Yesterday, (March 3rd 2021) the 2021 Budget announcement was delivered by the Chancellor of the Exchequer, Rishi Sunak. As anticipated, the budget focused primarily on Covid support measures, highlighting Government's spending plans for the next 12 months. While many areas of support for businesses and individuals were covered, the general gist of the speech was that Covid support will continue and a staggered approach to tax increases means the support rug is very slowly being pulled to avoid a cliff edge.
With numerous changes being rolled out that will directly compact our clients, we thought we would create a rundown of the Budget contents.
Part 1 – Covid Support Extensions and New Schemes
The Government has been largely praised for continuing its various financial support policies for businesses. Below, we look at updates to these much-needed support packages:
Furlough Scheme Extension - One of the most notable announcements wasthe extension of the Furlough scheme; a scheme that could save millions of jobs and help businesses that would be in danger of collapse. For employees, there will be no change to the terms of the Coronavirus Job Support Scheme which will remain available until the end of September 2021 across the UK. As businesses reopen, the Government will ask employers to contribute a little more to staff wages and contributions. From July there will be a 10% contribution to salaries which will rise to 20% for August and September.
There will be no employer contributions beyond National Insurance contributions (NICs) and pensions required in April, May and June. From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September. This will aid the economy as it slowly reopens.
Self-employed Support Scheme - The government confirmed that the fourth SEISS grant will be worth 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total.
The grant will cover the period February to April and can be claimed from late April. Self-employed individuals must have filed a 2019-20 self assessment tax return to be eligible for the fourth grant. This means that over 600,000 individuals may be newly eligible for SEISS, including many new to self-employment in 2019-20. All other eligibility criteria will remain the same as the third grant. Further details will be published in due course.
There will also be a fifth and final SEISS grant covering May to September. The value of the grant will be determined by a turnover test, to ensure that support is targeted at those who need it the most as the economy recovers. People whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July. Further details will be published in due course.
Restart Grants - The Government stated that it has allocated £5 billion to Restart Grants. For businesses, these will be a one-off cash grant of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England. Welsh Government will be responsible for determining the grant regime for Welsh-based businesses. We will report on that shortly.
Recovery Loans - The Recovery Loan Scheme ensures businesses of any size can continue to access loans and other kinds of finance up to £10 million per business once the existing COVID-19 loan schemes close, providing support as businesses recover and grow following the disruption of the pandemic and the end of the transition period.
Once received, the finance can be used for any legitimate business purpose, including growth and investment. The government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses. The scheme launches on 6 April and is open until 31 December, subject to review. Loans will be available through a network of accredited lenders, whose names will be made public in due course. Term loans and overdrafts will be available between £25,001 and £10 million per business. Invoice finance and asset finance will be available between £1,000 and £10 million per business.
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years. No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
Stamp Duty Holiday Extension - The nil rate stamp duty land tax on sales up to £500,000 will be removed at the end of June 2021. While the Chancellor acknowledged that buyers still needed help, despite substantial house price rises over the last year, and confirmed that there would a tapered end to the scheme. From 1 July 2021, the nil rate band will be £250,000 until 30 September 2021 before returning to the usual £125,000 on 1 October 2021. This means that nearly nine out of 10 people buying a new home currently pay no SDLT at all. Sunak also announced a new mortgage guarantee scheme to enable homebuyers to secure a mortgage up to £600,000 with a 5% deposit. These measures will combine to aid housing market activity.
Capital Allowance Super Deduction - From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets.
The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest. If there are plans to invest in capital equipment soon, it would be a good idea to delay this to post 1 April 2021.
Changes to Loss Relief for Corporation Tax and Income Tax – Companies, and individuals in business (sole trade/partnership) will be able to carry back losses made up to three years (previously 1 year) so loss relief can be accelerated.
Part 2 – Tax Increases
Increases to tax were something many business owners and individuals were worried about. But, with tax increases being one of the few ways Government can recoup losses, increases were understandably inevitable.
Corporation Tax Increase to 25% from April 2023 - In April 2023, the rate of corporation tax will increase to 25%, a 6% increase from the current 19% while at the same time creating a small profits rate for businesses with less than £50,000 profit who will continue to pay corporation tax at the current 19% rate.
Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19%. A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
Freezing of personal allowance for income tax, NI thresholds, VAT threshold, CGT annual allowance and IHT threshold were also announced.
Part 3 – Sneaky Changes
In part 3, we look at some other changes that have not been made entirely obvious but are nonetheless hugely noteworthy.
MTD Roadmap – Confirmed that the roadmap for MTD (Making Tax Digital) will continue – with mandatory MTD for VAT for all vat registered businesses from April 2022 and MTD for income tax to be introduced in April 2023.
Harmonisation of penalties for late submission and payment of taxes – This measure consolidates the penalty regime across VAT and Income Tax. There is no penalty at all if the taxpayer pays the tax late but within 15 days of the due date.
The first penalty is set at 2% of the outstanding amount if they pay between 16 days and 30 days after the due date. It is set at 4% of the outstanding amount if there is tax left unpaid 30 days after the due date.
Off Payroll Working Rules from April 2021 - This measure will apply to engagements with medium or large-sized client organisations in the private and voluntary sectors. It will shift responsibility for operating the off-payroll working rules from the individual’s PSC, to the client organisation or business to which the individual is supplying their services.
What does this mean for your business?
If you are confused or concerned about any of the above and what these changes mean for you, contact the Lime Advisory team today. Now, more than ever, having a good Accountant in your corner is essential.