The budget 2021, dubbed the spend now tax later budget, ‘meets the moment with a three-part plan to protect the jobs and livelihoods of the British people’ according to chancellor Rishi Sunak. The chancellor outlined that his ‘three part plan’ consists of business support for workers still being affected by coronavirus, paying for the response and investment in economic growth.
Budget 2021 Headlines
- super-deduction for companies investing in new plant and machinery
- extension of the temporary increase to the SDLT nil rate band for residential property
- an extension to the temporary 5% reduced rate of VAT for certain supplies
- temporary increase in the carry-back period for business losses
- corporation tax increase from 2023.
- new mortgage guarantee scheme
- extension to the CJRS
- Fourth and fifth SEISS grants
- extension to the business rates holiday
- R&D tax credit capped for loss-making small or medium-sized enterprise
- IR35 comes into force on 6 April 2021
Spend Now Tax Later
It’s important that we highlight the importance of sound financial advice. Contact Prestige Business Management for targeted guidance and information on anything you find here. We pride ourselves on our communication and our straightforward guidance tailoring the most effective accounting for your business, with complete, up to date knowledge. Read on for our review of the spend now tax later budget for businesses. Here we cover Coronavirus Loan Schemes, the Furlough Scheme Extension, limited Green Policies, your in-depth guide to the latest Taxes, IR35, National Living Wage Increase and other budget news.
Coronavirus Loan Schemes
Recovery Loan Scheme
The planned autumn Budget was cancelled in September and replaced by the government’s Plan for Jobs in an awaited ‘fiscal event’. This included extensions to the SEISS and Coronavirus Job Retention Scheme (CJRS) also known as the furlough scheme, the Coronavirus Business Interruption Loan Scheme (CBILS) also known as the Bounce Back Loan and the Coronavirus Large Business Interruption Loan Scheme. In his spend now tax later budget, the chancellor announced the Recovery Loan Scheme which will come in to replace those from 6 April 2021. The 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 as mentioned above.
Businesses in England will be eligible to apply for the new Restart Grant of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses. This aims to provide cash stability so desperately needed for business to plan their activity in order to safely relaunch trading over the coming months.
The budget 2021 confirmed an extension of business rates relief at 100% for eligible retail, hospitality and leisure properties in England, until 30 June 2021. Following from 1 July that will fall to 66% until 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. Each England, Scotland, Northern Ireland and Wales introduced 100% business rates relief mainly aimed at retail, leisure and hospitality businesses, who have not had to pay business rates from 1 April 2020 to 31 March 2021. Business rates were devolved to Scotland, Northern Ireland and Wales.In a Scottish Budget update statement on 16 February, the Scottish Government proposed an extension to the relief for the retail, hospitality, leisure and aviation sectors until 31 March 2022. Following the Chancellor’s announcement, the Welsh Finance Minister has extended the rates holiday for the retail, leisure and hospitality sectors in Wales for a further 12 months.
The government announced in the 2020 budget that it would review the business rates system in England. It was announced recently that the final report will be published in Autumn 2021, with an interim report due on 23 March.
Reduced VAT Rate for Hospitality Sector
The government introduced a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions, in July 2020. This was extended from September until 31 March 2021 and now until 30 September 2021. There will be a transitional rate of 12.5% which will apply for six months until 31 March 2022.
Furlough Scheme Extension
In the so called spend now tax later budget, the chancellor confirmed that the The Coronavirus Job Retention Scheme (CJRS) otherwise known as the Furlough Scheme, has been extended until the end of September 2021. The current CJRS allows an employer to place an employee on furlough and apply for a grant to cover wage costs for the time an employee is on furlough. The level of grant available to employers under the scheme will stay the same until 30 June 2021. From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees’ wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough. The tapering effect means that the percentage recovery of furloughed wages will be 70% in July, up to a maximum of £2187.50 and 60% for August and September 2021up to a maximum of £1,875.00. Employers will need to continue to fund employer NICs and mandatory minimum automatic enrolment pension contributions. For periods starting on or after 1 May 2021, employers can claim for employees who were employed on 2 March 2021, as long as a PAYE Real Time Information (RTI) submission was made between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee.
Van Benefit Charge Nil-rating for Zero-emission Vans
A nil rate of tax will apply to zero-emission vans from 6 April 2021 within the van benefit charge. In 2020-21 such vans have a van benefit charge at 80% of the standard flat rate of £3,490. A zero-emission cannot in any circumstances emit CO2 emissions when driven.
