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Budget stuff  •  Business Tax  •  Coronavirus Advice  •  Personal tax

Spring Budget 2021 Update – What’s in it for you?

By RJP LLP on 3 March 2021

Ask almost anyone the name of the Chancellor of the Exchequer a few years ago and many people could not have answered. How times have changed. It has only been Rishi Sunak’s second budget, but he’s probably one the most famous chancellors the UK has ever had. In the 12 months or so since he took on the job, Sunak has already delivered 15 crisis-related announcements and spent over £280bn trying to keep the economy afloat. But what goes around comes around and despite the headline giveaways, today marks the start of long process to replenish Treasury coffers, with a number of important changes to tax policy.

Here are today’s main announcements:

Furlough extension

The Treasury has confirmed it will be extending the furlough scheme beyond the timetabled lifting of restrictions in June, until the end of September. Like the other recent furlough schemes, this is not fully government subsidised. Nothing changes to terms immediately, but employers will be required to pay for 10% of a furloughed worker’s wages in July, rising to 20% in August and September. In return, the government will cover 80% of their wages up to the previous £2,500 limit, until September 2021.

New cash grants for self employed

Cash grants available through the self-employment income support scheme (SEISS) will now be available to the 600,000 people who became self-employed during 2019-20 and therefore did not qualify for the original support. Eligibility will depend on them having submitted a tax return for the 2019-20 tax year by midnight on 2 March 2021.

Two further grant payments will be available - a fourth grant for the period between February and April and then a fifth and final grant from May. Payments of up to 80% of average trading profits will be available, granted according to levels of hardship. Business owners whose turnover has reduced by 30% or more will be eligible for the full 80% grant, whereas those less affected will get 30%. The system will open for claims in late July.

Extension to stamp duty holiday and 95% mortgages return

The current stamp duty holiday is to be extended for properties under £500,000 and will last for another three months. Details have not yet emerged about whether second homeowners and investors will remain eligible.  The current £500,000 nil rate band will end on 30 June 2021 and then to smooth the transition period, a new nil rate band of £250,000 will be in operation until 30 Sept 2021. The original rate of £125,000 will be restored on 1 October 2021.

A further measure to support the property market is the re-introduction of 95% mortgages and a replacement to the ‘Help to Buy’ scheme. A new government backed mortgage guarantee scheme to help people with small deposits get on the property ladder will be launched from April 2022. This is capped at £600,000 but is not restricted to first-time buyers or new-build homes.

Corporation tax increase

There have been rumours for weeks that corporation tax will increase from the current 19% rate and the chancellor confirmed this will indeed be the case. The rate will increase to 25% from April 2023, which is still below the G7 average. Small companies will be less affected, with a small profits rate of 19% for those with net profit of £50,000 or less. This will then be tapered so that only companies with profits of £250,000 or more will have to pay the full 25% rate. The increase will reportedly bring in £12 billion for the Treasury. Related to this tax increase, a series of tax consultations are expected to be announced on 23 March, which are likely to contain further details of this (and possibly other) tax increases to come. We will monitor for developments and update accordingly.

Changes to income tax

Although the main rates of income tax are unchanged, there are some important adjustments which do impact income levels in the longer term. They effectively erode income with inflation. The personal allowance has been frozen for now but will increase to £12,570 next year, where it will remain until 2026. The basic rate tax band has been frozen and will then increase to £50,270 next year where it will stay until 2026. The IHT threshold, pension allowance, annual CGT exemption and VAT registration threshold have all been frozen.

Enhanced loss carry back for companies

To counter the impact of corporation tax increases, more generous tax treatment of company losses is to be introduced. It will be possible for companies to carry back losses of up to £2m for 3 years. This measure will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/2021 and 2021/2022 for unincorporated businesses.

New ‘super deduction’ business tax relief

To help encourage further investment by business, a new ‘super deduction’ allowance will be offered for the next 2 years. Rather like a turbo charged annual investment allowance scheme but offering similar advantages to R&D tax credits, it will allow companies that invest in new equipment to claim 130% of the cost of investments.

VAT for hard-hit sectors

The 5% reduced rate of VAT for hospitality businesses is to be extended until 30 September 2021. After this, it will gradually rise to an interim rate of 12.5% for 6 months and then return to the standard 20% rate by April 2022.

New business recovery loan scheme

A new recovery loan scheme is being introduced to replace the Bounce Back and CBILS (Coronavirus Business Interruption Loan Scheme) with loans between £25,000 and £10m being available. As with the earlier loan support schemes, they will be 80% backed by the government.

Extension to business rates holiday

The current business rates holiday will be extended until 30 June 2021 for certain business sectors e.g. retail, personal care, travel and tourism, hospitality, and leisure. Thereafter, businesses will be eligible for a discount of up to two thirds of their normal rates, which will be assessed and tapered according to the level of hardship. This further reduced rate will operate for another 9 months from the end of June.

New initiatives

Help to Re-educate – free MBAs for business owners

One thing Rishi Sunak has made very clear throughout the pandemic is that the government is there to support ‘viable businesses. Linked to this has been an emphasis on the need for people to re-skill and adapt to the ways society has changed, with re-training and development being key. A new £520m policy unveiled today illustrates this, with so called 'MBA style' management training provided free of charge through top business schools for small businesses. The ‘Help to Grow’ online education scheme will also subsidise 50% of the cost of implementing new productivity-enhancing software.

Help to Re-open - Grants for businesses reopening after lockdown

A new £5bn restart grant scheme is launching for the retail and hospitality sector to help them to re-open after the long lockdown. Grants will be worth up to £18,000 per firm and aimed at the 700,000 or so businesses that were unable to offer some form of remote or online service, e.g. hotels, hair salons, gyms, and restaurants. The support will be tiered – retailers can get £6,000 for each premises, whereas hospitality and leisure businesses can apply for the full amount. It will be administered by local authorities and available from April. In addition, the contactless payment limit will be lifted from £45 to £100 to further help aid the retail sector.

Fast-track help for employers seeking elite workers

Now that Brexit is out of the way, a new elite visa is being launched to help employers to fast track the sourcing of essential high-skilled workers from overseas. This will be especially valuable to the technology sector and means employing researchers, engineers and scientists from outside the UK will become much easier.

Boost for traineeships and apprentices

A new £126m traineeship scheme will double the government subsidy available for apprentices and trainees to £3,000. This is for all new apprentice hires of any age. New "flexi-job" apprenticeships will allow apprentices to work with a number of different employers in one sector.

Help to Buy…a boozer

The Treasury has displayed a lot of creativity when it comes to launching economic policy and this last measure announced in the Budget is perhaps the most novel of all. Help to Buy a house might be gone but here’s its little brother. For everyone that has dreamed of owning a pub, that opportunity could be closer than you thought. The chancellor has promised a £150m pot to help communities save local pubs that are under threat of closure. The scheme will commence in the summer and will entitle community groups to bid for up to £250,000 of matched-funding to buy local pubs and then run them as community-owned businesses. Up to £1m will be available to community groups wanting to buy their local sports club and operate it in a similar way.

If you would like to discuss any of the measures announced in the Spring 2021 Budget today, to examine how they might impact your finances please email partners@rjp.co.uk.

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