Budget 2021 – one to be remembered
4TH MARCH 2021 – Reflections on yesterday’s Budget from our Tax Partner Ian Kelly.
Read on for initial information on COVID assistance, COVID fraud, an update on Taxes, Research & Development Tax Relief, Housing, Freeports, and what the Budget means for the Tees Valley.
Our more comprehensive budget summary can be found here.
So, Rishi Sunak’s second Budget is now done and dusted and out of the way.
It is worth remembering that his first Budget in March 2020 was presented to the House of Commons only a short while after he was appointed Chancellor of the Exchequer and that his efforts were very quickly overshadowed by the onset of the pandemic.
It is also worth comparing the traditional calls of “here-here” and the waving of papers and the heckling and interruptions from the opposition benches to the Covid-reduced audience and the general peace and quiet in the chamber as Sunak delivered his Budget.
He did so in the wake of an economy that had suffered a 10% shrinkage; an OBR forecast that, even in five years’ time, the economy will still be 3% smaller than it would have been pre-pandemic but scheduled to grow 4% this year and 7.3% in 2022 and an unemployment peak of 6.5%.
The Budget itself was probably one to be remembered for what wasn’t included rather than what was announced.
There were none of the predicted attacks on areas such as Capital Gains Tax reliefs and rates; close company dividends; Inheritance Tax reliefs and rates and higher rate pension tax relief but there was an anticipated increase in the Corporation Tax rate whilst the Chancellor managed to maintain the Conservative’s election manifesto pledge not to increase the rates of Income Tax, National Insurance and VAT.
The freezing of the personal tax allowance and the point at which 40% higher rate tax becomes payable, whilst not technically breaching that commitment, sounds very much like a tax hike one could argue.
A fair number of measures had already been effectively pre-trailed leaving Sunak only needing to repeat or reaffirm those ‘leaks’.
Away from the major policies, Sunak froze, once again, alcohol and fuel duties which, of course, always meet with the public’s approval but, in reality, given the depth of government borrowing and for which payback will shortly be underway, the amount at stake in doing so was very modest to say the least.
As I will highlight below, there were several initiatives and announcements which have some form of impact on our clients and/or our local area, and which can only be welcomed.
The Coronavirus Job Retention Scheme (CJRS) is extended for a further five months from May to September with employees receiving 80% of current salary for hours not worked. In addition to National Insurance and pension employer contributions required from April, further employer contributions are to be introduced for unworked hours from July at 10% rising to 20% in August and September.
The Self Employment Income Support Scheme (SEISS) is extended to September by way of fourth and fifth grants, the fourth worth up to 80% of three months’ average profits capped at £7,500 covering the period February to April, claimable from late April. The claimant must have filed their Self Assessment tax return for the year ended 5 April 2020 to be eligible and which also opens the door for those newly self-employed in that year. The fifth and final SEISS, claimable from late July is a turnover test grant. A claimant whose turnover has reduced by 30% or more will receive the full amount as for the fourth grant with people whose turnover has fallen by less than 30% will receive a £30,000 grant capped at £2,850.
The Recovery Loan Scheme provides lenders from 6 April 2021 a guarantee of 80% of eligible loans between £10,000 and £10m and is open to all businesses.
Restart Grants will be provided of £6,000 per premises for non-essential retail and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gyms to allow for planning and relaunching over the forthcoming months.
Those businesses who used the VAT payment deferral option for VAT returns from 20 March 2020 to the end of June 2020 can now also pay that VAT by up to eleven instalments from March 2021.
The hospitality VAT reduction rate of 5% will now continue to 30 September 2021 at which point it will increase to 12.50% through to 31 March 2022 after which the standard rate of 20% will apply.
Eligible retail, hospitality and leisure will continue to qualify for 100% business rates relief up to 30 June 2021 followed by 66% relief, capped at £2m through to 31 March 2022 for those businesses required to close on 5 January 2021 and £105,000 for other business properties.
Loss-making businesses, both unincorporated or companies, as a result of Covid-19 can carry back losses for three years instead of the usual one year subject to caps of £2m for unincorporated businesses and non-group companies in each of the years ended 5 April 2021 and 2022; group companies up to £200,000 in each of those years and group companies for up to £2m in each year but subject to a cap of that figure across the group.
Over £100m is to be invested in providing a HMRC taskforce of 1,265 to combat fraud in respect of support packages including the CJRS and SEISS to build on mailings that have already begun to be issued to businesses that have had some form of support.
The uprated personal allowance for the year ending 5 April 2021 is confirmed as £12,570 (currently £12,500) and the 40% higher rate threshold of £50,750 (currently £50,000) but which levels will then be frozen until 6 April 2026.