Employer Provided Cycle Exemption
The government will also introduce a time-limited easement to the employer-provided cycle exemption to remove the condition that employer-provided cycles must be used mainly for commenting and work related journeys. The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020. The change will have effect on and after Royal Assent of Finance Bill 2021 and be in place until 5 April 2022, after which the normal rules of the exemption will apply.
Green National Savings and Investment (NS&I) product
The government will offer a green retail savings product through NS&I in the summer of 2021. This product will be closely linked to the UK’s sovereign green bond framework and will give all UK savers the opportunity to take part in the collective effort to tackle climate change. The green gilt framework, to be published in June, will detail the types of expenditure that will be financed to meet the government’s green objectives.
Plastic Packaging Tax
Plastic packaging produced in, or imported into the UK that does not contain at least 30% recycled plastic will be taxed at £200 per tonne of non-compliant plastic packaging, effective from April 2022. There will be an exemption for businesses that manufacture or import less than 10 tonnes of plastic packaging per year.
Corporation Tax Rise in 2023
The main policy that attracted the ‘spend now tax later’ nickname for the budget 2021 was the one in which the chancellor confirmed the suspected increase in Corporation Tax in an effort to start paying for the government’s response to coronavirus. This could affect self-employed people who work through their limited company. Corporation tax will remain at 19% until 1 April 2023 it was revealed in the budget 2021. Following this the corporation tax 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. Corporation tax had been due to fall to 17%, but Mr Sunak reversed this decision in his first budget in 2020. The chancellor has outlined in his budget 2021, that this means only 10% of all companies will pay the highest 25 per cent rate.
Stealth Tax Rise
The personal allowance is to be frozen, it was announced in Mr Sunak’s budget 2021. ‘Stealth taxes rises’ were rumoured before the budget 2021 announcement, by freezing current thresholds, as opposed to raising them in line with inflation. The chancellor announced that the personal allowance will be frozen at £12,570 for the tax years 2022-23 to 2025-26. The personal allowance is currently £12,500. In the 2018 budget it was stated that the allowance would remain at the same level until 2020-21 and the statutory provision to increase the allowance annually by CPI was to be overridden. The chancellor has confirmed in the budget 2021 that the personal allowance will increase by CPI (0.5%) for 2021-22 to £12,570. The personal allowance is reduced for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So for the current tax year there is no personal allowance where adjusted net income exceeds £125,000. For 2021-22 there will be no personal allowance where adjusted net income exceeds £125,140.
The Marriage Allowance Backdated
The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner. This reduces the recipient’s tax bill by up to approximately £250 a year. The marriage allowance was first introduced in 2015 and there are couples who are entitled to claim but have not yet done so. It is possible for those eligible to claim for all years backdated to 2016-17. It is possible for the total tax saving for all years up until 2020-21 could be over £1,000. To claim as far back as 2016-17, an application will need to be made by 5 April 2021.
Income Tax Thresholds
|England & NI||2020-21||2021-22|
|Personal Allowance||0%||£0 – £12,500||0%||£0 – £12,750|
|Basic Rate||20%||£12,501 – £50,000||20%||£12,751 – £50,270|
|Higher Rate||40%||£50,001 – £150,000||40%||£50,271 – £150,000|
|Additional Rate||45%||Over £150,000||45%||Over £150,000|
The Savings Allowance
Savings income is income such as bank and building society interest. The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. The allowance is £500 for higher rate taxpayers. There is no allowance due for additional rate taxpayers. Some taxpayers qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income exceeds £5,000.
This mainly applies to earnings, pensions, trading profits and property income, less allocated allowances and reliefs.
Tax on Dividends
The Dividend Allowance applies to the first £2,000 of dividends, which is chargeable to tax at 0%. Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed. Tax rates over the £2000 threshold are charged on dividends as follows:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers
Working Tax Credit
The government is making a one-off payment of £500 to eligible Working Tax Credit claimants to provide extra support over the next six months. Workers who are part of a household that receives tax credits, may be eligible for a new one-off payment of £500. The new payment is being introduced to provide extra support when the temporary increase in Working Tax Credit ends as planned on 5 April 2021. Workers do not need to apply for the new payment. HMRC will contact eligible households by text message or letter in April to confirm your eligibility. You do not need to contact HMRC. If you are eligible, you should receive your payment by 23 April 2021. Eligibility includes those who, on 2 March 2021, were receiving:
- Working Tax Credit payments
- both Working Tax Credit and Child Tax Credit payments
- Child Tax Credit payments and are eligible for Working Tax Credit but do not get a payment because their income is too high
Tax Loss Carry Back Extension
The period over which businesses can carry trading losses back for relief against profits of earlier years has been extended from one year to three years. Losses will be carried back by later years first. The eligibility period is 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses. Companies can carry back to the preceding year up to a maximum of £2 million of unused losses, against profits of the same trade to the earlier two years. This limit applies separately to the unused losses of each 12 month period. Individuals are subject to a separate £2 million cap to the extended carry back of losses made in each of the tax years 2020/21 and 2021/22. The £2 million limit applies separately to the unused losses of each tax year within the duration of the extension. Income Tax payers will not be subject to a partnership-level limit.
