Key changes announced in the Spring Budget.
“The Budget announced on 3rd March 2021 seems, for the short-term at least, fairly uncontroversial, with much remaining unchanged or frozen. Capital Gains Tax was left unchanged with the Annual Exempt Amount remaining at £12,300 per annum for 2020/21 through to 2025/26. The personal tax allowance will increase by CPI (0.5%) for 2021/22 to £12,570 (£12,500 – 2020/21) and thereafter the statutory provision to increase the allowance annually by CPI is to be overridden. The Chancellor also announced that for 2021/22 the 20% basic rate income tax band will increase to £37,700 (£37,500 – 2020/21) so that the threshold at which the 40% band applies will become £50,270 (£50,000 - 2020/21); for those who are entitled to the full personal allowance. The Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years. Individuals pay tax at 45% on their income over £150,000. Dividends tax rates remain unchanged. For Pensions; legislation will be introduced to remove the annual link to the CPI increase for the next five years. This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021/22 to 2025/26. The Nil Rate Band remains frozen at £325,000. The real bombshell comes in 2023 with the increase in Corporation Tax from 19% to 25%. Perhaps this budget can’t be properly evaluated until we are able to see the full impact of this regressive step.”
- Extension of furlough until the end of September.
- Two further grants for the self-employed – and bringing in 19/20 starters.
- VAT: Extension of the VAT cut to 5% for certain supplies for a further six months. Instalments option for deferred VAT repayments. Registration thresholds.
- Corporation Tax: An increased rate of Corporation Tax from April 2023 of 25%. A super-deduction for companies investing in new plant and machinery. Temporary increase in the carry-back period for business losses.
- Business rates holiday extended for 3 months, before tapering for another 9.
- Stamp duty cut for another 3 months, before tapering for another 3.
- Restart grants of up to £18,000 to get retail, hospitality, leisure and personal care businesses going again. Apprenticeships and traineeships extended.
- New Recovery Loans to replace existing loan schemes.
- A brand new 95% mortgage guarantee for prospective homebuyers.
- National Living Wage and National Minimum Wage increases.
- A cap on the amount of R&D tax credit paid to a loss-making, small or medium-sized enterprises.
- IR35: New rules apply to off-payroll working payments made for services provided on or after 6 April 2021.
NB: Some Budget proposals may be subject to amendment in the 2021 Finance Act. You should contact us before taking any action as a result of the contents of this summary.
Extension to the Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme (CJRS) has been extended until the end of September 2021.
The UK Government will continue to pay 80% of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month, up to the end of June 2021.
For periods in July, CJRS grants will cover 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50.
In August and September, this will then reduce to 60% of employees’ usual wages up to a cap of £1,875.
Employers will need to continue to pay their furloughed employees at least 80% of their usual wages for the hours they do not work during this time, up to a cap of £2,500 per month. This means, for periods between July and September, employers will need to fund the difference between this and the CJRS grants themselves. Employers can also top up wages above the 80% if they wish, but they are not required to do so.
Employers must also continue to pay the associated Employer National Insurance contributions and pension contributions on subsidised furlough pay from their own funds.
CJRS eligibility from May
For periods from 1 May 2021 onwards, employers will be able to claim for eligible employees who were on employers’ PAYE payrolls on 2 March 2021. This means they must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying HMRC of earnings for that employee.
Employers do not need to have benefitted from the scheme before to make a claim, as long as they meet the eligibility criteria.
Self-Employment Income Support Scheme – future grants confirmed
It was announced in the Budget that the Self-Employment Income Support Scheme (SEISS) will continue until September with a fourth and fifth grant.
The fourth and fifth grants will take into account submitted 2019-20 tax returns. This means you may be able to claim, even if you were not eligible for previous grants. You must have submitted your 2019-20 tax return by 2 March 2021 to be eligible for the fourth and fifth grants.
Fourth SEISS grant
The UK Government will pay a taxable grant which is calculated based on 80% of three months’ average trading profits, paid out in a single payment and capped at £7,500 in total. The value of the grant is based on an average of your trading profits for up to four tax years between 2016 to 2020, where available.
The grant will be available to claim from late April. As with previous grants, trading profits must be no more than £50,000 and at least equal to non-trading income in order to claim the fourth SEISS grant.
