2021 Budget - Lighting up the Future

The Chancellor, Rishi Sunak, kicked off his 2nd Budget yesterday showcasing his three point plan, with an emphasis on supporting jobs and protecting livelihoods, fixing public finances, and laying the foundations of our future economy. 

Much of his speech was around extending and implementing support as a direct result of the coronavirus pandemic with more of the same as what has been introduced over the last year, such as;

Furlough Scheme

The furlough scheme (coronavirus job retention scheme) has been extended to 30 September 2021 (although this was shared before the formal Budget announcement). This will give businesses the opportunity to furlough staff for hours not worked, claiming up to 80% of their wages capped at £2,500 per month (see previous articles on specific guidance and requirements) until June 2021, then 70% for July 2021, and 60% for August and September 2021, with employers required to top up the respective 10% and 20% differences. From May 2021, employers can include employees who were on the payroll and had a submission made to HMRC by 2 March 2021 meaning this extends to newer employees who may have joined since October 2020.

Rishi Sunak said “supporting jobs is the highest priority”

Self-Employed Income Support Scheme (SEISS)

The 4th SEISS grant round covering the period from February to April 2021, (which is expected to be live in late April), will be at the same rate of 80% of average profits as the previous grant. Only this time, it will be based on the 2020 Tax Return, as well as looking back over the three years before if you don’t quality for 2019/20. As a result, you could end up with a different amount than you received in the last grant.

The 5th and anticipated final grant covering the period from May to July 2021 is expected to be open from late July. There will be further conditions to qualify for this grant. Particularly, if the turnover of a self-employed business has fallen by 30% or more, then the self-employed business owner will get the same 80% of the average trading profits as in the previous 4th round, but if there is less than a 30% drop in turnover, the grant due will be much less at just 30%, capped at £2,850. The conditions are that the business must have been impacted by coronavirus,  you must declare that you reasonably believe there will be a significant reduction in your trading profits, you must still be trading in 2020/21 and you must also declare that you intend to continue to trade to claim the grant, which applies to both grants.

The good news is the 4th and 5th grant amounts will also now be available for the newly self-employed who missed out on the SEISS grant previously and became self-employed during 2019/20, provided they filed their 2020 Tax Return by midnight of 2 March 2021. 

Low Earners - Universal Credit and National Living Wage

The current uplift of £20 per week in Universal Credit system is to continue for a further 6 months up to September 2021. A £500 one-off payment will be due to eligible working tax credit claimants.

The National Living Wage will increase to £8.91 per hour from April 2021.

Boosting Employment

The existing Kickstart Scheme is anticipated to support a quarter of a million young people. Additionally, as an encouragement to boost recruitment and employment, this Budget saw Rishi committed to doubling the incentive to give businesses up to £3,000 to take on new apprentices.

Boosting Business

With many of the existing grant schemes coming to an end in March 2021, Rishi announced various further measures to help businesses.

A new Restart Grant will be launched from April 2021. Non-essential retail businesses due to open from 12 April 2021 which will be eligible for a grant of up to £6,000 per premises, and this increases to £18,000 for those in hospitality, accommodation, leisure, personal care and gym businesses.

In addition, the existing  5% reduced rate of VAT applicable to travel and hospitality will be extended to 30 September 2021, followed by a phased return to the standard rate; rising to 12.5% for the next 6 months until March 2022, then returning to full rate of 20% by April 2022.

The current 100% Business Rates Holiday for those businesses currently eligible in non-essential retail, hospitability and leisure will continue for 3 months until end of June 2021 with the rates then being discounted by two thirds for the remainder of the financial year to March 2022.

Rishi said that £25bn extra support has gone into businesses.

Lending

A New Recovery Loan Scheme will be introduced, replacing the current Bounce Back and CBILS schemes, giving the facility to borrow funds from £25k to £10m, and it is expected to be available through to the end of this year.  Similar to the previous loan schemes, the Government will provide an 80% guarantee to lenders to encourage lenders to deliver.

Home-buyers

The current £500k SDLT (Stamp Duty Land Tax) holiday will be extended until 30 June 2021 to help those still in the process of buying a home, as it has been determined that the 31 March 2021 cut-off was too soon. To avoid a “cliff-edge” increase after this date, the nil rate band will be reduced to £250k until the end of September 2021, returning to the usual £125k from 1 October 2021.

The Chancellor introduced a new policy to “stand behind homebuyers” giving those who can only afford a 5% deposit to buy their own home, the opportunity to get a government backed mortgage guarantee to help them buy. Many of the big banks have already committed to this. He announced this was giving people the chance “to buy their own home”.

Economy

“To protect the livelihood of the British people”

The Chancellor commented on the government’s total fiscal support responses to date. Particularly, an additional £65bn of measures have been put in place to support the economy in regards to coronavirus, making the total COVID support package £352bn for this year and last.  

