On 3rd March 2021, the Chancellor Rishi Sunak delivered the 2021 Budget, which had the task of balancing potential tax hikes to pay for the massive cost of support during the Coronavirus pandemic with helping to kick start a fragile economy coming out of lockdown.
There were some interesting announcements, some which will be helpful for business, some of which may be aimed at future tax increases when conditions allow, and certainly no intention of making the tax legislation any simpler in the immediate future. The 2021 Budget was not aiming for simplification!
The following is a summary of the main points which affect small businesses (our client base). NB some of the details are still being developed or announced, so not all of the information may be available just yet.
Coronavirus Job Retention Scheme Extended to September 2021
The Coronavirus Job Retention Scheme (CJRS) has been extended to the end of September 2021. It will continue to operate in its current form until June 2021 which means:
- Employees will continue to receive 80% of pay for hours not worked (subject to the cap),
- Employers will pay national insurance and pension contributions.
However, employers will start to contribute to the 80% of employer pay on a tapered basis.
- Up to June 2021, the government will contribute 80%,
- In July 2021, the government will contribute 70% and the employer 10%,
- In August and September 2021, the government will contribute 60% and the employer 20%.
In addition, employees who started after 30 October 2020, were employed on 2 March 2021 and have had earnings reported to HMRC under RTI between 20 March 2020 and 2 March 2021 are now able to be furloughed and claimed for with effect from May 2021 onwards.
Extension of the Self Employed Income Support Scheme (SEISS) Grant
The big news here is that the additional SEISS grants will be available for individuals who started self employment after 6th April 2019, who were excluded from the first 3 SEISS grants.
Sole traders and partnerships will be able claim a fourth SEISS grant from late April and a fifth SEISS grant in late July 2021, but extra conditions will apply. The new grants will be worth up to a maximum of £7,500 for taxpayers who have filed their 2019/20 SA tax return by midnight on 2 March 2021. HMRC will then calculate average trading profits for the four tax years to 2019/20. The fifth SEISS grant will be payable for the three months to 31 July 2021 and will be subject to a turnover test that determines the impact of the pandemic on the taxpayer to award a proportional sum.
The main conditions for eligibility for the grant continue to be:
- Trading profits of no more than £50,000 (now based on 2019/20 figures) – but where not eligible for 2019/20, profits of tax years back to 2016/17 can be considered
- Individual must have traded in both 2019/20 and 2020/21
- The 2019/20 tax return must have been submitted to HMRC by 2 March 2021
- Reduced trading (or temporarily not trading) as a result of COVID-19
- A reasonable expectation that there will be a significant reduction in trading profits
- Intention to continue to trade.
The turnover test for the 5th grant will give payments as follows:
- 80% of three months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more
- 30% of three months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%.
Personal Allowance and Tax Bands
The tax-free Personal Allowance and Standard Rate Band increase by a modest amount each year in line with the Consumer Price Index. For the tax year ended 5 April 2022, it had already been announced that these would increase to £12,570 and £37,700 respectively. The Chancellor confirmed these figures, but announced that the Personal Allowance and Standard Rate Band will now be maintained at these 2021/22 levels until 5 April 2026. This means that higher rate tax starts at £50,270.
Main Corporation Tax Rate to Rise to 25% from 1 April 2023
The main Corporation tax rate will increase to 25% from 1 April 2023 on profits over £250,000. The rate for small profits under £50,000 will remain at 19%.
Where a company’s profits fall between £50,000 and £250,000, the lower and upper limits, it will be able to claim an amount of marginal relief providing a gradual increase in the corporation tax rate. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.
A “super-deduction” will be introduced from 1 April 2021 until 31 March 2023 allowing companies to benefit from a 130% first-year allowance for capital expenditure on qualifying new plant and machinery assets. The super-deduction will apply to expenditure on new main pool plant and machinery that ordinarily qualifies for the 18% main pool rate of writing down allowances.
The measures announced will not apply to qualifying expenditure on “second hand” or “used” plant and machinery and will not apply to expenditure incurred in respect of a contract entered into prior to 3 March 2021. Any companies that have already contracted for the provision of plant and machinery will only be able to claim capital allowances at the normal standard rates.
Three Year Loss Carry Back
Companies and unincorporated businesses can normally set their trading losses against profits of the current or the previous 12-month period, or else carry them forward against future profits. Where a business has made a large loss because of the pandemic, or makes losses in two successive periods, the 12-month carry back may not be enough to relieve the whole amount. The Budget has extended the normal 12-month carry-back to three years, for both unincorporated businesses and companies, for trading losses of 2020/21 and 2021/22. For example, a loss of 2020/21 can be carried back against pre-pandemic profits of 2019/20, 2018/19 and 2017/18; without the extension, the claim could only have been made against 2019/20. There is a limit on the total amount to be carried back to the second and third earlier year of £2 million in each year of loss for unincorporated businesses and companies.
Recovery Loan Scheme to replace Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS)
A new loan scheme will replace CBILS and BBLS which all end on 31 March. The new version will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10m. The scheme may be used for “any legitimate business purpose, including growth and investment” and will remain open until 31 December (subject to change). Businesses throughout the UK can take advantage of the initiative, including those that already received support under the existing Covid guaranteed loan schemes.
Several VAT changes were announced. Firstly, the existing reduced rate of 5% VAT applied to certain supplies relating to hospitality, and hotel and holiday accommodation was due to end on 31 March 2021. This is being extended until 30 September 2021. A new reduced rate of VAT of 12.5% will then be introduced from 1 October 2021 until 31 March 2022 after which the standard rate of VAT (20%) will apply.
Secondly, the Chancellor has announced that the VAT registration threshold will remain at £85,000 until at least 31 March 2024. The deregistration threshold will remain at £83,000 for the same period.
Thirdly, in respect of the VAT Deferral New Payment Scheme, HMRC will levy a penalty of 5% of the amount of deferred VAT 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. See here for more details.
Fourthly, HMRC has announced that from April 2022, a new points-based penalty regime will be introduced to harmonise penalties and interest for taxpayers who fail to submit their VAT returns on time and pay the VAT due to HMRC. Details can be found here.
Finally, the existing Making Tax Digital (MTD) regime remains. However, for VAT periods starting on or after 1 April 2022, all remaining VAT registered businesses, including the self-employed and landlords, will be required to keep their VAT records digitally and provide their VAT return information to HMRC through MTD compatible software.
Rates and allowance can be found here.
GBM Accounts – the 2021 Budget