UK Budget 2021 comes at a time of unprecedented economic and societal challenge. While there is thankfully light at the end of the tunnel due to the rapid rollout of the vaccination programme and the recent issue of Government road maps for reopening of the economy over the coming months, there is still some way to go. Until then it is critical that vital supports continue to be available to individuals, families and businesses making the journey from strict lockdown, through to a cautious easing of restrictions and ultimately the reopening of the economy.
The Chancellor was by necessity forced to frame his Budget into three distinct parts. In the first instance it was essential that existing COVID-19 supports continue to be made available and we welcome the announcements that the CJRS (furlough) scheme, the self-employed support scheme and the temporary SDLT rate cut are being extended until September 2021. The announcement of an extension of the 5% reduced VAT rate for businesses operating in the hospitality, accommodation and tourism sector with a 12.5%rate applying for another 6 months thereafter is also welcome news.
The second part of the Budget was concerned with revenue raising measures. From a business perspective, the most noteworthy was the announcement that the corporation tax rate would increase from the current level of 19% to 25% from 2023. While this instinctively feels counter intuitive given the strong desire (in particular post Brexit) to ensure the continued attractiveness of the UK as a competitive location for foreign direct investment, it is clearly something the Chancellor felt was an important first step towards putting the public finances on a more sustainable footing over the medium term. It is entirely possible that this approach (of increasing tax rates) could be replicated by other governments later this year for similar reasons. Smaller businesses (those with annual profits up to £250,000) should be sheltered from the full effect of this rate increase by the introduction of a small companies rate and marginal relief mechanisms.
While the temporary extension of the loss carry back period for companies from 12 to 36 months will be welcome (and possibly a life line) for some businesses, in many cases the benefit is likely to be cash flow only reversing when the company becomes profitable again (and at a higher tax rate).
While there were no income tax, national insurance, or capital gains tax rate increases, individuals will find themselves worse off due to the announcement that the tax free personal allowance and the level of income at which taxpayers begin to pay higher rate tax will both be frozen at the 2021-2022 levels until 5 April 2026. This “stealth tax” had been anticipated in pre-Budget speculation.
The third and final part of today’s Budget was aimed at driving economic recovery by encouraging businesses to invest and by enhancing the UK’s competitive offering. In addition to the launch of an upcoming review of the existing R&D tax credit regime, the Chancellor announced a very significant measure aimed at stimulating business investment in plant and machinery over the next two years. This “super-deduction” will be of interest to many businesses particularly those in the advanced manufacturing, construction and engineering sectors.
While a UK corporation tax rate of 25% from 2023 would continue to be amongst the lowest within the G7 and still very competitive within the G20, there is no doubt that a 12.5% corporation tax rate in Northern Ireland from 2023 (by then half the UK rate and on a par with that in Ireland) if it could be delivered (and justified on a compelling cost-benefit basis) would significantly enhance the attractiveness of Northern Ireland as an investment location when coupled together with its unique position as a gateway to both the GB and the EU markets!
The KPMG tax team has produced a special Budget 2021 edition of Taxing Times which provides an overview of the day's main announcements including:
If you have any queries on the topics covered in our UK Budget 2021 report, please contact Johnny Hanna, partner in change, KPMG in Belfast.