Call us: 01603 666132 -Office: 15 Palace Street, Norwich, Norfolk, NR3 1RT Download Our App

The mid-pandemic Budget - March 4th 2021

While the pre-Budget Treasury leaking machine appeared to flag many of the Budget measures announced, the Chancellor still managed to produce some surprises on Budget Day.

Key changes for the forthcoming 2021/22 tax year include:

  • The personal allowance will rise to £12,570 and the higher rate threshold will be £50,270 for 2021/22
  • The NICs upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for 2021/22
  • The exemption from stamp duty land tax on the first £500,000 of residential property value will be extended to 30 June 2021 and then replaced by a £250,000 exemption until 30 September 2021.
  • The capital gains tax annual exemption, inheritance tax rate nil rate bands and pensions lifetime allowance have been frozen.
  • The ISA annual subscription limit for 2021/22 will remain at £20,000 and the corresponding limit for junior ISAs (JISAs) and child trust funds (CTFs) will stay at £9,000.
  • The main rate of corporation tax will be increased to 25% from April 2023 for companies with profits of at least £250,000. At the same time, a new small companies’ rate of 19% will apply to companies with profits of up to £50,000.
  • For the two years from April 2021, companies investing in qualifying new plant and machinery will benefit from a 130% first-year super-deduction.

As the number of people affected by Covid-19 now appears to be slowing as vaccines are rolled out, Mr Sunak was clear on the government’s intention to see out the next few months as lockdown eases with similar support for businesses and individuals. The existing pandemic schemes with which we have now become familiar – furlough, self-employment schemes, business loans and grants – have been extended through to the end of June or even beyond. He chose to spend big initially, announcing major investment incentives for companies in the next two years, adding further to the government debt mountain.

Corporation Tax Rates to Increase but not for all Companies

However, after companies have had their investment binge, the widely anticipated corporation tax rise then kicks in with a vengeance as the main rate leaps by 6% to 25% in just two years’ time. 

The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive.

That should have the effect of encouraging companies to remain in the UK and companies to set up here. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.

Individual taxpayers did not escape paying their fair share either, with Mr Sunak reaching for the old stealth tax favourite of freezing bands, thresholds and allowances. The inheritance tax nil rate band, which was originally frozen at £325,000 in 2009, is not now due to increase until April 2026.

As a cornerstone of his ‘Plan for Growth’ for post-Brexit Britain, the Chancellor announced the launch of freeports, naming eight throughout England, from Teeside to Plymouth and South Devon. These tax breaks include an exemption from SDLT, 100% first year allowances on plant and a 10% per annum structures and buildings allowance.

With the COP26 climate conference due to take place in Glasgow later this year, there were also a number of green initiatives. The first green government bond (a green gilt?) will be issued in the summer. Around the same time National Savings & Investments will launch its own green savings product.

By then, of course, we all hope, the Chancellor perhaps even more than most, to have turned the corner of the last pandemic year.

Super-Deduction for Investment in New Equipment

In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.

Three Year Carry Back of Trading Losses

Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment.

Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses.

The chancellor has announced that the carry back period will be temporarily increased to three years thereby enabling the business to obtain a tax refund. For companies this will apply to loss making accounting periods ending in the period 1 April 2020 to 31 March 2022. For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.

The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carry back against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.

VAT Registration Limit Frozen at £85,000 until 1 April 2024

The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.

Apprenticeship Schemes Extended

The current apprenticeship scheme will be improved with payments of £3,000 to employers in England for each new apprentice they hire aged under 25 and continue to pay the employer £1,500 for each new apprentice they hire aged over 25. The schemes will now run until 30 September 2021.

Starting in January 2022 there will be a new “flexi-job” apprenticeship which will allow individuals to work for more than one company via an agency.

The “Kickstart” Scheme announced in the Summer 2020 Plan for Jobs will continue to be available for the 2021/22 academic year to create 6-month work placements aimed at those aged 16-24 who are on Universal Credit and at risk of long-term unemployment. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.