Eligibility for the fourth SEISS grant will also depend on whether you experienced a significant financial impact from coronavirus between February 2021 and April 2021.
As the calculation now takes into account the tax year 2019-20, those who previously claimed SEISS grants may receive grants that are higher or lower in value than any previous SEISS payments they received.
How you can claim the fourth SEISS grant
From mid-April, you will be given your personal claim date by HMRC which confirms the earliest date you can claim. HMRC are inviting taxpayers to claim on different days to ensure the system is fast and easy to use.
The online claims service for the fourth grant will be live from late April. This is to allow HMRC time to process recently submitted 2019-20 Self-Assessment tax returns.
You must make your claim for the fourth grant between your personal claim date and 31 May 2021 at the latest.
You will need to make an honest assessment that there has been a significant reduction in trading profits due to reduced demand or their inability to trade, and to keep appropriate records as evidence.
The UK Government has also announced that there will be a fifth and final SEISS grant covering May to September. The amount of the fifth grant will be determined by how much your turnover has been reduced.
The grant will be worth 80% of three months’ average trading profits, capped at £7,500, for those with a higher reduction in turnover (30% or more). For those with a lower reduction in turnover, of less than 30%, then the grant will be worth 30% of three months average trading profits.
You will be able to claim the fifth grant from late July if you are eligible.
HMRC will publish more guidance in due course and will contact claimants from mid-April by email, letter or SMS, depending on the information they have provided.
VAT deferral: If you deferred VAT payments due between 20 March and 30 June 2020 and still have payments to make you can pay by 31 March 2021 or choose to pay in up to 11 interest-free instalments.
If you cannot afford to pay by 31 March this year, you can now join the online VAT deferral new payment scheme to spread the payment at the following link HMRC VAT deferral option.
You can spread payment across a number of months, depending when you join – the earlier you join, the more months you have to spread the payments across:
- 11 instalments if you join by 19 March
- 10 instalments if you join by 21 April
- 9 instalments if you join by 19 May
- 8 instalments if you join by 21 June.
The online service will close on 21 June 2021 – if you want to join the scheme online, you must do so before this date. If you are on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, you’ll be able to join the new payment scheme later in March. HMRC will share more information on this shortly.
If you have a Time to Pay arrangement already in place for your deferred VAT, you cannot use the online scheme. If you want to amend their Time to Pay arrangement, they should contact HMRC to do this.
Temporary Reduced Rate: The temporary reduced-rate of VAT for hospitality of 5% has been extended to 30th September 2021, and then a new reduced-rate of 12.5% will run until 31st March 2022. This is for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions to help businesses manage the transition back to the standard 20% rate.
The VAT Registration threshold of £85,000 and Deregistration threshold of £83,000 are fixed until 31st March 2024.
MTD for VAT registration will apply to all businesses from 1st April 2022.
Corporate Tax changes
Corporate Tax Rates: The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Super-Deduction: Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances. Under this measure a company will be allowed to claim:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances.
- a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
This relief is not available for unincorporated businesses although the 100% first-year Annual Investment Allowance remains at £1m.
Trade Loss Carry Back: A temporary extension of the period over which businesses may carry trading losses back for relief against profits of earlier years to get a repayment of tax paid will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses.
Trade loss carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first. For companies, after carry back to the preceding year, a maximum of £2 million of unused losses will be available for carry back against profits of the same trade to the earlier two years. This £2 million limit applies separately to the unused losses of each 12-month period within the duration of the extension.
Business Rates Holiday
The Chancellor has now announced a continuation of 100% business rates relief for eligible retail, hospitality and leisure properties in England to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties. Nurseries will also qualify for relief in the same way as other eligible properties.
Stamp Duty Holiday
The government has announced that the temporary stamp duty holiday in England and Northern Ireland has been extended until the end of June. The news should come as a relief to those buyers and sellers who have been desperately trying to get their sale completed in time to meet the previous deadline of 31st March.
The temporary stamp duty holiday, first announced by the government on 8th July last year, means that if you are buying a home up to the value of £500,000 you will not pay any stamp duty.
The extension means you now have until 30th June to complete on the purchase to make the stamp duty saving. Then, to smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September. It will return to the usual threshold of £125,000 on 1st October.
