The economic climate has completely changed since the last Budget in 2020. The Government has spent £280 billion in supporting individuals’ jobs and businesses through the restrictions imposed as a result of the COVID-19 pandemic. The recently announced roadmap for the lifting of restrictions over the next few months has enabled business to plan for the journey back to normality, or what normality will turn out to be in a post COVID-19 world. Now the Chancellor has provided the final piece of the jigsaw with continued financial support in the short term.
The Chancellor divided up the 2021 Budget into three parts to continue to provide support until the end of September 2021, starting to repair the damage to the UK’s financial position, and to encourage growth in the future.
The furlough support grants (Coronavirus Job Retention Scheme) will continue until the end of September 2021, but with employers funding 10 percent of the employee’s unworked hours in July and then 20 percent in August and September as well as the existing NIC and pension costs.
Under the Self Employment Income Support Scheme, individuals will have a fourth grant of 80 percent of three months’ average trading profits, capped at £7,500 for the months of February to April. A fifth grant will cover May to September, but for those individuals whose turnover has fallen by less than 30 percent the grant will be capped at £2,650.
The income tax and NIC exemptions for employer provided COVID-19 antigen tests and reimbursement of home office equipment will continue until 5 April 2022.
Business rates relief will continue for qualifying retail, hospitality and leisure businesses at 100 percent until June 2021, reducing to a 66 percent relief until 31 March 2022 capped at £2 million per business. The 5% VAT rate for leisure activities will continue until 30 September 2021 when a new rate of 12.5% will apply until 31 March 2022.
The stamp duty land tax zero rate band of £500,000 will be maintained until 30 June 2021, when it will reduce down to £250,000 until 30 September 2021 when it reverts back to £125,000. This will continue to encourage house purchases as will the new government guarantee for 95 percent mortgages on houses up to £600,000.
Businesses will, both incorporated and unincorporated, also be able to benefit from the ability to carry back over a three year period £2 million of losses arising during each of the 2020/21 and 2021/22 tax years. This will be applied on a group basis, enabling companies to recover up to £760,000 of corporation tax.
Companies will also benefit from a first year capital allowance of 130 percent on plant and machinery acquired between 1 April 2021 and 31 March 2023, with a new 50 percent first year allowance on qualifying special rate assets (excluding operating leases, second hand assets and cars). This was announced by the Chancellor as a ‘super deduction’ for investment. The annual investment allowance of £1 million for business will also remain until 31 December 2021. This will encourage spending on capital equipment by companies over the next two years.
However, corporation tax is due to increase to 25% from 1 April 2023 (with the diverted profit tax also increasing to 31%). A small profits tax rate of 19% will be reintroduced, but at a lower level of £50,000 of profits with the corporation tax rate tapering back up to 25% for profits of £250,000. This will leave 70 percent of companies paying corporation tax at the lower level. There is also a consultation on the 8% surcharge for banks. These corporation rate changes are one of the major sources of additional finance for the Government in the medium term, the other being the freezing of the personal thresholds.
There was silence on the more complicated reforms to the tax system, such as taxes on capital gains and inheritance (see Changing face of capital taxes – KPMG United Kingdom) and the taxation of work. Over the past few months there has been a heightened level of interest in these topics, particularly as the deferred changes to the off-payroll working regime are due to be introduced on 6 April 2021. More information may arise on 23 March, which the Government is calling ‘Tax Day’, when consultations on the future of taxation as part of the Treasury’s 10 year tax strategy and an interim review of business rates are due to be published. However, consultations on the research and development tax relief and enterprise management incentives have already been announced.
The Chancellor did, however, announce a freeze to thresholds for income tax, capital gains tax and inheritance tax, extending until 2025/26, although some small inflationary rises to income tax thresholds will go ahead in April.
Looking forward, the main tax announcement to help UK growth was the identification of the first eight freeports. Freeports will have several beneficial tax reliefs for the period until 30 September 2026. A 10% rate for structural and buildings allowance, 100 percent allowances for plant and machinery, 100 percent relief from stamp duty land tax and 100 percent business rate relief. The Government intends to introduce an employers’ National Insurance Contributions relief from April 2022 until April 2026.
In short, the Government hopes that a strong bounce back to growth will help its finances in the medium term and has introduced some measures to facilitate this. However, whilst business support is maintained until September 2021 there is a cash flow cliff edge at this date when most of the support packages are removed. The new recovery loan schemes with 80 percent Government guarantees and the restart grants for retail hospitality, accommodation, leisure, personal care and gym businesses may help ease business back towards the path towards normality.
At the end of the 4th century CE, St Augustine famously wrote “Lord, make me chaste, but not yet”. Rishi Sunak has a similar approach to his Budget, financially stringent from 2023 but not while the economy starts to recover from the COVID-19 outbreak.
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