Super-deduction on New Plant
From 1 April 2021 and 31 March 2023, companies that invest in qualifying new plant and machinery, will benefit from new, first-year capital allowances. Companies can 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. Plus 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.
Company Car Allowance
We found out in the budget 2021 that 100% first-year allowances for zero-emission cars, zero-emission goods vehicles and equipment for gas refuelling stations has been extended by four years from April 2021. CO2 emission thresholds will also be amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down. The thresholds will be reduced from 50g/km to 0g/km for the purpose of the first year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of writing down allowances (WDAs) for business cars. Business cars acquired with CO2 emissions of 0g/km will be the only eligible for first-year allowances. Ultra-low emission vehicles which currently qualify for first year allowances if 50g/km or less will not qualify after this. They will be eligible for WDAs at the main rate (18%). Cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the special rate (6%).
Freeport Customs Benefit
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. Areas due to receive this status are located in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames. The government proposes 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. The government is working with devolved administrations to establish Freeports in each of the nations. Within the Freeport there will be a primary customs site and perhaps custom subzones. These could see duty deferral while goods remain on site, duty inversion if the finished goods exiting the Freeport attract a lower tariff than their component parts. Subject to the UK’s trade agreements, customs duty exemption on goods that are imported into a Freeport, processed into finished goods and subsequently re-exported with simplified import procedures. Freeports may also have one or more tax sites within which tax reliefs will apply. The aim is for a single site and up to three tax sites may be allowed but the total area of the site(s) must not exceed 600 hectares. The tax site will likely be located on primarily underdeveloped land to generate new, additional productive activity in Freeport locations.
Research and Development Tax Relief
A cap will be introduced on 1 April 2021. This applies to the amount of R&D tax credit which can be paid to a loss-making small or medium-sized enterprise (SME). Previously any SME making a loss incurring qualifying expenditure on R&D activities was 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 will be 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.
Capital Gains Tax
The treasury has not made any changes to the 10% rate of Capital Gains Tax (CGT) in the budget 2021, as far as any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for Private Residence Relief. There are two specific types of disposal which potentially qualify for a 10% rate up to a lifetime limit for each individual.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs’ Relief). This is targeted at directors and employees of companies who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of unincorporated businesses.
Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares. The lifetime limit for BADR was reduced from £10 million to £1 million for BADR qualifying disposals made on or after 11 March 2020. Investors’ Relief continues to have a lifetime limit of £10 million.
CGT Annual Exemption
The CGT annual exemption will be maintained at the current 2020-21 level of £12,300 for 2021-22 and up to and including 2025-26.
Inheritance Tax (IHT) Nil Rate Bands
The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) which has been increased in stages and is now £175,000 for deaths in 2020/21 will also be frozen at the current level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.
Employer-reimbursed Coronavirus Tests
The government is due to introduce a retrospective income tax exemption for reimbursement payments for the cost of a relevant coronavirus antigen test for the tax year 2020-21 from employer to employee and extend this exemption for the tax year 2021-22. This change will come into force on and after the Royal Assent of Finance Bill 2021. The corresponding NICs disregard will also be extended for the tax year 2021-22.
COVID-19 Home Office Expenses
The government will extend the temporary income tax exemption and Class 1 NICs disregard for employer reimbursed expenses that cover the cost of relevant home office equipment until 5 April 2022.
Social Investment Tax Relief Extension
The government will extend the operation of Social Investment Tax Relief until April 2023. This will continue the availability of income tax relief and capital gains tax hold-over relief for investors in qualifying social enterprises.
Reform of Penalties for late Submission and Payment of Tax
A new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is. Effective for VAT taxpayers from 1 April 2022; for taxpayers in ITSA with business or property income over £10,000 per year, from accounting periods beginning on or after 6 April 2023; and for all other taxpayers in ITSA, from accounting periods beginning on or after 6 April 2024.
