Our expert team have provided some specific insights in to the Budget announcements, which you can see below.
The UK VAT registration threshold will remain set at £85,000 until 1 April 2024. This adds a further 2 years to the suspended increase to the limit which was due to expire in 2022. This will continue to help keep smaller businesses out of the VAT net.
In addition, the reduced VAT rate of 5% for businesses involved in the hospitality sector, which includes restaurants & bars, the hotel sector and admission to certain attractions, will be extended by 6 months to 30 September to allow businesses to continue to benefit from the reduced rate to boost profits or attract trade. It should be noted that the reduced rate continues to apply to businesses in this sector which receive deposits to secure future bookings.
The rate will then increase to 12.5% from 1 October to 31 March 2022, before returning to the standard rate of VAT, currently 20%, from 1 April 2022. Whilst businesses may find the provision of an interim reduced rate beneficial on the one hand, the practical implementation of a 12.5% rate is likely to add a further layer of admin and accounting stress to an already struggling business sector which many will find frustrating.
Finally, whilst not specific to the budget announcements, the VAT deferral new payment scheme is now live and businesses which wish to continue to benefit from the deferral of VAT payments due between 20 March 2020 to 30 June 2020 should ensure they sign up soon to reap maximum benefits. More information can be found via our earlier update.
If you have any queries about the VAT elements of the Budget please contact Maria McConnell.
Wealth Management & Tax efficient options
A somewhat unusual budget in that many of the announcements were leaked or ‘hinted at’ in advance, and one of them didn’t even happen! The non-increase to capital gains tax will have caught some by surprise. What this means is people with capital gains (on an investment portfolio for example) will still have their annual £12,300 Annual Exempt Amount, with gains over this being taxed at 10% for lower-rate taxpayers or 20% for higher & additional - on property the rate is 18% and 28% respectively. Considering there were rumours that the Chancellor was contemplating doubling the rate, many will view this as a bit of a result, frankly. For maximum tax-efficiency, look to your ISAs & pensions in the first instance.
The inheritance tax nil-rate band and the lifetime allowance for pensions were both frozen, which was expected. These two tie together nicely, as pensions are entirely outwith one’s estate for inheritance tax purposes, and can therefore be one of the most effective ways to mitigate the ‘death tax’, as some have named it. Check your pension contracts though, as some older policies may not be quite as flexible as a modern contract where passing on wealth is concerned.
Lastly, the hike to corporation tax, whilst expected, is still considerable at 6% for the largest companies, those with profits over £250,000. This comes into play from April 2023 and is tapered from company profits of £50,000 - £250,000. For those affected by this, there are options. Salary and dividends are the most common remuneration strategies for business owners, but pension contributions are extremely tax-efficient, and will reduce the company’s corporation tax bill. Professional advice will ensure you are using all available allowances and being as efficient as possible, which means you get to have the retirement party that bit earlier!
Personal Tax, what has & hasn't changed (yet)
Capital Gains Tax (CGT)
The expected changes that were anticipated to come in for Capital Gain Tax (CGT) did not materialise. Instead, the Chancellor announced that the annual exemption for CGT will be £12,300 for the 2021/22 tax year and will remain frozen at this level until the 2025/26 tax year.
This may be a welcome relief to many who expected a rise in CGT tax rates at this budget although the expectation is that this may be more a temporary delay to a rise in CGT rates rather than a change in the Government’s stance.
Similar to CGT, the Chancellor announced that there would be no change to the personal allowance or the income tax rates. The personal allowance will be £12,570 for the 2021/21 tax year and will remain at this level until the 2025/26 tax year.
Business Losses & SEISS
A temporary extension to the loss carry back period for businesses was also announced which will allow businesses to carry back trade losses for 3 years, rather than the current 1 year carry back. (Further detail for businesses below – click to jump down)
A point to note though is if the businesses have claimed the SEISS grant this will be treated as income in their accounts. The question is, as a result of this, whether the losses be significant enough for individuals to truly benefit as had been intended.