There will be a reform of the penalties for late submission of Self Assessment Income Tax and VAT Returns and late payment. The late submission will be based on a points-based system and the late payment interest regime will align VAT with other taxes. Introduction will be for VAT taxpayers from VAT periods starting after 1 April 2022; for Self Assessment cases with business profits or property income over £10,000 from 6 April 2023 and for other Self Assessment taxpayers from 6 April 2024.
In announcing the increase in the rate of Corporation Tax to 25% from 1 April 2023, Sunak was at pains to point out that only those companies with profits over £250,000, some 10% of companies, would pay that rate and that a taper rate would operate for companies with profits between a new small companies’ threshold of £50,000 where those companies will continue to pay 19%, and £250,000. More detail is awaited on this area.
To compensate for this news, Sunak announced the introduction of a new “Super deduction” to encourage companies, and only companies thus barring the self-employed and partnerships, to invest in their businesses in a two year period starting on 1 April 2021 (where an accounting period straddles 1 April 2023 the rate of the Super Deduction will be apportioned). This would be by way of 130% relief for qualifying new plant and machinery (ie second hand or used plant and machinery do not qualify) that would normally qualify for the 18% writing down allowance. A 50% first year allowance will apply for what are currently “special rate pool” assets and which will include integral features in a building. The detail will tell us more about this initiative and how it might interact with the £1m Annual Investment Allowance that is scheduled to run to 31 December 2021.
The Pensions Lifetime Allowance of £1,073,100 and the Annual Capital Gains Tax Exemption of £12,300 will also be frozen until 6 April 2026.
The starting rate for savings up to £5,000 of 0%; the adult ISA annual subscription of £20,000 and Junior ISA’s and Child Trust Fund annual subscription of £9,000 are all retained for the year ending 5 April 2022.
The VAT registration and deregistration limit of £85,000 will remain in place until 31 March 2024.
Research and Development
A government review alongside a published consultation will consider the methods of obtaining tax relief to ensure that the UK remains a competitive location, the relief continues to be fit for purpose and correctly targeted, including whether more should be done to encourage claims in all regions of the UK.
A new mortgage guarantee scheme is to be introduced in April, ending 31 December 2022, guaranteeing lenders who offer mortgages to those with only a 5% deposit on houses valued up to £600,000 with the borrowers being able to fix their mortgage rate for five years.
The Stamp Duty Land Tax temporary increase in the nil rate band to £500,000 is extended to 30 June ’21 with the rate then becoming £250,000 until 30 September after which it will revert back to the usual £125,000 in 1 October ’21.
Eight locations will have Freeport status from a date in late 2021: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Teesside and Thames. Businesses in these Freeports will be able to benefit from a number of tax reliefs up to 30 September 2026: an enhanced 10% Structures and Buildings Allowance of 100%, full Stamp Duty relief, an enhanced capital allowances rate, full Business Rates relief and employer National Insurance Contributions relief.
Tees Valley announcements
Treasury North, a new economic campus in Darlington, will see around 750 jobs expected to move out of London to the region.
Middlesbrough and Thornaby-on-Tees will receive investment of some £46m to enable the towns to design and implement a strategy to recover and grow after the impact of Covid-19. Further down the coast the resorts of Whitby and Scarborough are included in the Yorkshire and Humber cluster.
There will be a further £135m to enable the A66 upgrade to start in 2024 with the aim of the scheme completing in five years instead of ten years.
£3.5m will be made available to the Tees Valley in 2020/21 to help implement integrated transport plans that had been committed for 2022/23 in the 2020 Budget.
A £1.8m regional cultural infrastructure payment will be made to convert Hartlepool Borough Hall into a vibrant cultural venue.
The government is to sign an undertaking to support the development of another offshore wind port hub on Teesside.
So where does this leave Sunak?
Notwithstanding the Autumn Statement and the potential for a second in-year Budget, that is Sunak’s business done for the next 12 months but with some of his tax measures carrying two and six year timeframes, the 2022 Budget will predate many of his announcements.
Despite using language to the contrary, there were tax increases and confirmation of some ongoing coverage of financial support for employees, businesses and the self-employed albeit with a thinly disguised warning that these support initiatives cannot carry on indefinitely with emphasis, in particular, being on the reopening of businesses as restrictions are lifted. At the moment, it is difficult to see a way in which he will be able to, pre-general election, lighten the load for both individuals and businesses.
If you have any questions on how the budget has affected you and your financial planning, please don’t hesitate to call us on 01642 606003.