Today’s Budget announcement was substantial…
Not in terms of immediate tax changes, but more from the enormity of the economic and fiscal recovery that the UK now faces as the pandemic’s measurable effects are revealed.
Chancellor Rishi Sunak set out his plan to address the acute damage that the virus has inflicted. The Budget speech was a stark wake-up call as he addressed how some 700,000 people have lost their jobs despite the financial support awarded to businesses, how the economy has shrunk by 10% and how borrowing is the highest its been outside of wartime.
A full recovery is a long time off, and by his own admission, the Chancellor explained the “amount we’ve borrowed is comparable only with the amount we borrowed during the two world wars. It is going to be the work of many Governments, over many decades, to pay it back”.
A daunting prospect indeed, but for now, the Chancellor’s plan is based on a three-pronged approach:
- Support the British people and businesses through the crisis
- Fix public finances
- Rebuild the economy
Measures to help achieve these goals include…
Further Coronavirus Financial Assistance:
- CJRS furlough grant scheme has been extended to 30 September 2021. Employees will continue to receive 80% of their salary for hours not worked, whilst Employers will be required to contribute 10% of that salary in July 2021, rising to 20% in August and September 2021.
- A fourth Self Employment Income Support Scheme (SEISS) grant is being made available from late April 2021, covering the period from February to April 2021, worth 80% of three month’s average profits (max £7,500). Individuals must have filed a 2019-20 tax return by 2 March 2021 to claim this grant.
- A fifth SEISS grant is being made available from late July 2021, covering May to September 2021. A turnover test will assess the value of this grant: where the business’ turnover has fallen by 30% or more, the grant will remain at 80% of three month’s average profits (max £7,500). Where the business’ turnover has fallen by less than 30%, the grant will be paid at 30% (max £2,850).
- Eligible retail, hospitality and leisure properties in England will continue to receive 100% business rates relief to 30 June 2021, followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, subject to certain caps.
- A new Restart Grant from April 2021 to businesses in England of up to £6,000 per premises for non-essential retail and up to £18,000 per premises for hospitality, accommodation, leisure, personal care, and gym businesses, in respect of the ongoing closure requirements.
- A new Recovery Loan Scheme will be available to all businesses from April 2021, which will provide loans between £25,000 and £10million, on which the Government will provide the lender with an 80% guarantee.
The key tax headlines are…
Corporate and Business Tax:
- From April 2023, the Corporation Tax rate will increase to 25% on profits over £250,000. For companies with small profits under £50,000 per annum, the rate will stay at 19%. For companies with profits over £50,000 and under £250,000 there will be a tapering of the rate, so that they pay Corporation Tax at a rate between 19% and 25%.
- Companies investing in qualifying new plant and machinery assets between 1 April 2021 and 31 March 2023 will be able to claim a 130% capital allowance in the accounting period of the purchase – the “super-deduction” – so reducing the company’s tax bill by £25 for every £100 spent. Special capital allowances rules apply on a later disposal of assets on which this super-deduction has been claimed.
- Companies investing in qualifying special rate assets between 1 April 2021 and 31 March 2023 will be able to claim a 50% capital allowance in the accounting period of the purchase. For 2020/21 and 2021/22, both unincorporated businesses and companies will be able to claim to carry back trading losses to offset against profits earned in the previous three years, extended from the current 12-month carry back period.
- VAT: The Government will continue supporting businesses in the tourism and hospitality sectors by extending the temporary 5% reduced rate until 30 September 2021. To help businesses manage the transition back to the standard rate, a 12.5% rate will then apply for a further six months until 31 March 2022. The VAT registration threshold will remain at £85,000 for two years from April 2022.
- SDLT: The £500,000 nil rate band is to be extended beyond the 31 March cessation date to 30 June. To smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September. The previous level of £125,000 will come back into effect from 1 October.
- Duties: Fuel duty will be frozen for the 11th consecutive year. Alcohol duties will be frozen across the board.
Personal Tax:
- Personal Allowance and Basic rate limit will increase to £12,570 as previously announced, but they will remain at this level for the tax years up to 5 April 2026. The basic rate limit at £37,700 will apply for the following tax years from 2022/23 to 2025/26. The higher rate threshold will be £50,270 for these years.
- National Insurance Contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold for these years.
- Capital Gains Tax annual exempt amount remains at its current amount of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the tax years from 2021/22 to 2025/26.
- Inheritance Tax thresholds will remain at their current levels until April 2026.
The Chancellor’s view is that “without corrective action, borrowing would continue at very high levels, leaving underlying debt rising indefinitely. Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked. When crises come, we need to be able to act. And we need the fiscal freedom to act. A freedom that you only have if you start with public finances in a good and strong place”.
And, so it begins….
To understand the measures in more detail, please contact your Champion advisor or download our comprehensive Budget round-up here.
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