A delicate balance
The Chancellor had a difficult task in this Budget: to indicate how he might balance the Government’s books in the future, while still having to pay out huge sums to support the economy. He said that he would continue to provide ‘whatever it takes’ to protect businesses and jobs during the present crisis, while being honest about the need to ‘fix the public finances’ and setting out his plans to build the future economy.
After spending so much, it was inevitable that Mr Sunak would have to raise taxes somewhere – but he was bound by an election promise not to raise the rates of Income Tax, National Insurance Contributions or VAT during the life of the Parliament. There has been speculation that he might reduce relief for pensions or bring Capital Gains Tax rates in line with Income Tax. In the event, neither was mentioned; we are promised consultation documents on 23 March that may raise those possibilities, but they are not an immediate prospect. Instead, Corporation Tax will go up – not until 2023, and after extra tax reliefs have been offered for investment in the meantime. There will also be the less visible effect of freezing personal allowances and other reliefs until 2026, increasing the tax take year by year as inflation pushes more people over the limits.
When the Chancellor sits down, the Government publishes everything on the internet – measures he hasn’t mentioned, the detail of things he only touched on and the tables of financial estimates that show what makes a big difference to the public finances and what is marginal. This booklet summarises the most important points and explains how they affect businesses and individuals. We will be happy to discuss the proposals with you and help you understand the implications for your finances.
Further support for individuals and businesses impacted by the pandemic: extensions for job retention scheme and self-employed income support grants, business rates relief, 5% VAT rate on hospitality and leisure; new grants and loans announced
- Small increase in Income Tax thresholds for 2021/22, followed by a freeze until 2025/26
- Freeze in pension scheme Lifetime Allowance, Capital Gains Tax (CGT) annual exempt amount and Inheritance Tax (IHT) nil rate band until 2025/26
- No change to the rates of CGT
- Corporation Tax rate held at 19% until 31 March 2023, after which companies with profits over £250,000 will be taxed at 25%
- ‘Super-deduction’ introduced for companies investing in plant and machinery between 1 April 2021 and 31 March 2023
- Trading losses up to £2 million in 2020/21 and 2021/22 eligible for carry back against previous 3 years’ profits, instead of the usual one year
- Stamp Duty Land Tax ‘holiday’ for the first £500,000 of residential property cost is extended to 30 June 2021, with a further reduction in charges up to 30 September 2021
Measures to mitigate the impact of Coronavirus
The Chancellor began by setting out further measures to provide support for businesses and individuals suffering from the financial effects of the pandemic. The monetary amount of these items, as set out in the Budget forecasts, is far greater than the impact of most tax announcements. Most of these measures apply across the UK, but the Budget only deals with business rates in England and Stamp Duty Land Tax in England and Northern Ireland. The devolved administrations make their own provisions in those areas.
Measures relating to direct taxes and VAT are described in their own separate sections.
The Coronavirus Job Retention Scheme will continue to reimburse employers with the salaries of furloughed employees until 30 September 2021. The employee should receive at least 80% of normal pay for hours not worked. Until 30 June, the employer will only be required to contribute employer’s National Insurance Contributions and pension contributions (as at present); in July, the employer will have to contribute 1/8 of the remaining cost (i.e. 10% of normal salary), rising to 1/4 (20% of normal salary) in August and September.
For the time being, small and medium-sized employers across the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay costs per employee, where the absence is coronavirus-related. The Government will set out steps for closing this scheme in due course.
Self-employed people with profits up to £50,000 have been able to claim grants under the Self-Employed Income Support Scheme (SEISS). There have so far been three grants under the SEISS, each covering three months; two amounted to 80% and one amounted to 70% of average monthly profits up to limits of £2,500 and £2,187.50 respectively per month. A fourth grant, covering February to April 2021, will be claimable from late April at 80% of three months’ average profits capped at £7,500 in total. Claimants must have filed a 2019/20 tax return to be eligible for this grant. People who began self employment in 2019/20, who did not have a record of earnings, could not claim the first three grants, but may be able to claim the fourth grant if they have filed a 2019/20 return by midnight on 2 March 2021.
A fifth grant, covering the period from May to September 2021, can be claimed from late July. This will be targeted at those who need it most as the economy reopens. Those whose turnover has fallen by 30% or more will be eligible for the full grant, which will be 80% of three months’ average profits capped at £7,500. The fact that the grant covers a five-month period appears to allow for the likelihood that the business will be reopening in that time. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. Further details will be published in due course.
The Budget confirms that SEISS grants will be treated as taxable income of the business in the tax year in which they are received.
There have been complaints of unfairness from certain categories of people who fall outside these support schemes, in particular people whose profits were previously just over £50,000 (who are not eligible for any support) and people working through their own company (who can claim the furlough grant, but that will not replace profits previously paid out as dividends). The Budget does not extend any reliefs to people in these categories.
The uplift of £20 per week on Universal Credit will be extended to the end of September, and some other easements in the calculation of the benefit will continue for the time being. For those claiming Working Tax Credit, a one-off payment of £500 will be made to provide equivalent support over the next six months.
Loans and grants
There have been several Government-backed loan schemes to support businesses through the pandemic. Some of these are coming to an end on 31 March 2021, but the Chancellor announced a new ‘Recovery Loan Scheme’. This 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. This will be open to all businesses from 6 April 2021, including those who have already received support under the existing COVID-19 loan schemes.
The Chancellor also announced ‘Restart Grants’: as they reopen after the present lockdown, non-essential retail businesses can claim up to £6,000 per premises; hospitality, accommodation, leisure, personal care and gym businesses can claim up to £18,000 per premises. The Government is also providing £425 million to local authorities to use for discretionary grants to businesses.
Eligible retail, hospitality, leisure and nursery properties in England have enjoyed 100% business rates relief in 2020/21. This will be extended to 30 June 2021, and there will be a further 66% relief for the period to 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.