The UK has borrowed an unprecedented £280 billion so far to safeguard critical areas of the national economy and the spending looks set to continue well into 2021.
The Office for Budget Responsibility (OBR) anticipates that the UK’s economic recovery will be “swifter and more sustained” due to the accelerated COVID-19 vaccine programme and predicts the UK economy will grow by 4% in 2021, rising to 7.3% in 2022. It expects the economy to return to its pre-pandemic size six months sooner than previously forecast, by mid-2022.
The key announcements made in The Budget relating to the UK’s business community and the self-employed include:
The Chancellor’s Budget 2021 included a string of extensions to the Government’s existing COVID-19 support packages, along with a handful of new schemes and incentives aimed at protecting the jobs and livelihoods of the British people. Despite broadening the scope of eligibility for the Self-Employment Income Support Scheme (SEISS), the Budget provided little comfort for the ‘forgotten millions’ of freelancers and limited companies that continue to fall through the cracks of the SEISS and the Coronavirus Job Retention Scheme (CJRS).
Self-Employment Income Support Scheme
The fourth SEISS grant, covering February to April, will be paid in line with previous SEISS grants at 80% of average trading profits, up to a maximum of £2,500 a month.
A fifth and final SEISS grant, covering May through September, will see the tapering down of Government support, focusing largely on those still most affected by the pandemic. Individuals who’ve seen turnover fall by 30% or more will continue to receive 80% of three months’ average trading profits, up to £7,500 cap. Where turnover has fallen by less than 30%, then the grant received will only be 30% and this will be capped at £2,850.
Individuals who were newly self-employed in the 2019/20 tax year were unable to receive the first three SEISS grants. However, since the deadline for 2019/20 self-assessment tax returns has elapsed, the Chancellor is making this demographic eligible for the fourth and fifth SEISS grants.
The Coronavirus Job Retention Scheme (also known as the furlough scheme) has been protecting over 11 million jobs since the first nationwide lockdown in March 2020. The furlough scheme was due to close at the end of April 2021 but the Chancellor has opted to extend it until the end of September. Employees will continue to receive 80% of their current salary for hours not worked.
Crucially, employers will be required to pay 10% towards the hours their employees cannot work in July, followed by 20% in August and September. This is in addition to the employer's national insurance and pension contributions they are already paying on hours not worked by employees.
Another key announcement was that eligibility for claiming under the furlough scheme will change from 1st May 2021. From that date an employer can claim for those who were employed on 2nd March 2021, as long as an PAYE RTI submission was made between 20th March 2020 and 2nd March 2021, notifying a payment of earnings for that employee.
Restart Grants for England
In a bid to support the reopening of non-essential retailers, as well as the hospitality and leisure sectors, the Government is launching Restart Grants open to businesses throughout England.
Non-essential retail businesses will be able to claim for cash grants of up to £6,000 per premises, while hospitality, accommodation, leisure, personal care and gym businesses can claim up to £18,000 per premises given their later reopening date.
Recovery Loan Scheme
With the final application dates for support under the Coronavirus Business Interruption and Bounce Back Loan Schemes being 31st March 2021, eligible UK businesses will welcome the announcement in today’s budget of a new Recovery Loan Scheme (RLS).
UK businesses of any size can apply for loans or overdrafts from £25,000 to a maximum of £10 million until the end of this year. Invoice and asset finance will also be made available to provide finance worth between £1,000 and £10 million. Finance under the new scheme will be backed by an 80% Government guarantee to encourage banks to continue to lend confidently.
Business Rates Reduction (England-only)
Eligible retail, hospitality and leisure businesses across England have been given a major boost with the news of an extension to the 100% business rates holiday until 30th June 2021. The Chancellor confirmed that business rates would continue to be discounted by two-thirds for the remainder of the 2021-22 tax year, subject to caps for larger businesses.
VAT for hospitality, holiday accommodation and attractions
The reduction in VAT to 5% for the UK’s tourism and hospitality sector has been extended until 30th September. After this period, VAT for these sectors will rise to 12.5% for a further six months, before returning to the standard rate of 20% from April 2022. The Chancellor believes this VAT commitment will support 150,000 firms in the hospitality and tourism sector who employ over 2.4 million people.
Stamp Duty Holiday
The stamp duty holiday in England and Northern Ireland has been extended until 30th June, enabling the huge backlog of transactions to complete before midsummer. Stamp duty land tax (SDLT) remains suspended on the first £500,000 of all property sales.
Beyond 30th June 2021, the nil rate threshold for SDLT will be set at £250,000 until 30th September 2021 before returning to its usual threshold of £125,000 on 1st October 2021.
Mortgage Guarantee Scheme
The Chancellor also confirmed the launch of a new low-deposit mortgage guarantee scheme, ushering in a new wave of 95% loan-to-value (LTV) mortgages. Since the onset of the coronavirus crisis, most mortgage lenders have been reluctant to offer mortgages worth more than 90% LTV, requiring buyers to save deposits of at least 10%.
The Government-backed scheme provides certainty to lenders to broaden their eligibility criteria to buyers with only modest deposits.
The new 95% mortgages available under the Mortgage Guarantee Scheme will be available on properties up to a value of £600,000.
Under the scheme all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to. The scheme, which will be available for new mortgages up to 31st December 2022, will increase the availability of mortgages on new or existing properties for those with small deposits.
