On the third of March, the Chancellor, Rishi Sunak, delivered his Budget 2021 ‘protecting the jobs and livelihoods of the British People’.
An outline of some of the key measures set out in his speech are summarised below.
Personal Tax Measures
No changes were announced to the rates of income tax currently in force, which will be legislated for in the Finance Bill 2021.
However, the Government announced that it will freeze the personal allowance (PA) and higher rate threshold (HRT) at the 2021/22 levels, being £12,570 and £50,270 respectively. These freezes will last up to and including 2025-26.
Changes to the PA and to the basic rate limit and higher rate threshold on savings and dividends income apply to the whole of the UK, whereas changes to the basic rate limit and higher rate threshold on non-savings and non-dividend income apply in England, Wales and Northern Ireland only. Income tax rates and thresholds on non-savings and non-dividend income for Scottish taxpayers are set by the Scottish Parliament.
As the National Insurance Contributions Upper Earning Limit (UEL) and Upper Profits Limit (UPL) are aligned to the higher rate tax threshold, this measure also freezes the UEL and UPL for the same period and these changes apply to the whole of the UK.
National Minimum Wage
From April 2021 the National Living Wage will increase to £8.91 and will be extended to 23 and 24 year olds for the first time.
Lower hourly rates apply to those under 23 years old, as follows:
- Aged 21 to 22 inclusive: £8.36;
- Aged 18 to 20 inclusive: £6.56;
- Aged under 18 (but above compulsory school leaving age): £4.62;
- Apprentices aged under 19: £4.30; and
- Apprentices aged 19 and over, but in the first year of their apprenticeship: £4.30.
The Government has extended the temporary £20 per week increase to the standard allowance for a further six months. Alongside this, the Government will make a one-off payment of £500 to eligible Working Tax Credit recipients across the UK.
In addition, the amount of ‘surplus earnings’ (earnings in excess of the level of earnings that would result in a Universal Credit award of £0) is also to be kept at £2,500 for 2021/22, rather than reducing to £300 as planned.
Tax Relief Extension for Homeworkers
The temporary exemption which allows employees to be fully reimbursed for the purchase of home office equipment necessary for home working without any incurring any income tax or national insurance consequences has been extended until 5 April 2022.
‘Green’ National Savings Product
A new green retail savings product will be offered by National Savings & Investment in the summer of 2021. Further details will be published over the next few months.
Capital Gains Tax
The government announced that the Annual Exempt Amount of £12,300 for individuals (£6,150 for Trusts) will remain frozen up to and including 2025-26.
Despite speculation before the Budget that revenue may be collected through changes to capital gains tax (CGT) rates and allowances, no other changes were made in respect of CGT, either to the rates applicable or to current tax reliefs available.
No changes were announced to the existing tax reliefs for pension savings.
The lifetime allowance for pension savings will, however, be frozen at £1,073,100 until April 2026. The Annual Allowance remains at £40,000 and the tapering of the Annual Allowance continues to be set with reference to adjusted earnings of £240,000.
The Government is to consult on measures to encourage investment by pension funds in a broader range of assets.
The inheritance tax nil-rate band and residence nil rate band remain at £325,000 and £175,000 respectively, with these bands frozen at that level until April 2026. The residence nil rate band taper continues to start at estates valued at £2 million.
Business Tax Measures
It has been proposed that the period in which a company or an unincorporated business can carry back trading losses will be temporarily extended from one year to three years.
Corporation Tax Losses
For companies, this extension will apply to trading losses made in accounting periods ending between 1 April 2020 and 31 March 2022. Losses will be required to be set against most recent profits first before carrying back to earlier years. There remains no cap for the carry back of losses to the prior year.
For the extended relief, there will be a cap of £2,000,000 of unused losses that can be carried back against profits of the same trade for the earlier two years.
The £2,000,000 cap applies separately to unused trading losses made by companies, after carry-back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021. There is separate maximum of £2,000,000 for periods ending between 1 April 2021 and 31 March 2022.
The £2,000,000 cap will be subject to a group-level limit. Further detail on how this will be applied is to be published.
Income Tax Losses
The relevant tax years for unincorporated businesses are 2020/21 and 2021/22. Individuals are currently able to carry back losses against total income for the prior year. This is subject to the existing loss relief restrictions.
Additional tax relief will be achieved by allowing unrelieved losses to be carried back and set against profits of the same trade for three years before the tax year of the loss.
For a loss incurred in 2020/21, the loss carried back to the two earliest years of the extended period (2017/18 and 2018/19) will be capped to £2,000,000. A similar cap applies to the loss incurred in 2021/22.
There are no caps for partnerships.
The new loss carry-back rules are complex and we are awaiting further information to be published. Please contact your usual M+A contact to discuss how these changes may apply to your business.
The VAT registration threshold will remain at £85,000 until 31 March 2024.
