 66% relief for the period to 31st March 2022, capped at £2 million per business for properties that were required to be closed on 5th January 2021, or £105,000 per business for other eligible properties.
Personal Income Tax
Tax rates and allowances – 2021/22
The main Personal Allowance increases with inflation from £12,500 to £12,570 for 2021/22, and the basic rate band increases from £37,500 to £37,700. That means
that the threshold for 40% tax is now £50,270.
Income Tax rates are complicated by different rates and allowances applying to different types of income (for example, salary, profits, rent, interest, dividends), so the effect of these increases are not the same for all taxpayers; someone with a salary of £50,270 will pay £68 less tax in 2021/22 than they did in 2020/21 (falling from £7,608 to £7,540). However, they will also pay £19 more in employee’s National Insurance Contributions.
Since January 2013, there has been a clawback charge on the higher earner of a couple where one claims Child Benefit and either has an income over £50,000. This has always been called the ‘High Income Child Benefit Charge’, but now it appears that it can apply to a basic rate taxpayer, because there has been no mention of a change to the £50,000 threshold.
The level of income at which the Personal Allowance is withdrawn has been £100,000 since the rule was introduced in April 2010, and inflation means that far more people are now affected. Every £2 of income over that level reduces the allowance by £1. This results in an effective marginal rate of tax of 60% in the band of income up to £125,140 in 2021/22, above which the taxpayer will have no Personal Allowance.
Tax rates and allowances –freezing
The Chancellor announced that the Personal Allowance and the rate bands will be frozen at their 2021/22 levels until the end of 2025/26, instead of their usual inflationary increases each year.
COVID tests and working from home
A number of relaxations of the rules relating to the pandemic, introduced in 2020/21, will continue into 2021/22. These include exemptions from taxable benefit charges on reimbursement of COVID tests by employers and the provision of relevant equipment to enable employees to work from home.
The conditions for the Cycle to Work scheme, which require a bicycle to be mainly used for commuting or work journeys to avoid an Income Tax charge, have also been relaxed for employees who were provided with a bicycle by their employer before 20th December 2020.
Company cars and fuel
No changes were made to the rates announced for car benefits in previous years, so cars first registered after 5th April 2020 will see their benefit charge rise by one percentage point.
Note that fully electric cars gave rise to no tax charge in 2020/21, but there will be a charge on 1% of their list price in 2021/22, increasing to 2% in 2022/23.
There have also been changes to the taxable figures for vans with private use, including removing the taxable benefit on zero-emission vans with effect from 6th April 2021.
National Insurance Contributions
Thresholds and rates
There have been small increases in the thresholds above which employer’s and employee’s National Insurance Contributions become payable. The upper limits for employee contributions remain aligned with the point at which 40% Income Tax is payable (£50,270 per year, or £967 per week).
The upper limit will be frozen, in common with the personal allowance and basic rate band, until the end of 2025/26. Raising the upper limit increases the amount of NIC payable – salary below that level is charged at 12%, but above that level it is charged at 2%. The Budget documents state that decisions will be taken each year on the lower threshold, which is not being fixed in advance.
Savings and Pensions
The investment limits for 2021/22 remain £20,000 for a standard adult ISA (within which £4,000 may be in a Lifetime ISA), and £9,000 for a Junior ISA or Child Trust Fund.
There has been speculation that the Chancellor might reduce pension tax relief, which costs the Exchequer a great deal. There were no significant announcements of reform in the Budget, although a number of consultations are expected on 23rd March that might deal with this.
The only measure announced related to the Lifetime Allowance (LA), which is the maximum amount that a person can save in tax-advantaged pension schemes before extra tax charges arise on drawing benefits. The value of benefits is measured against the LA when benefits are first taken from a pension, and on some other occasions, including the individual’s 75th birthday.
The LA is frozen at its 2020/21 level of £1,073,100 until the end of 2025/26.
When LA was first introduced in 2006, it was £1,800,000; fixing it at this level will mean that many more people will have to consider the tax charges when they draw their pensions over the next few years.
Capital Gains Tax
Rates and annual exempt amount
CGT is not subject to the Conservative manifesto pledge not to increase the rates of Income Tax, National Insurance Contributions or VAT, which has contributed to speculation that CGT rates might be increased, possibly aligning them with Income Tax. No such announcement was made in the Budget, but a number of consultations to be issued on 23rd March may cover this. Any change is unlikely to be introduced before the end of 2021/22, because the documents issued with the Budget show no changes to CGT rates.
The annual exempt amount will be fixed at its 2020/21 level of £12,300 until the end of 2025/26.
Corporation Tax rates
The Corporation Tax rate will remain at 19% until 31st March 2023. It will then increase to 25% for companies with profits over £250,000. Since 1st April 2015, all corporate profits have been taxed at the same rate; the ‘small profits rate’ that was familiar before that will be reintroduced, at 19% for companies with profits up to £50,000, in April 2023.
Between £50,000 and £250,000 there will be a tapering calculation that produces an effective marginal rate of 26.5%. The limits will be divided between associated companies under common control.
