Chancellor Rishi Sunak today delivered his much-anticipated Budget Statement setting out how the Government will extend its economic support to reflect the “reopening of the economy”. We outline what was announced…
The Coronavirus Job Retention Scheme is extended
- The “furlough scheme” will be continued until September 2021 with all terms staying the same. (80% of income for employees out of work up to £2,500).
- As of July, companies will be asked for a 10% contribution, and then rising to a 20% contribution in August and September.
Further grants will be available under the SEISS grant (if you are self- employed)
- The grants will only be accessible to self-employed people who had filed their tax return by midnight 2nd March 2021.
- The fourth grant will be worth 80% of three months’ average trading profits up to a £7,500 cap, according to the Budget.
- That grant will cover the period from February to April and can be claimed from late April.
- The Chancellor also confirmed details of the fifth and final SEISS grant which will be available over the summer.
- It will cover May to September and will depend on the self-employed business’s recovery.
- Those whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, up to £7,500.
VAT deferral ‘New Payment Scheme’
The government will give businesses which deferred VAT due in March to June 2020 the option to spread their payments over the financial year 2021-2022. Rather than paying in full at the end of March 2021, businesses will be able to choose to make 11 equal instalments over 2021-22.
All businesses which took advantage of the VAT deferral can use the New Payment Scheme. Businesses will need to opt in, but all are eligible. HMRC will put in place an opt-in process in early 2021.
However, in the Chancellor’s Budget notes, he did make reference to the fact that the measure provides for a penalty of 5%, chargeable in relation to the amount of the deferred VAT that is outstanding if businesses have not paid in full, opted into the New Payment Scheme or made an alternative arrangement to pay by 30 June 2021. The normal Default Surcharge approach will not apply to deferred VAT.
Extension of carry-back loss relief for limited companies
For company accounting periods ending in the period 1 April 2020 to 31 March 2022, the trade loss carry back will be extended from the current one year entitlement to a period of 3 years, with losses being carried back against later years first.
The introduction of the small company corporation tax rate from 1st April 2023
The corporation tax rate remains at 19% for the Financial Year beginning 1 April 2022.
However, from 1 April 2023, the Corporation Tax main rate will be increased to 25% applying to profits over £250,000. A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. 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.
Freezing of personal allowances and basic rate limit over the next 5 years
This measure will maintain the Personal Allowance and basic rate limit at their 2021 to 2022 levels up to and including 2025 to 2026. It will set the Personal Allowance at £12,570, and the basic rate limit at £37,700 for tax years:
- 2022 to 2023
- 2023 to 2024
- 2024 to 2025
- 2025 to 2026
The higher rate threshold (the Personal Allowance added to the basic rate limit) will be £50,270 for these years. 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.
For 2021/22 the NI primary threshold is set at £184 per week with the NI secondary threshold set at £170 per week.
Extension of the temporary increase to the Stamp Duty Land Tax nil rate band for residential properties
This measure introduces a staged withdrawal of the temporary increase to the amount that a purchaser can pay for residential property in England and Northern Ireland before they pay Stamp Duty Land Tax, by both:
- Extending to 30 June 2021 the nil rate band of £500,000, which was due to end on 31 March 2021
- Introducing a nil rate band of £250,000 for the period 1 July 2021 to 30 September 2021.
Are there any VAT rate changes?
- The temporary VAT reduced rate of 5% for hospitality and tourism which was extended from 12 January to 31 March 2021, will be further extended to 30th September 2021. This will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions across the UK.
- A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022. The scope of the relief will remain unchanged.
130% “ Super-deduction “and 50% First Year Allowances
From 1 April 2021 and 31 March 2023, companies will be able to claim a 130% deduction for most new plant and machinery, excluding cars. Under current rules, businesses can claim an ‘annual investment allowance’ which effectively gives a 100% deduction on expenditure up to a maximum of £1m p.a., and a writing down allowance of 18% p.a. on the excess. Whereas, this new relief allows a 130% deduction in the year of expenditure, without a maximum cap.
Other capital expenditure currently qualifying for the annual investment allowance and a ‘special rate’ allowance of 6% p.a thereafter, such as heating, electrical and air conditioning systems, will qualify for a first year allowance of 50%.
There are exceptions though- for instance:
- This new super deduction cannot be claimed against the purchase of used or second hand assets.
- Or for expenditure where contracts were entered into prior to 3 March 2021 (i.e. businesses cannot claim this new deduction if they had already committed to the expenditure prior to the Chancellor’s budget).
- This allowance will be available on assets acquired through hire purchase contracts, but there are additional considerations for assets acquired through other types of leases, therefore advice should be sought on these areas.