In the Chancellor’s second real Budget on 3 March 2021, he announced that he had to level with people about the state of the UK economy.
Rishi Sunak has chosen a fine line between raising taxes to start paying down the massive Government borrowings but at the same time stimulate economic recovery and save jobs. He was also mindful of pledges made in the Conservative Party manifesto not to raise income tax, VAT and national insurance. So that leaves corporation tax, CGT and inheritance tax. Maybe he will delay the announcement of significant increases in taxation until later in the year as it is anticipated that there will be a further Budget in the Autumn. By then the economy will hopefully have started to bounce back.
CJRS FURLOUGH SCHEME EXTENDED TO 30 SEPTEMBER
The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2020. In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September. This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours.
SELF-EMPLOYED INCOME SUPPORT GRANTS ALSO EXTENDED
In line with the further extension of the CJRS furlough scheme for employees the chancellor has also set out further support for the self-employed. We had been waiting for the details of the calculation of the fourth SEISS grant covering the period to 30 April and we now know that the support will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.
The chancellor has also bowed to pressure to extend the scheme to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 2 March 2021. Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals 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 £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.
CORPORATION TAX RATES TO INCREASE TO 25% BUT NOT FOR ALL COMPANIES
The chancellor announced that this rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carryback of losses.
SUPER-DEDUCTION FOR COMPANIES INVESTING IN NEW EQUIPMENT
In order to encourage companies to invest in new capital equipment, the chancellor announced a radical new “super-deduction” of 130% where they invest in the new plant (unused and not second hand). This would mean that when a company buys a plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance. Unfortunately, this deduction is not available for sole traders and partnerships.
THREE YEAR CARRY BACK OF TRADING LOSSES
Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment. Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses. The chancellor has announced that the carryback period will be temporarily increased to three years thereby enabling the business to obtain a tax refund. For companies, this will apply to loss-making accounting periods ending in the period 1 April 2020 to 31 March 2022.
For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22. The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carryback against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.
INCOME TAX RATES
The Scottish Income tax rates for 2021/22 were previously announced in the Scottish Budget.
Starter rate from £12,570 – £14,667 19%
Scottish basic rate from £14,667 – £25,296 20%
Intermediate rate from £25,296 – £43,662 21%
Higher rate from £43,662 – £150,000 41%
Top rate over £150,000 46%
The personal allowance has been increased in line with inflation to £12,570 for 2021/22. This threshold will be frozen until 2025/26.
There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.
NATIONAL INSURANCE RATES
The national insurance contribution (NIC) rates and bandings were announced on 16 December 2020 to take effect from 6 April 2021. Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit of £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.
5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED
In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021.
The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK. From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.
VAT REGISTRATION LIMIT FROZEN AT £85,000 UNTIL 1 APRIL 2024
The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.
MAKING TAX DIGITAL EXTENDED TO ALL VAT REGISTERED BUSINESSES FROM 1 APRIL 2022
The government has confirmed that the requirement to maintain accounting records in a digital format and submit the data to HMRC electronically will be extended to all VAT registered businesses from 1 April 2022 regardless of the level of taxable supplies.
NEW RECOVERY LOAN SCHEME
The government have already announced a longer repayment period for “Bounce-back” and CBIL loans. From 6 April 2021, a new Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.
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