Our Spring 2021 Budget Highlights
The Chancellor of the Exchequer, Rishi Sunak held his second and the most anticipated budget last Wednesday. Setting out the government’s plans for tax and spending he announced a series of measures to help support the long-term recovery of our economy and of course the tax rises to help balance the public finances. Here we outline a bit more detail on the main areas.
Continued Covid19 support
There was a huge sigh of relief among business in general with the extension of most schemes.
The Coronavirus Job Retention Scheme or the Furlough Scheme as it has come to be known as, has been extended until the end of September this year. The support will continue as it is now until end of June. From 1 July 2021 the level of grant will be reduced to 70% (up to a maximum of £2,187.50) and from 1 August it will be further reduced to 60% (up to a maximum of £1,875). Employers will continue to pay at least 80% of the wages for the furloughed employees for the hours not worked.
However, it is worth noting that for periods starting on or after 1 May 2021, you can claim for employees who were employed on 2 March 2021, if you have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021 with that employee. The previous cut off for qualification was 31 October 2020.
The Self-Employed Income Support Scheme (SEISS) has also been extended until the end of September 2021. At the budget it was confirmed that the fourth SEISS grant will cover the period February to April 2021 and the qualification is based on fall in profits. The grant will be set at 80% of three months average profits capped at £7,500. For the first time this will include the figures in the 2019-2020 tax returns as these are now submitted and so will include all those who became self-employed during that tax year.
The fifth and final grant will cover the period from May to September. It will be based on the turnover test. Where turnover has reduced by 30% or more, the grant will be 80% of three months average trading profits capped at £7,500. And where turnover has reduced by less than 30%, the grant will be 30% of three months average trading profits capped at £2,850.
A new loan scheme known as the Recovery Loan Scheme (RLS) will replace the Bounce Back and CBIL. The aim of the scheme is to ensure that businesses of all size can continue to access loans. The government guarantees 80% of the finance to the lender. The scheme will be launched on 6 April and will be open until 31 December, subject to review. As with the current support schemes no personal guarantees will be required on facilities up to £250K and your main home cannot be taken as security. Loans will be available through accredited lenders.
The 5% reduced rate of VAT for hospitality businesses will continue until 30 September 2021. In addition, to assist the industry which has been worst hit by the Coronavirus pandemic transition back to normal, a new rate of 12.5% will then apply for a further six months to 31 March 2022. The VAT reduction applies to food and non-alcoholic drinks.
The Stamp Duty holiday was also extended to 30 June to support jobs in the housing industry and those who are mid transactions. As well as the extension to 30 June, the nil rate band was increased to £250K until 1 October 2021 and there is help for first time buyers looking to take out a mortgage which is hoped will help keep the housing market active.
We were expecting to see some tax rises in this Budget due to the substantial borrowing by the Government in the last twelve months. In the end it was much softer than many of us anticipated.
The rate of Corporation Tax will increase from April 2023 to 25% on profits over £250K. The rate for small profits under £50K will remain at 19%. However, if your profits are between £50K and £250K then a marginal rate of 26.5% will apply which will come as a shock to many of you.
Personal Allowance and higher rate threshold (HRT): The income tax Personal Allowance will rise with CPI as planned to £12,570 from April 2021 and will remain at this level until April 2026. The income tax HRT will rise as planned to £50,270 from April 2021 and will remain at this level until April 2026. As a result, more people will be brought into the tax system and also more will pay tax at 40% over the next five years.
There were some bits of good news on the tax front. The government announced that the van benefit charge and fuel benefit charge will be updated by CPI from the next tax year. TIP: if however you purchase an electric company van there will be no benefit in kind charge for the user of the van even when used for private journeys. Plus, the Van will qualify for the new super deduction capital allowance. A new 130% first year capital allowance for qualifying plant and machinery assets will be introduced from 1 April 2021 to boost investment and spending.
Extended loss carry back for business: To help otherwise-viable UK businesses which have been pushed into a loss-making position, the trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.
So, given the fact that the tax rises are not in itself enough to repay what we have borrowed, what else is going on. The Chancellor is banking on two more things to make his plans work, the first that there will be a boom in the housing market and the take from Capital Gains Tax and Stamp Duty Land Tax will increase. This is a big “if”. Will there be enough confidence especially relating to job security in the market to allow for this?
The second, the Government believes that there has been an overclaim during the last twelve months under SEISS and the Furlough Scheme. They are expecting to recover as much as a third of it back! Therefore, we are expecting an increase in investigations during the next two years and so we recommend that you gather all your evidence of eligibility (for participating in the schemes) now and keep it in a safe place otherwise it is going to be very difficult later on.
Everyone is of course very relieved at the continuation of the various government support schemes, but now we need to be mindful of the fact these schemes have an end date. It is time to look to the future and press that re-start button which will look different for each and everyone of us.