Corporation Tax Measures
- From 1 April 2023, a new Small Profits Rate (SPR) of Corporation Tax (CT) at 19% will be in place for companies with annual profits below £50,000;
- The main rate of corporation tax will be increased to 25% for all other companies; and
- In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31%; and
- Marginal relief will be introduced for companies with annual profits between £50,000 and £250,000, such that they will pay corporation tax at an overall rate between 19% and 25%. No information has yet been published as to how this marginal relief will operate.
Companies with an accounting period other than 31 March will be required to time apportion their profits in the accounting period in which the corporation tax rate changes, such that profits up to 31 March 2023 are taxed at the current 19% rate, and profits from 1 April 2023 are taxed at the new rate applicable to them. This may be particularly relevant to those companies paying under the quarterly instalment regime, who are required to estimate their tax liabilities in advance of the year end and calculate the estimated tax due based on the new tax rates.
‘Super’ capital allowances
The Chancellor announced a temporary increase in the capital allowances available only to companies. This applies to expenditure incurred from 1 April 2021 to 31 March 2023 and gives increased relief as follows:
- A super-deduction allowance of 130% for most plant and machinery that would normally qualify for 18% writing down allowances in the general or main capital allowances pool; and
- A first year allowance of 50% on most plant and machinery that would normally qualify for the 6% writing down allowances in the special rate pool (eg. electrical or lighting systems).
The allowances will reduce the taxable profit of the company. However, note that the measure as announced only applies to companies within the scope of corporation tax and will not apply to businesses carried on as sole trades or partnerships.
Other key limitations include
- The exclusion of expenditure on used or second-hand assets;
- The exclusion of expenditure in relation to contracts entered into prior to 3 March 2021, even if the expenditure is incurred after 1 April 2021;
- Additional conditions will need to be met for assets acquired on hire purchase;
- The rate of the super-deduction will be time apportioned for accounting periods straddling 1 April 2023; and
- The disposal value of assets on which the super-deduction has previously been claimed will be adjusted by a factor of 1.3 when including the disposal in tax computation. A lower factor would be applicable if assets are disposed in an accounting period straddling 1 April 2023. This rule does not apply to the 50% first year allowance.
For those businesses not qualifying for the enhanced allowances or where second-hand assets have been purchased, the Annual Investment Allowance will be available. However, this is due to reduce from the current level of £1,000,000 to £200,000 on 1 January 2022.
Government consultations: R&D and EMI
The Chancellor announced a consultation into the reliefs available to companies undertaking research and development activities. This follows on from the consultation last year on the categories of qualifying expenditure.
This year’s consultation, which closes on 2 June 2021, will be focused on how the current definitions and eligibility reflect how R&D is currently conducted, how well the reliefs are operating for businesses and the targeting of reliefs for maximum value.
The Government has also called for evidence on how the Enterprise Management Incentives scheme is working in helping smaller businesses recruit and retain key employees, and whether it should be expanded.
Cap on R&D relief for small and medium sized enterprises
To deter abuse, the amount of SME R&D tax credit that can be received by a company for accounting periods starting on or after 1 April 2021 will be capped at £20,000 plus three times the company’s total PAYE and National Insurance liability.
The Government will provide an additional £126 million in England for high quality work placements and training for 16 to 24 year olds in 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.
The Government will also extend and increase the payments made to employers in England 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, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.
This is in addition to the existing £1,000 payment the government provides for all new 16 to 18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies.
The Chancellor announced that the planned increase in fuel duty has been cancelled. In addition to this, the Vehicle Excise Duty for HGVs has been frozen for 2021 and 2022 and the HGV levy has been suspended for another 12 months from 1 August 2021.
The benefit in kind charges for company vans and the fuel benefit for both cars and vans will be increased by the Consumer Price Index from 6 April 2021.
In his previous Budget in 2020, the Chancellor announced that the entitlement to use red diesel will be removed except for agriculture, fish farming, rail and non-commercial heating. Following consultation, these measures have been scrapped and entitlement to use red diesel beyond April 2022 now extends to those using it to power vessels for commercial purposes, including fishing and water freight; travelling funfairs and circuses; amateur sports clubs including golf courses; and for non-commercial power generation.
The aggregates levy will be frozen in 2021 to 2022 but the Government intends to return to index-linked increases in the future.
For the second year in a row, all alcohol duties will remain frozen.
Community Ownership Fund
The £150million Community Ownership Fund has been created to help communities take over important local community assets. This will be especially relevant to rural counties like Norfolk.
From this summer, community and voluntary groups with formal governance in place, can bid for up to £250,000 matched funding to help them purchase or takeover local community assets, such as pubs, theatres, sports clubs and post office buildings.
The limit for a single contactless card payment will rise from £45 to £100.
Should you have any queries on the Tax and Financial Measures announced in the 2021 Budget, or require any help or support during these challenging times then please either get in touch with your usual M+A Partners contact or email firstname.lastname@example.org and we will be happy to help.