From April 2021, the financial incentive to employ new apprentices in England will increase from £1,500 or £2,000 depending on age, to £3,000 per apprentice. This is in addition to the existing £1,000 payment provided for all new 16-18 year-old apprentices, and those under 25 with an Education, Health and Care Plan
The Government has also ring-fenced an additional £126 million for a new traineeship scheme designed to help more 16-24 year-olds in the 2021/22 academic year secure work placements. This investment is expected to cover the hiring of 40,000 additional traineeships in the coming months.
The Chancellor has committed to continue to support the UK recovery but has also taken steps to balance the books and reduce the record deficit spending.
Individuals will be hit with a freeze on many allowances and personal tax rate bands.
While companies will not welcome the increased rate of corporation tax to 25%, there will be sighs of relief that it is not effective until April 2023. Smaller companies will benefit from a new Small Profits Rate and it is expected that only 10% of companies will pay the new higher rate of 25%.
Businesses will also need to plan so they make maximum use of the new loss carry-back rules and a new temporary super-deduction for qualifying capital expenditure, which is available for companies.
We have highlighted below some of the main changes for individuals, companies and small business.
Income Tax Personal Allowance and the basic rate limit
The Personal Allowance and basic rate income tax limit are to be frozen at their 2021/22 levels for the next five years (up to and including 2025/26).
The Government intends to set the Personal Allowance at £12,570, and the basic rate limit at £37,700.
The point that you start to pay higher rate tax, known as the higher rate threshold (the Personal Allowance added to the basic rate limit) will therefore be £50,270 for these years.
The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate income tax threshold at £50,270 for these years.
Inheritance tax (IHT)
The Government intend to maintain the IHT tax-free thresholds and the residence nil rate band taper available for Inheritance Tax at their 2020/21 tax year levels for the next 5 years (up to and including 2025/26).
This means qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can potentially continue to pass on up to £1 million of assets without an Inheritance Tax liability.
Pensions – lifetime allowance
There is a limit on the total value of pension benefits you can build up without getting a tax charge when you come to draw your pension. This limit is known as the lifetime allowance and is currently £1,073,100. The Government intends to remove the link to the Consumer Price Index increase for the next five years and freeze the standard lifetime allowance at £1,073,100.
Capital Gains Tax
The Government intends to freeze the Capital Gains Tax annual exempt amount at its current level of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the next 5 years (up to and including 2025/26).
The £20-a-week Universal Credit uplift will continue for an additional six months.
Alcohol, fuel and tobacco duties
Planned increases to alcohol duties have been suspended for a second year in succession and fuel duty has also been frozen for the 11th consecutive year, which will be welcome news as the economy begins to re-open.
Tobacco duty had previously increased by 2% plus inflation, with the rate for hand-rolling tobacco increasing by 6% plus inflation.
Companies and Small Businesses
Corporation tax rates are to set rise from 19% to 25% in April 2023. The Government will introduce a new Small Profits Rate of 19% for companies with annual profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
130% super-deduction tax relief
In a bid to encourage capital expenditure and business growth, the Chancellor has unveiled a new ‘Super Deduction’ tax relief.
This relief will only apply to companies and will not be available to sole traders or partnerships.
This measure will temporarily introduce increased reliefs for expenditure on plant and machinery. For qualifying capital expenditure incurred from 1st April 2021 up to 31st March 2023, companies can claim in the period of investment:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- This will generate an effective reduction in tax of 24.70p for every £1 spent
- a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances (items such as integral assets like hot and cold water systems)
- This will generate an effective reduction in tax of 9.5p for every £1 spent
The annual investment allowance (AIA) limit will be £1 million for the period from 1st January to 31st December 2021.
As the super deduction will not be available to sole traders and unincorporated businesses, they will continue to claim the AIA on eligible capital expenditure.
It is worth noting that companies with special rate expenditure will only benefit from a 50% allowance. They may be better off allocating the AIA to special rate assets instead.
To help viable businesses, which have found themselves in a loss-making position, the trading loss carry back rules for unincorporated business and companies will be temporarily extended from one year to three years.
This will enable carry back of relief for losses of up to £2 million in each of 2020/21 and 2021/22 for unincorporated businesses and companies which aren’t a member of a corporate group.
Losses for companies which are members of a corporate group may be limited to £200,000 in some cases, although the group, as a whole, should still be entitled to the £2 million cap.
Research & Development (R&D)
Small and medium sized businesses will see a cap of their R&D tax credit of £20,000 plus three times the company’s total PAYE and NIC liability for accounting periods beginning on or after 1st April 2021.
The Chancellor also announced in the budget the launch of a wide-ranging consultation on research and development (R&D) tax relief to ensure the UK remains a competitive location for cutting edge research.
Help to Grow Scheme
As part of the Chancellor’s vision for an investment-led recovery, the new Help to Grow scheme will provide industry leading support to growing businesses. The Help to Grow Management programme will offer world-class management training via business schools, with the Government contributing to 90% of training costs. Meanwhile the Help to Grow Digital programme will provide free expert training and will be delivered by a combination of a voucher covering up to 50% of approved software costs up to a maximum of £5,000 with free online impartial advice.
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Date published 18 Jan 2021 | Last updated 29 Mar 2021This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.