2021 Budget Update

Aim of note

The aim of this note is to summarise some of the policies announced in yesterday’s budget. I have selected the points that are most likely to be relevant to our clients. The list is not meant to be comprehensive. You can see a summary of the points here and the full budget document here.

Points to highlight

The points in the budget that I found most interesting (from a tax and growth perspective) are as follows:

• Corporation Tax Rates: Corporation tax for large companies (profits over £300k will increase to 25% from April 23. The 19% rate will continue for companies with less than £50k, with a tapered percentage for companies with profits in between. The government says this is the still the lowest rate in the G7.
• Corporation Tax Loss Carry back. Loss carry back has been extended to 3 years and applies to accounting periods ending between 1 April 20 and 31 March 22.
• Restart grants: Restart grants will be available – up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.
• Existing COVID Support: Most of the COVID support measures (Job Retention Scheme, 5% VAT cut for hospitality, Business Rates Relief, SDLT reduction etc) have been extended.
• Mortgage guarantee scheme:  The Government will provide a guarantee to lenders who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000. Under the scheme all buyers will have the opportunity to fix their initial mortgage rate for at least five years. The scheme will be available for new mortgages up to 31 December 2022.

The following paragraphs give a bit more detail on the measures and highlight some other policies that you may find interesting.

Policies affecting companies, Corporation Tax and self-employed businesses

The following policies that are already in place have now been extended:

• Job Support Scheme: extended to 30 September 2021.
• VAT cut to 5% for the tourism & hospitality sector: 5% rate extended until 30 September 2021; then 12.5% until 31 March 2022; then back to 20%.
• Apprenticeship hiring incentive: extended to 30 September 2021, together with an increase of payment to £3,000.
• Reclaim two weeks eligible SSP: extended to 30 September 2021.
• Business rates relief: extension of business rates relief to 30 June 2021. Followed by 66% business rates relief to 31 March 2022.
• Self Employment Income Support scheme: extended to September 2021 and now open to people who filed a tax return in 2019-20.

The following new policies will be introduced:

• Corporation Tax: from April 2023 Corporation Tax increased to 25% for businesses with profits greater than £250,000. Businesses with profits of £50,000 or less will continue to be taxed at 19%. Corporation Tax will be tapered for businesses with profits between £50,000 and £250,000. Note that 25% is (evidently) still the lowest rate in the G7.
• Corporation Tax Carry Back Rules: the trading loss carry-back rule will be extended from the existing one year to three years. Companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22. Also available to the self-employed. Note that this applies to accounting periods ending between 1 April 2020 and 31 March 2022. So, for example a loss made in the year ended:
  • 31/12/20 can be carried back to 31/12/17, 18 and 19
  • 31/12/21 can be carried back to 31/12/18, 19 and 20
• Restart grants: up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.
• Recovery Loan Scheme: will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.
• R&D tax relief review: will carry out a review of R&D tax reliefs, with the objective of ensuring the “UK remains a competitive location for cutting edge research” (Author’s comment – I’m not sure how this pairs with a 25% Corporation Tax rate!)
• Capping R&D Tax Credits: the amount of SME payable R&D tax credit that a business can receive will be capped at £20,000/year plus three times the company’s total PAYE and NICs liability.
• Super deduction for fixed asset investments: from 1 April 2021 until 31 March 2023, companies investing in qualifying assets will benefit from a 130% first-year capital allowance. Companies will also get a 50% first-year allowance for qualifying special rate (including long life) assets.
• Help to Grow (Management): availability of a 12 week, 90% subsidised management programme delivered through business schools with practical case studies and mentoring.
• Help to Grow (Digital): voucher covering up to 50% of the costs of approved productivity-enhancing software up to £5,000.

Policies affecting property

• Stamp Duty Land Tax: extend the temporary increase in the residential SDLT Nil Rate Band to £500,000 until 30 June 2021. From 1 July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.
• Mortgage guarantee scheme:  will provide a guarantee to lenders who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000. Under the scheme all buyers will have the opportunity to fix their initial mortgage rate for at least five years. The scheme will be available for new mortgages up to 31 December 2022.

Policies affecting Income Tax, Capital Gains Tax and Inheritance Tax

Most of the thresholds (not National Insurance) will be frozen:

• Personal Allowance and the Higher Rate Threshold: the Personal Allowance will rise to £12,570 from April 2021 and will remain at this level until April 2026. The income tax Higher Rate Threshold will rise to £50,270 from April 2021 and will remain at this level until April 2026.
• Pensions Lifetime Allowance: will be maintained at £1,073,100 until April 2026.
• Capital Gains Tax Annual Exempt Amount: will be maintained at £12,300 until 5 April 2026.
• Inheritance tax nil-rate band and residence nil-rate band: will remain at existing levels until April 2026 (nil-rate band: £325,000, residence nil-rate band: £175,000). Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.

Other policies announced include

There are lots of other policies in the budget, including:

• Fuel and alcohol duty frozen.
• Eight new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
• £375 million UK-wide ‘Future Fund: Breakthrough’ will invest in highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20 million of funding.
• Reforms to the immigration system will help ambitious UK businesses attract the brightest and best international talent.

Beware the JRS and Bounce Back Loan fraudsters

To end this note – The government has said that it will invest over £100 million in a Taxpayer Protection Taskforce, consisting of 1,265 HMRC staff to combat fraud within COVID-19 support packages, including the CJRS and SEISS, representing one of the largest responses to a fraud risk by HMRC. In addition, the government will raise awareness of enforcement action in order to deter fraud, and will significantly strengthen law enforcement for Bounce Back Loans.

Aim of note The aim of this note is to summarise some o […]