Pensions Lifetime Allowance
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 lifetime limit sets the maximum figure for tax-relieved savings that an individual can build up over their lifetime.
Land and Buildings Transaction Taxes
Stamp Duty Land Tax (SDLT) applies to transactions in England and Northern Ireland. Land and buildings transaction taxes are devolved to Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax). Each of these has had a temporary increase in the nil rate threshold for residential properties. The thresholds were set to return to the previous thresholds from 1 April 2021. The government will extend the temporary increase to the SDLT nil rate band for residential property in England and Northern Ireland until 30 June 2021. Between 1 July 2021 until 30 September 2021, the nil rate band will be £250,000. The nil rate band will return to the standard amount of £125,000 from 1 October 2021. The Welsh Finance Minister has confirmed that the Land Transaction Tax temporary reduction period will be extended by a further three months so that it will end on 30 June 2021.
New SDLT rates are proposed for purchasers of residential property in England and Northern Ireland who are not resident in the UK. The new rates will be 2% higher than those that apply to purchases made by UK residents, and will apply to purchases of both freehold and leasehold property as well as increasing SDLT payable on rents on the grant of a new lease, applicable from 1 April 2021. Contracts exchanged before 11 March 2020 may be subject to transitional rules.
IR35 Comes into Force from 6 April 2021
IR35 is a set of new tax rules that applies to off-payroll workers. The scheme was postponed for a year as part of the Government’s Coronavirus business support package, but will now take effect from 6 April 2021. This applies to workers who provide their personal services via an ‘intermediary’ to a medium or large business. IR35 is designed to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax. These new off-payroll working means that the client will be required to make a determination of a contractor’s status and communicate that determination. In addition, the fee-payer, will need to make deductions for income tax and NICs and pay any employer NICs. Small companies remain exempt.
National Living Wage (NLW) and National Minimum Wage (NMW)
The National Living Wage will be extended to 23 and 24-year-olds for the first time from April 2021. Previously, it only applied to people aged 25 and over. This rate will revive a 19p increase, from £8.72 to £8.91 per hour. This represents a 2.2 per cent rise, in line with inflation. Employers need to be mindful of the extension of the NLW to 23 and 24 year olds as these employees, if they are on the NMW rate, are currently being paid £8.20 an hour.
New hourly rates
- Age 23 or over (NLW rate): GBP 8.91 (up 2.2% from GBP 8.72)
- Age 21 to 22: GBP 8.36 (up 2% from GBP 8.20)
- Age 18 to 20: GBP 6.56 (up 1.7% from GBP 6.45)
- Age 16 to 17: GBP 4.62 (up 1.5% from GBP 4.55)
Contactless Payment Limit Increase
the government has approved an increase to the legal contactless payment limits previously set by the European Commission following a public consultation by the Financial Conduct Authority. This allows banks to support single contactless payments up to £100, and cumulative contactless payments up to £300, without the need for customers to input their chip and pin. The government hopes the banking industry will implement the new limits later this year.
Mortgage Guarantee Scheme
A new Mortgage Guarantee Scheme will be introduced in April 2021. This provides 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.
Enterprise Management Incentives Scheme
At budget 2021, the government announced a review of the Enterprise Management Incentives (EMI) scheme. This is to evaluate its provision of support for high-growth companies to recruit and retain the best talent, so they can scale up effectively, and examine how more companies could gain access to the scheme.
Business Asset and Gift Hold-Over Relief
Under Gift Hold-Over Relief, the chargeable gain is deferred on the disposal of business assets that are given away. The gain then comes into charge when the recipient disposes of the gifted asset. The recipient is treated as though they acquired the asset for the same cost as the person who gave them the asset. From 6 April 2021 Gift Hold-Over Relief is not available where a non-UK resident person disposes of an asset to a foreign-controlled company, controlled either by themselves or another non-UK resident with whom they are connected.
Apprenticeships and Traineeships
High Quality Traineeships for Young People
The government has pledged an additional £126 million for high quality work placements and training for 16-24 year olds in England during the 2021-22 academic year. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
Payments for Employers who Hire new Apprentices
Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire. This represents an increase from £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the existing scheme.
This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies.
A £7 million fund will be introduced from July 2021 to help employers in England set up and extend portable apprenticeships. This will enable people who need to work across multiple projects with different employers to benefit from the high quality long-term training that an apprenticeship provides.
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