Off payroll workers
There was a lot of talk prior to April 2020 regarding the changes to the off payroll working rules in the private sector that were due to come into force. These changes were then delayed until April 2021 and it seems that due to chaos of the past year awareness of these significant changes has somewhat reduced.
Guidance of the upcoming changes can be found on our website and we would encourage all businesses to ensure they fully understand the changes and the risks associated with them so that there are no unforeseen tax consequences down the road.
Self-Employment Income Support Scheme (SEISS)
In line with the extension of the Furlough Scheme, the SEISS was extended also. The fourth grant will be available under the same terms as before (i.e. 80% of the 3 months average profits up to a maximum payment of £7,500).
Eligibility has also been extended for those who previously did not qualify. If you were self-employed and submitted your 2019/20 tax return before 2 March 2021 you may now be eligible. This will be welcome news to many individuals who became self-employed after April 2019 who previously did not qualify for the SEISS grant. Although due to the other eligibility conditions some may still not be able to qualify.
A fifth and final grant will cover the period to September 2021. Again past the expected date where we are intended to come out of the pandemic. The fifth grant will be slightly different in a few ways. Where self-employed individuals have suffered a turnover reduction of 30% or more they will be entitled to 80% of the 3 months average profits up to a maximum payment of £7,500, as before. Where self-employed individuals have suffered a turnover reduction of less than 30% their entitlement will reduce to 30% of the 3 months average profits up to a maximum payment of £2,850.
Please contact Stephen Oates if you have any Personal Tax related queries.
Corporate Tax changes & thoughts
Not surprisingly, with COVID continuing to dominate our lives and our economy, the continuation of relief measures was a central plank of the budget. Nevertheless with an eye on recovery, growth and payback, the increase in the main rate of corporation tax to 25% came as no surprise. This was widely tipped. At least plenty of notice was given as the increase doesn’t take effect until 1 April 2023. So businesses have time to prepare.
A major spur to growth, and not anticipated, is the increase in the rate of capital allowances on plant and machinery to 130% for the next two years (from 1/4/21 to 31/3/23). There is no upper limit to the amount that can be claimed. For businesses with the capacity to invest, this is a major boon as it allows them to save 25p in reduced tax for every £1 invested. That is rather clever of the Chancellor as it will encourage businesses to invest now, and not wait until the tax rate goes up. Not surprisingly, as this is an incentive for new investment, second-hand assets don’t qualify. They must be content with existing schemes. Rather surprisingly, the incentive does not apply to leasing businesses. However, successive Governments have always been suspicious of the leasing activities of financial institutions and have to some extent tarred the whole sector with this brush. That seems unfair.
For businesses badly hit by the pandemic, the temporary increase in the period in which trade losses can be carried back is welcome. This applies for losses made in accounts years ending between 1/4/20 and 31/3/22. These losses can now be carried back for up to three years, meaning that a tax loss, if it’s big enough, can potentially be used to obtain repayment of taxes paid on the profits of the previous three years. If the loss is that big, one might fear for the company’s long term survival. Having said that, the size of the tax loss could be dramatically increased by the increased capital allowances, though most badly affected companies will have slashed their CAPEX budgets.
The announcement of eight new Freeports in England is very welcome news. These sound very much like the Enterprise zones of the 80s and 90s. These areas offered significant tax and other incentives to encourage businesses to locate there. In general, they were pretty successful. One hopes that Scotland will replicate this initiative.
Finally, its good news that the Government are consulting on how to improve tax incentives for R&D (Research & Development) investment and for EMI and other share schemes as part of a wider strategy to encourage investment in innovation across the UK.
HR thoughts on Furlough Extension: Fiscal Firepower or Fiscal Foolproof?
