As expected, the Chancellor focussed Budget 2021 on the immediate challenges of recovering from COVID-19. There were only two major tax changes to start raising additional funds, with many trialled threats failing to materialise, particularly in Capital Gains Tax.
There are significant extensions to a range of support schemes.
Furlough (CJRS) is extended to 30 September – businesses will need to contribute 10% in July and 20% in August and September, but otherwise unchanged.
Self-employed support continues with a fourth and fifth grant taking us to 30 September. SEISS is also opened to those who became self-employed for the first time in 2019-20.
VAT remains at 5% for hospitality, accommodation and attractions until 30 September, rising to 12.5% until 31 March 2022, before returning to 20% from April 2022.
Cash grants continue in the form of Restart grants – worth up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses.
The Business Rates holiday for retail, hospitality and leisure will continue until the end of June, with capped discounts of up to 66% then available through to the end of March 2022.
Whilst BBLS and CBILS are due to come to an end, a new recovery loan scheme is on the way, with an 80% Government guarantee for loans between £25,000 and £10m. Existing BBLS and CBILS borrowers will be eligible.
For homebuyers, the Stamp Duty Land Tax nil rate band of £500,000 is extended until 30 June, with a smaller nil rate band of £250,000 then remaining until 30 September. In addition, 5% mortgages will be supported by Government guarantees with a slate of large lenders signed up to provide lending under this scheme.
Small businesses structured as limited companies will be disappointed that no specific support for these types of business was announced, although perhaps not a surprise given nothing specific has been offered since the start of the pandemic.
Tax rises and reductions
Companies will instead need to prepare for increased tax liabilities, with Corporation Tax rising to 25% on profits above £250,000 a year from April 2023. Tapered tax rates will apply on profits between £50,000 and £250,000, with the rate of 19% remaining for profits up to £50,000. With no proposed changes to Income Tax, particularly on dividends, this will represent a significant cost increase for owner-managed limited companies.
The silver lining is a 2-year super-deduction – something never before seen in the UK tax regime – which will provide 130% tax relief on new investment. In other words, limited companies that invest £100 in qualifying equipment will receive a £25 reduction in their Corporation Tax bill. That compares to £19 in current circumstances, hence the 130% deduction. Designed to encourage use of cash reserves built up by some companies, this is a generous relief to support investment.
In addition, both unincorporated and incorporated businesses will be able to carry back losses of up to £2m for up to 3 years – businesses that have made losses as a result of the pandemic, but were previously profitable, could benefit from significant tax refunds.
The current Conservative government are sticking to their manifesto promise of not raising Income Tax, National Insurance or VAT. But only just – whilst the Personal Allowance rises to £12,570 from April, and the Higher Rate threshold to £50,270, these will then be frozen until April 2026. The same applies to Inheritance Tax, Pensions Lifetime Allowance and the Capital Gains Tax Annual Exempt Amount. Tax rises by other means.
At least the price of booze and fuel remains steady, with these duties frozen.
The increases in Corporation Tax and freezing of allowances were the only headline tax increases. Many expected Capital Gains Tax to be targeted – nothing on this as yet. Instead, we have been treated to a slew of new investments and incentive schemes to try and kickstart our recovery from COVID. Some are eye-catching, such as the widely trialled Freeports and immigration reform, but we’ll need to wait to see what opportunities emerge, and whether these schemes are effective.
Smaller businesses will be interested in Help to Grow – heavily subsidised management training and digital support including software vouchers. You can register your interest now at https://helptogrow.campaign.gov.uk
R&D tax credits and Enterprise Management Incentives are also to be reviewed, with new consultations published.
But with no other consultations forthcoming, big and bold changes to the tax system will either come as a surprise in the Autumn or may not be coming at all. In any case, a reprieve from significant changes that many were expecting, but we are on notice – it’s likely to be only a temporary one.
If you want to discuss the impact of Budget 2021 on your business, book your complimentary call here.
For more on Budget 2021 from HM Treasury, click here.