The March 2021 budget has been announced by Chancellor Rishi Sunak, and as expected, there have been some changes to tax.
With extensions on support schemes, freezes on some taxes and increases on others, it’s a mixed bag for the public.
The impact on COVID-19 has been devastating on the economy, and Sunak has repeatedly warned there will be financial consequences for the support the government has felt obliged to provide. However, he has recognized that now is not yet the time to start leaning heavily on the public to start repaying the debt with infection rates still high and thousands of job losses.
The biggest announcement came in the area of Corporation Tax in a move that the Chancellor admitted: “might not be popular”.
Any business that makes an annual profit of £250,000 or more from April 2023 will now pay an increased rate of corporation tax of 25%. Businesses who earn less than £50,000 will continue to pay 19% corporation tax, while those with earnings in between these two figures will face tapered increases.
The Diverted Profit Tax rate is also due to ramp up from April 2023, climbing to 31%.
It wasn’t all bad news for businesses however, as a new “super-deduction” for capital allowance will come into force from April 2021. For every £1 that a company invests into qualifying machinery or plant, its corporate tax bill will be reduced by 125p. This means that in practical terms businesses have the opportunity to reduce their taxable profits over the next two years by 130% of the cost.
Carry back losses are also set to become more flexible, with the period extended from one year to three, for figures up to £2 million.
R&D tax credits will be limited to £20,000 plus x3 of the business’ liability for PAYE and National Insurance.
Sunak announced VAT would not increase, and the lower rate of 5% currently applying to hospitality and tourism would remain in place until 30 September 2021. At this point, it will increase to 12.5% until April 2022.
The VAT registration threshold is set to be frozen at £85,000 until 2024.
The penalties for late VAT returns will be brought into line with a new points-based system for other tax regimes, with a “new approach to interest charges and repayment interest”. This will apply from 1 April 2022.
100% business rates tax relief will continue until 30 June 2021 for all eligible hospitality, retail and leisure properties. From 1 July to 31 March 2022, 66% relief will be provided for any of these businesses which had to close on 5 January 2021. Some types of business will be able to include business rates relief repayments in their deductions for income tax and corporation tax.
An area that many people were watching anxiously for, there were no rises announced in either National Insurance or Income Tax. The personal tax allowance threshold has been frozen for the next five years, remaining at £12,750 for basic rate and £50,270 for higher rate tax until 2026.
The pensions lifetime allowance, IHT threshold and annual exemption limit for CGT have also been frozen until April 2026.
The increase in the stamp duty threshold was extended to 30 June, when it will taper down from £500,000 to £250,000 until 30 September 2021.
Furlough and Financial Support
As anticipated, the furlough and support scheme for the self-employed were both extended. Those newly self-employed people who had been excluded from previous grants will now be eligible to claim the fourth and fifth instalments, provided they submitted their tax return by midnight March 3rd (the night prior to the budget). Other funding and loan support schemes will continue to be made available where appropriate.
Duty on alcohol and fuel has been frozen for a further year.
Eight brand new freeports were unveiled; these are special economic areas that have more of a more generous tax structure.
Despite there being very few tax hikes in his budget. Chancellor Sunak warned that without taking any “corrective action”, the levels of UK borrowing would remain “very high” with no way of preventing the “underlying debt rising indefinitely”.