2021 Budget Summary
The Chancellor of the Exchequer, Rishi Sunak has this afternoon delivered his annual Budget. He was faced with the unenviable task of trying to restart the economy and protect jobs after the latest in a series of Lockdowns, while at the same time look for a way to start to recoup some of the cost of the pandemic and government support. The headlines will focus on the expansion of the COVID support, but there were some key announcements on Corporation Tax and a glaring omission on Capital Gains Tax that will leave many investors breathing a sigh of relief. Scroll down to see the announcements on Tax following the Coronavirus support section.
The Cornavirus Job Retention Scheme (CJRS)
Announced yesterday and confirmed in the Chancellor's address, the CJRS has been extended through to the end of September. The government to continue paying 80% of employees' wages for hours they cannot work. Employers to be asked to contribute 10% in July and 20% in August and September.
Self employed income support scheme (SEISS)
Support for the self-employed also to be extended.
The fourth SEISS grant will be set at 80% of 3 months’ average trading profits, paid out in a single installment, capped at £7,500. The fourth grant will take into account 2019 to 2020 tax returns and will be open to those who became self-employed in tax year 2019 to 2020, a crucial difference. The rest of the eligibility criteria remain unchanged (including the provision you are still in self employment).
Eligibility for the scheme will now be based on your submitted 2019 to 2020 tax return. This may also affect the amount of the fourth grant which could be higher or lower than previous grants you may have received.
The UK government has also announced that there will be a fifth and final grant covering May to September.
Sole traders will be able to claim from late July if you are eligible for the fifth grant.
The amount of the fifth grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021.
The fifth grant will be worth:
80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more
30% of 3 months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%
Further details on the SEISS can be found here
VAT relief hospitality sector
The VAT discount to 5% for food and drink sold in pubs and restaurants will last until the end of September. After that it will increase to 12.5% for a further six months before being restored to the main rate, currently 20%.
A one off cash grant of up to £6,000 for non essential retail or up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England.
Recovery Loan scheme announced
This is a new UK-wide Recovery Loan Scheme to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery. Similar to the Bounce back loans and CBILS this will be offered through banks, but will be 80% government backed. Further details to be shortly announced, however the application process is likely to be more akin to the CBILS than the BBL.
No changes to the rates of income tax, national insurance or VAT.
The personal income tax allowance to be frozen at £12,570 from April 2022 to 2026, which while does not represent a tax break, does suggest that as inflation creeps in income in real terms may start to take a hit.
Additionally, the higher rate income tax threshold to be frozen at £50,270 from 2022 to 2026
As accountants this was the area was one of the most relevant areas to us and our clients and although a rise was predicted, there were some interesting details around the increase in Corporation tax, which may make the changes more palatable.
Corporation tax on company profits will rise from 19% to 25% in April 2023, HOWEVER; -
1) The rate to be kept at 19% for about 1.5 million smaller companies with profits of less than £50,000
2) The rate will then taper up to 25% once profit reaches £250,000. This means Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
3) THE SUPER DEDUCTION - This one did catch us a little off guard but seems a very proactive way to encourage investment while reducing corporation tax liabilities. Under the scheme, companies investing in qualifying new plant and machinery assets will benefit from a 130 per cent first-year capital allowance (rather than the 100% AIA, or prevailing rate of capital allowances).
The stamp duty holiday on house purchases in England and Northern Ireland extended to June, with no tax liability on sales of less than £500,000, and then reduced to no liability on sales under £250K until end of September, after which it will return to £125,000. (second home/buy to let surcharges still apply as before)
Capital Gains Tax
Despite having been previously identified as a prime target for tax rises, the capital gains tax allowances were frozen for the next two years and the rates left unaltered for now. This will come as a huge relief to many buy to let and equity investors.
Additionally there were no changes to inheritance tax or lifetime pension allowance, while fuel duty as well as duty on alcohol and tobacco was also frozen.
As ever please feel free to get in touch should you wish to discuss any of today's announcements. In terms of COVID support, not all the details of each level of support/scheme are available yet but we will be sure to update you as and when they become available.