However, the OBR fiscal forecast shows we have borrowed a record £355bn, and without correction this will rise. Rishi explained that this is not the Budget to set detailed fiscal targets, and said whilst it is right to help, he said “we need to fix our public finances”.

Allowances and Rates

Income Tax, NIC,  VAT, IHT & CGT

Rishi advised that there would be no increase on the current Income Tax, NIC and VAT rates, and that the IHT threshold would remain, as would the annual exemption for capital gains tax, and the pension allowance and VAT registration thresholds will also remain the same.

It was confirmed that there will be a freeze on the personal tax rate thresholds and personal allowance after the increase already planned and coming into effect from 6 April 2021. The personal allowance will be £12,570 up to April 2026, and likewise the higher rate threshold at £50,270 will also remain until April 2026.

Corporation Tax

From April 2023 the rate of corporation tax on company profits will increase to 25%, and is aimed at bigger businesses. It is anticipated that only 10% of companies will in fact pay the higher rate of 25%, as it will apply to companies with profits in excess of £250k. Companies with profits of less than £50k, will still pay tax at a small profits rate of 19% on all profits. But a taper will be introduced for profits between £50k to £250k to gradually bring the average rate of tax up to 25%.

In an effort to stimulate corporate investment, the new Super Deduction was introduced and will be applicable for the next two years, giving 130% deduction for capital purchases, with effect from 1 April 2021. Many companies may want to hold off buying any equipment that would usually qualify for main rate capital allowances until after 1 April 2021 to maximise their relief (thus effectively saving almost 25p for every £1 spent, instead of the normal 19p).

Business Reliefs & Incentives

The tax treatment of trading losses incurred in the accounting periods ending in tax years 2020/21 and 2021/22 (31 March 2022 for companies), will be extended so that businesses can carry back their losses for three accounting years, instead of the usual one year. This is particularly useful for businesses with losses in more than one year, and will apply to companies as well as sole traders and partnerships.

In addition, the Annual Investment Allowance on capital allowances will increase from £200k to £1m in this calendar year to 31 December 2021.

In a new set of UK wide schemes, the government are launching Help to Grow - for Management and Digital. In a bid to help small business growth, there will be a new management training and peer learning 12-week programme to upskill many SMEs, being run over 3 years, with the government contributing 90% of the cost. The digital programme will be launched to help SMEs utilise productivity enhancing software and become more digital in this new progressive era. This will be by way of a voucher covering half the cost of approved software up to £5k along with free impartial advice.

Rishi said they want to be a “fiscally responsible and business friendly government”.

Review of Enterprise Management Incentive (EMI)

The Chancellor has called for evidence to support his review of the Enterprise Management Incentive (EMI) plan. EMI options are targeted at SMEs (e.g. amongst other criteria, qualifying companies must have less than £30 million of gross assets and fewer than 250 full-time employees). EMI is without a doubt the most popular share scheme for the employees of SMEs, as it offers generous tax advantages and government figures demonstrate that usage has increased significantly.

Evidence is requested to review the following areas:

• whether the current scheme is fulfilling its policy objectives of helping Small and Medium Enterprises (SMEs) recruit and retain employees

• companies that are ineligible for the EMI scheme because they have grown beyond the current qualification limits are experiencing structural difficulties (i.e. in the labour market) when recruiting and retaining employees

• whether the government should expand the EMI scheme to support high growth companies and how

• compare other forms of remuneration which could provide similar benefits for retention and recruitment for high growth companies.

The government is seeking views from businesses, business representative organisations, and employees as well as anyone interested in the EMI by the 26 May 2021.

COVID Fraud

With the loss of so much revenue from COVID-19 fraud, the government will invest over £100m to go towards tackling fraud within COVID-19 support, with HMRC bringing in over 1000 staff to focus on this. We can expect further new measures to be put in place to clamp down on the problem.

On a lighter note…

Alcohol duties have been frozen for the second year in a row, and the fuel duty increase has been cancelled.

And lastly, the limit for contactless payments is to be increased from £45 to £100, so in the interest of social distancing no more touching the screen, but we do all need to be careful of fraud and check our statements regularly!

The Chancellor said the third point of the plan was to “lay the foundations of our future economy”.  

Let’s hope it delivers!

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FRIDAY 5TH MARCH 2021 AT 11:00AM - REVIEW OF THE BUDGET

Wondering how this new budget announcement will affect you?

Join us for our free tax clinic tomorrow at 11:00AM for an interactive review of the budget

In this Tax Clinic, we’ll be covering Rishi Sunak’s Budget on 3rd March 2021 and the impact this may have on you as a taxpayer. This is your chance to put any questions to our tax expert Faye Watts. You can also request a topic or question in advance to ensure we cover what you need. All welcome.

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FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment, and professional services. Our clients vary in size from self-employed sole traders, small enterprises and medium-sized businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.