04 Mar 2021 Budget Update
Coronavirus has led to the UK economy shrinking by 10% over the last twelve months and we now have the highest borrowing outside of wartime. But with the impact of vaccinations and a lockdown plan having been announced last week, this Budget is intended to support businesses as they begin to reopen and recover from the effects of another national lockdown. However, the borrowing has to be repaid and some tentative steps have been taken to try and redress the balance between borrowing and taxes.
This Budget Update is intended to give you some of the detail behind the measures announced by the Chancellor but if you would like to know how the measures affect your business specifically or would like to discuss potential tax planning situations please contact us and we will help guide you through.
Covid-19 Provisions
Coronavirus Job Support Scheme (Furlough)
The Furlough scheme was due to come to an end in April 2021, but this will now be extended until 30 September 2021, with employees continuing to receive 80% of their pay, up to a maximum of £2,500, for the hours not worked.
The scheme will continue in its current form until the end of June, when it is hoped that all restrictions may be lifted, and then employers will be expected to contribute 10% of the cost in July and 20% in August and September.
To qualify for the scheme employees must be employed as at 2 March 2021 and have been included on an RTI submission between 20 March 2020 and 2 March 2021.
Self-Employed Income Support Scheme (SEISS)
The SEISS will continue with a fourth and fifth grant for those whose businesses have had a new or continued impact from coronavirus. The good news is it has been extended to those who began self-employment in the 2019/20 tax year provided they had filed their 2020 Tax Return by midnight on 2 March 2021, and that they meet the other existing eligibility criteria. This will mean an additional 600,000 people are newly eligible to claim.
The fourth grant will be available to claim from late April through the HMRC website and it covers the three months to April. This claim will be based on an average of three months profits for the four years from 2016 to 2020. As a result of the 2019/20 tax year now being included, claimants are likely to find that their grants vary from those previously received. The original eligibility requirements of profits being below £50,000 and profits accounting for at least 50% of total income remain applicable.
The fifth grant will be available to claim from late July and will cover the three months ended July. This final grant will remain at 80% for businesses where turnover has fallen by more than 30% but will reduce to 30% of profits for businesses where turnover has fallen by less than 30%. Further details will be released by HMRC on this grant closer to the claim period.
Restart Grants
The Restart Grants will be available from April 2021 and are aimed at supporting businesses to reopen where they have been forced to close due to lockdown restrictions.
Non-essential retail businesses will be eligible for a grant of up to £6,000 per premises whereas hospitality, accommodation, leisure, personal care and gyms – which are due to be able to open later – can receive up to £18,000 per premises dependent on their rateable value.
As with previous grants, these will be administered by local councils and details of how to claim will be available on their website in due course.
Recovery Loan Scheme
This new scheme will replace the Bounce Back Loans and CBILS which will come to an end on 31 March 2021. Term loans and overdrafts of between £25,001 and £10 million will be made available to businesses of all sizes to help them recover from the impact coronavirus on their business. Asset and invoice financing between £1,000 and £10 million will also be available.
If you have received support under the existing schemes you will still be eligible to access finance under the new scheme provided you meet the eligibility criteria.
The government will provide lenders with an 80% guarantee on the finance. The scheme will open on 6 April 2021 and will end on 31 December 2021. Details on how to apply will be released shortly.
Finance terms are up to six years for term loans and asset finance facilities and three years for overdrafts and invoice finance facilities. No personal guarantees will be taken for facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
Business Rates Relief
The businesses in retail, hospitality and leisure sectors that have already benefitted from a business rates holiday will see that extended to the end of June 2021 and then for the remaining 6 months they will receive a discount of two thirds.
Reduced Rate of VAT
The temporary 5% reduced rate of VAT that has been applicable to hospitality, accommodation and attractions since 15 July 2020 has been extended to 30 September 2021, at which point the rate will rise to 12.5% for six months until 31 March 2022 when the rate of VAT will return to the standard rate of 20%.
Other Measures
- The temporary reduction in stamp duty to 0% on residential property under £500,000 has been extended to 30 June 2021 and then the nil rate band will be £250,000 until 30 September 2021 when the reduction will end.
- A new mortgage guarantee scheme will enable homebuyers secure a mortgage up to £600,000 with just a 5% deposit.
- There has been an extension to the Film & TV Production Restart scheme, with an additional £300 million available.
- Small and medium-sized employers will continue to be able to reclaim up to two weeks Statutory Sick Pay (SSP) costs per employee.
- There is an extension of the £20 per week Universal Credit uplift until 30 September 2021 together with a one-off payment of £500 to eligible Working Tax Credit claimants.
Tax Changes
Personal Allowances and Thresholds
The income tax Personal Allowance and the higher rate tax threshold will remain frozen at the levels already announced for the 2020/21 tax year until April 2026.
The inheritance tax threshold, pensions Lifetime Allowance and the Capital Gains Tax Annual Exemption will be maintained at their current levels until April 2026.
The adult ISA annual subscription limit for 2021/22 will also remain unchanged at £20,000.
The VAT Registration threshold will be frozen for 2 years at £85,000.
Corporation Tax
The Chancellor announced an increase in corporation tax from April 2023. Companies with profits in excess of £250,000 will pay tax at the new main rate of 25%. Businesses with profits of £50,000 or less will continue to be taxed at 19% (now known as the small profits rate) and for profits between £50,000 and £250,000 the tax rate will be tapered so that only businesses with profits greater than £250,000 will be taxed at the full rate of 25%.
Extended Loss Carry Back
Under the existing rules, unincorporated businesses and companies that are not members of a corporate group will be able to carry back up to £2 million of unused trading losses in both 2020/21 and 2021/22 against profits in the previous three years, extended from the usual one year.
There are different rules for companies that are members of a corporate group.
Tax Changes
Super Deduction – Capital Allowances
A new 130% first-year capital allowance for qualifying plant and machinery assets will be available for companies (i.e. not sole traders or partnerships) for the two years between 1 April 2021 and 31 March 2023. Companies will also be able to claim a 50% first year allowance for qualifying special rate assets.
Research & Development Tax Relief (R&D)
Whilst for many there will be an increase in corporation tax payable from 2023, this does of course mean that the savings generated from R&D tax relief claims increases and so it is important that companies do not overlook this valuable relief.
As previously announced, for accounting periods ending on or after 1 April 2021 the amount of payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability.
Other Announcements
- There will be no rise in alcohol and fuel duties.
- A new Help to Grow scheme will offer companies support in the form of access to an Executive Development Programme which will be 90% funded by the government and a 50% discount to small businesses in relation to productivity enhancing technology.
- Fuel benefit charges and van benefit charges for company vehicles will continue to increase in line with CPI.
The Chancellor made many more announcements during his speech, including the introduction of eight Freeports, but we have limited our summary to areas that we feel will directly affect our clients.
The information included in this report is intended for guidance only. It is based upon our understanding of current legislation and announcements and is correct at the time of publication. No liability is accepted by R J Francis & Co for actions taken in reliance upon the information given and it is recommended that appropriate professional advice should be taken specific to your circumstances.
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