The 4 out of 10 businesses currently relying on furlough, along with their staff, can all breathe a heavy sigh of relief on the back of Chancellor Rishi Sunak’s announcement to extend furlough to the end of September. As one of the headline features of the eagerly anticipated March 2021 budget, we review the detail and consider whether what has been described by the UK government as “full fiscal firepower” is fiscal foolproof…
Anyone who even skims the headlines will know that the UK’s world-renowned furlough has been a key feature in shielding business and livelihoods for the last year, and this is set to be extended for a further 6 months longer than anticipated. The extension will add a further £10 billion to our already monumental debt bill, with furlough alone costing in excess of £50 billion since launching in March 2020.
In short, the Chancellor has set out employers can continue using the scheme up to 30 September whether on a continuous basis or through flexible furlough, but that this support will be gradually stepped down as was the case last summer. The timetable for the phasing of the scheme is as follows:
What will the impact be?
It is widely accepted we will be paying for this particular intervention for generations, but the majority acknowledges this is the price we need to pay to protect employment. It would be difficult to argue that the Coronavirus Job Retention Scheme has not lived up to its name to date having supported 11 million jobs since inception, but will this extension continue to stem the flow of job losses in the months ahead as we hopefully start to move out of lockdown life over Spring and Summer?
Unfortunately, the answer is a finger in the air scenario, and will depend fundamentally on the virus – the UK and devolved governments have their roadmaps out of lockdown, but one thing we have learnt from the last 12 months is COVID is unpredictable. However, there is a degree of optimism across politicians, business and the public that if the vaccination programme continues at pace, restrictions can soon be lifted and things across the UK will start to bounce back.
There is no question the ‘jabs first, jobs next’ mentality being adopted is likely to prevent a significant volume of redundancies. This extension will buy some time for the restrictions and business to get back on its feet, particularly in industries such as retail and hospitality which are currently heavily reliant on the scheme. Pubs, restaurants and hotels will be able to start trading again as restrictions are lifted, but not at their normal capacity so the postponement of the end of furlough will be a welcome cushion until the sector can get back up to full tilt.
Whilst the extension will prevent the inevitable tsunami of redundancies that would have taken place if the scheme ended this April as originally planned, realistically there will still be a wave of job losses. Unemployment is forecasted to rise from an already high level of 5.1% to 6.5%, and the pinch point will likely be in July when already struggling companies will have to start to contribute to the scheme.
It has been made clear that the scheme will end on 30 September 2021 come what may, but we have lost count of the number of extensions made already! Opposition parties and unions are suggesting the scheme should be in place for as long as it needs to be, so watch this space on whether the “firepower” furlough extension announced by the Chancellor is as foolproof as it needs to be to see business through to that light at the end of the tunnel.
With the Job Retention Scheme and the Strategic Business Framework due to come to an end at the end of March, the 2021 budget set out the extension of some existing support, and further grant schemes available to businesses as the economy prepares to re-open during the course of 2021.
A. Extension of the furlough scheme until September 2021 across the UK
As widely expected, the chancellor has extended the furlough scheme, which pays 80% of out-of-work people's wages, until September.
But the scheme will change from July, with employers being required to contribute 10% to workers' pay packets, leaving the government to pay 70%. In August and September the state will pay 60% and employers will have to pay 20%
B. Extension of self-employment support
Support for the self-employed was also extended to September 2021. Those who filed a tax return for the first time in 2019-20 are also now eligible for the support payments.
C. Additional support for businesses
D. New Recovery Loan Scheme – launches in April 2021 to replace the CBILS and Bounce Back loan schemes. The Recovery loans can range from £25,000 to £10m up to the end of the year, with the government providing lenders with an 80% guarantee. Unlike its predecessors, interest and fees are to be paid by the business from the outset of the loan. Businesses who have existing CBILS or Bounce Back loans will remain eligible for these new loans. Full details can be found at the following link: Recovery Loan Scheme - British Business Bank (british-business-bank.co.uk)
If you have any Grants related queries please contact one of our Corporate Advisory team.
Looking for more detail?
In addition to the summaries written above we also have a full BUDGET REPORT available to download by clicking here. This includes information about all the Chancellor's announcements across the UK.