The two measures described above and below, which allow losses to be carried back for immediate relief rather than carried forward and give enhanced relief for investment in plant up to 31st March 2023, will help with cash flow; however, it should be borne in mind that both of them will give rise to tax relief against liabilities charged at 19%, and will tend to increase later profits that may be taxed at 25%. Such a sharp increase in a tax rate gives rise to planning opportunities and pitfalls to avoid.
‘Super-deduction’ for plant and machinery
For qualifying expenditure on plant and machinery (P&M) contracted for from 3rd March 2021 and incurred from 1st April 2021 to 31st March 2023, companies can claim:
• a super-deduction, providing allowances of 130% on new P&M investment that would qualify for 18% writing down allowances (WDAs) in the main Capital Allowance pool;
• a first-year allowance (FYA) of 50% on new plant and machinery investment that would qualify for 6% WDAs in the special rate pool. The rate of the super-deduction will require apportioning if an accounting period straddles 1st April 2023.
Cars are excluded (with certain exceptions, such as dual-control vehicles used by driving instructors), as are contracts entered into prior to 3rd March 2021, even if expenditure is incurred on or after 1st April 2021. Expenditure incurred under a hire purchase or similar contract must meet additional conditions to qualify for these extra reliefs.
Where the super-deduction has been claimed, there will be a proportionate increase in the proceeds of sale for Capital Allowances purposes. For both the super-deduction and FYA, the proceeds will be treated as balancing charges (i.e. immediately taxable profits) rather than being deducted from pool expenditure.
Annual Investment Allowance
Companies and unincorporated businesses can continue to claim the 100% Annual Investment Allowance on qualifying expenditure up to £1 million until 31st December 2021, subject to transitional rules where accounting periods straddle that date. This may produce more tax relief for companies than the 50% FYA available for special rate expenditure, where it is incurred between 1st April 2021 and 31st December 2021.
Research and Development (R&D)
Small or medium-sized companies conducting qualifying research and development can claim an enhanced deduction of 230% (i.e. £230 for each £100 of qualifying expenditure). Where this produces a loss, it can be surrendered for a payable tax credit of 14.5%.
For accounting periods beginning on or after 1st April 2021, the amount of payable credit that can be claimed is capped at £20,000 plus three times the company’s PAYE and NIC liabilities for the period. This definition also includes some PAYE and NIC liabilities of connected persons doing subcontracted R&D for, or providing workers to, the company.
There are no changes to the R&D Expenditure Credit (RDEC) rules for large companies. However, the Government has announced a review of R&D tax reliefs, with a consultation published alongside the Budget. The intentions are that the UK should remain a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted.
The VAT registration and deregistration thresholds will remain frozen at their present levels of £85,000 and £83,000 until 31st March 2024. This will tend to require more businesses to register for the tax as they grow, and therefore represents a small tax-raising measure.
To help support businesses heavily impacted by the pandemic, the rate of VAT on most supplies by hospitality, leisure and entertainment businesses was cut from 20% to 5% in July 2020. This was initially intended to expire in January 2021, but that was extended to 31st March, and it has now been further extended to 30th September 2021.
An intermediate rate of 12.5% will apply for qualifying supplies from 1st October 2021 to 31st March 2022, after which the standard 20% rate will apply again. HMRC says that there are no plans to introduce ‘anti-forestalling rules’ to counter the VAT saving enjoyed by someone who pays a deposit before the rate goes back up – on present plans, that will lock in the lower rate of VAT to the extent that the supply is paid for before 30th September, even if the actual supply takes place later.
Payment of deferred VAT
Businesses could defer the payment of VAT that fell due between March and June 2020. Initially the deferred amount was to be paid in full by 31st March 2021, but businesses can now apply to pay it by interest-free instalments up to 31st March 2022. Applications must be made online by 21st June 2021, but if the scheme is applied for earlier, the payments can be spread over a longer period.
HMRC has announced that the long-awaited reform of the system of penalties for late payment of tax will be implemented over the next three years, starting with the replacement of default surcharge for accounting periods starting from 1st April 2022. Many of those who have fallen foul of default surcharge regard it as unfair and arbitrary, so it is to be hoped that what replaces it will be a better system. In the meantime, any warnings that default surcharge might be levied should still be taken very seriously.
Making Tax Digital
The Budget also confirms the intention to bring all VAT-registered businesses, including those currently trading below the registration threshold, within the Making Tax Digital reporting system with effect from 1st April 2022.
Stamp Duty Land Tax
Extension of ‘holiday’
The threshold for charging SDLT on residential property in England was temporarily raised to £500,000, with the intention that transactions had to be completed by 31st March 2021. This has now been extended to 30th June 2021, and for transactions between 1st July and 30th September 2021 the threshold will be £250,000. It will revert to the normal level of £125,000 from 1st October, and the normal 2% charge will apply between £125,000 and £250,000.
*This is prepared for guidance only. We recommend that you contact us before acting on any information contained in this article and we cannot accept responsibility for any action taken without such advice.