The 2021 Budget
Sarah Hamilton - March 5th, 2021
Rishi Sunak’s Spring 2021 Budget on 3rd March was a balancing act, trying to coax our beleaguered economy into a healthier state, with a commitment not to let the nation’s debt rise in the medium term. His speech was full of “start” “restart” “kickstart” vocabulary, details of extensions to Covid support measures – and an announcement that Corporation Tax Rates will increase by 32% (from 19% to 25%) for larger companies from 2023 onwards. This blow was softened by the new “Super Deduction” designed to encourage and reward capital investment by the nation’s businesses.
Here are some of the key points announced in the Budget and our thoughts on how they might impact on our clients.
RATES AND ALLOWANCES
There will be modest rises to the personal tax free allowance for income tax and the 40% threshold in 2021/22, but thereafter these allowances (along with the Capital Gains Tax (CGT) annual allowance at the current level of £12,300) will be FROZEN until 2025/26. The Pension Lifetime Allowance and the Inheritance Tax Nil Rate band were unchanged and will not rise in line with inflation.
This freeze means all taxpayers will probably pay more to the Treasury over the next 5 years than would be the case if the thresholds had continued to increase with inflation.
Perhaps surprisingly there were no changes to CGT rates or to the Business Asset Disposal Relief (the successor to Entrepeneur’s Relief) – but the door was left open for possible changes in the future.
There are more generous carry back rules for Income Tax losses which may be helpful for businesses particularly badly struck by the impact of the pandemic.
CORPORATION TAX (CT)
The main rate of CT will remain at 19% for financial year beginning 1/4/21 and 1/4/22. From 1/4/23 the main rate will increase to 25% on profits over £250,000. The small profits rate on profits of £50,000 or less will remain at 19%. There will be a marginal relief calculation to achieve a tapered CT rate for profits between £50,000 and £250,000, effectively taxing profits within that band at 26.5%.
We perceive that the impact of this will increase the value we can add through tax planning, looking closely at the number of associated companies (as the bands are divided by number of these) and thinking carefully about profit extraction methods (salaries being deductible for CT purposes, whereas dividends are paid after CT).
SUPER DEDUCTION, CAPITAL ALLOWANCES AND LOSSES
From 1/4/21 companies investing in NEW qualifying main-rate plant and machinery will be able to claim 130% First Year Capital Allowances – with new complex rules for balancing charges when assets are subsequently sold. New assets only qualifying for lower Special Rate allowances will be eligible for a 50% first-year allowance.
As announced before the Budget the 100% Annual Investment Allowance of £1 million is extended for the year to 31/12/21 (reducing to £200,000 thereafter).
CT loss carry back rules will be temporarily extended, increasing the window of opportunity to reclaim CT paid in earlier years.
These changes will give scope to cut tax bills through capital investment. We look forward to discussing the timing of capital expenditure plans with clients, also taking into consideration the impending CT increase.
The 5% VAT rate for hospitality and leisure is extended to 30/9/21, thereafter a 12.5% rate applies to 31/3/22.
This provides a welcome boost to these battered sectors – and provides another level of complexity to accounting for VAT!
New rules were announced regarding sanctions for unpaid VAT/late submission of returns, incorporating a points based regime. VAT registration thresholds are unchanged.
Making Tax Digital (MTD) will apply to ALL VAT registered businesses from 1/4/22 – a further push towards digitisation for all. Please remember we are here to help if this affects you if you are not currently keeping your records on an MTD compatible accounting system.
COVID 19 Measures
The Chancellor announced extensions to the furlough scheme and to SEISS (Self Employed Income Support Scheme), along with restart grants, business rates relief for eligible businesses and a recovery loan scheme. Links to these valuable economic support measures can be seen here.
As announced in the press pre Budget, the nil rate band for residential property for Stamp Duty Land Tax was extended for completions through to 30/6/21. Thereafter the nil rate band is doubled from its pre Covid rate to a threshold of £250,000.
The mortgage guarantee scheme is available for new mortgages up to 31/12/22 and provides a guarantee to lenders who offer mortgages with a deposit of just 5% on homes with a value of up to £600,000.
Help To Grow
The Help to Grow scheme is designed to provide subsidised “world class” management training to help businesses “learn more, grow more and make more “. Immediate registration is encouraged to access the support.
The Chancellor also announced help for digital training and discounts for certain software.
Overall there are some measures that will inevitably lead to higher taxes, though perhaps not as many or as large as were feared. There have also been attempts to generate funds through encouraging spending and with the clear aim of kick-starting the economy rather than suppressing it once the present lockdown rules are eased. It has been a difficult and uncertain year for all of our clients but our aim is to continue to provide the advice and support appropriate to each and every one. It has been, and still is, hard to anticipate changes in legislation and taxation – we are all working within a constantly changing environment. However, we hope to use what we do know to give the best advice possible under the circumstances – and be part of the journey through these times with our clients.