There hasn’t been any further update from Scotland on any extension to the Land & Buildings Transaction Tax (LBTT) holiday, which is currently due to end on 31st March 2021.
In Wales, temporary Land Transaction Tax reductions are also set to end on 31st March.
‘Restart Grants’ and Recovery Funding. Apprenticeships.
Grants will be made available from April to help eligible businesses get back on their feet. Struggling high street shops, hospitality venues, salons, and gyms, amongst others, are expected to benefit from grants of up to £18,000 per business.
Employers offering apprenticeships between 1 April 2021 and 30 September 2021 will receive increased funding from the government of up to £3,000 per trainee for all new apprentice hires of any age. This is in addition to the existing £1,000 payment the government provides for all new 16 to 18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies.
Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
From 6th April 2021 a new Recovery Loan Scheme will be available for businesses of any size to apply for loans from £25,000 to £10 million with the government providing a guarantee of 80% on eligible loans. In reality, this looks very like a continuation of CBILS (Coronavirus Business Interruption Loan Scheme).
A £700 million recovery package has been budgeted to help businesses and venues in the sports and culture sectors.
Mortgage Guarantee Scheme
The government will introduce a new mortgage guarantee scheme in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000. Under the scheme, all buyers will have the opportunity to fix their initial mortgage interest rate for at least five years should they wish to. The scheme, which will be available for new mortgages up to 31 December 2022, is designed to increase the availability of mortgages on new or existing properties for those with small deposits.
National Living & Minimum Wage increase
The National Living Wage will increase by 2.2% and will be extended to 23 and 24 year-olds for the first time. Employers need to be mindful of this extension as employees in this category on NMW are currently being paid £8.20 an hour. For workers aged under 23, the government has announced smaller increases in NMW in recognition of the risks to youth employment which the current economic situation poses.
From 1 April 2021, the new hourly rates of NLW and NMW are:
• £8.91 for those 23 years old and over
• £8.36 for 21-22 year-olds
• £6.56 for 18-20 year-olds
• £4.62 for under 18s
• £4.30 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
The government is now proposing a range of measures covering customs, tax reliefs, planning, regeneration funding and innovation to create Freeports as national hubs for global trade and investment across the UK. A UK Freeport will be a geographical area with a diameter up to 45km which is closely linked to a sea port, airport or rail port. East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames have been successful in the Freeports bidding process for England.
Freeports can offer a variety of simplified customs and tax benefits.
Research and Development Tax Relief
A cap on the amount of R&D tax credit which can be paid to a loss-making small or medium-sized enterprise (SME) will be introduced for accounting periods which commence on or after 1 April 2021. Prior to the introduction of the cap, loss-making SMEs incurring qualifying expenditure on R&D activities were allowed to make a claim to surrender the unrelieved loss for a payable tax credit of up to 14.5%.
For accounting periods commencing on or after 1 April 2021, payable tax credits are restricted to £20,000 plus three times the company's relevant expenditure on workers. Relevant expenditure on workers is the company’s PAYE and NICs for the period and importantly this is the company’s whole PAYE and NIC liability.
In addition, if the company is supplied with workers by a connected company the relevant workers’ expenditure is extended to include a proportion of those worker costs.
Some companies which create or manage intellectual property and spend less than 15% with connected persons on R&D qualifying expenditure will be exempt from this cap.
Off-payroll Working in the Private Sector
New tax rules are soon to come into force for individuals who provide their personal services via an ‘intermediary’ to a medium or large business. The new rules apply to payments made for services provided on or after 6 April 2021. The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the client). The client will be required to make a determination of a worker’s status and communicate that determination.
In addition, the fee-payer (usually the organisation paying the worker’s personal service company) will need to make deductions for income tax and NICs and pay any employer NICs.
The legislation uses an existing statutory definition within the Companies Act of a ‘small company’ to exempt small businesses from the new rules. A small company is one which meets two of these criteria:
• a turnover of £10.2 million or less
• having £5.1 million on the balance sheet or less
• having 50 or fewer employees.
If the business receiving the work of the individual is not a company, it is only the turnover test that will apply.
Please contact a member of our team if you would like to discuss further.