The Chancellor Rishi Sunak presented his second Budget on Wednesday 3 March 2021. He said his immediate priority continues to be supporting those hardest hit, with extensions to furlough, self-employed support, business grants, loans and VAT cuts and he also set out plans to drive jobs, growth and investment to help the economy rebound.
We highlight, below, a list of most of the changes that we have identified as being relevant to our clients. We have not included any announcements that relate to business types that don’t fall within our typical client base.
The Coronavirus Job Retention Scheme (Furlough) will be extended to September, continuing to finance 80% (subject to upper limit of £2,500) of hours not worked due to Covid for eligible directors and employees until the end of June, then 70% (limit £2,187.50) for July 60% for August and September (limit £1,875.00). The previously announced job retention bonus of £1,000 appears to have been dropped.
The Self Employed Income Support Scheme (SEISS) for self employed sole traders, freelancers and partners, is also extended with a 4th and 5th grant. The 4th grant will again be 80% of three months’ average trading profits (up to £7,500) available to be claimed from late April 21. Newly self employed people who were previously excluded may not become eligible (subject to other restrictions which haven’t changed such as the 50:50 rule and £50,000 profit threshold) as their 19/20 self assessment tax returns are now taken into account. A 5th grant will be available to claim from late July 21, again 80% of three months’ average trading profits (with the same £7,500 limit), but the eligibility criteria will change in that turnover must have fallen by over 30% – if turnover hasn’t fallen by more than 30%, the grant will be just 30% of three months’ average trading profit (limited to £2,850).
The existing Coronavirus Loan Schemes will end for new applications by 31 March 2021. However, there is a new Recovery Loan Scheme which starts on 6 April 2021 which will provide lenders with 80% guarantee on loans between £25,000 and £10million, open to all businesses, including those who’ve already received support under the existing covid loan schemes.
New Restart Grants of up to £6,000 for non essential retail businesses and up to £18,000 for hospitality, leisure, accommodation, personal care and gym businesses, who were forced to close under lockdown, will be available to eligible businesses.
The Chancellor also announced £100 million to fund a new task force of 1,250 HMRC officials to investigate and prosecute people who have unlawfully claimed Covid furlough, SEISS grants, Eat out to help out funds, and bounce back loans. We urge all clients to ensure that they keep records to evidence that they qualified for whatever support/grants that they claimed. In particular, we recommend that time records are kept to evidence working hours before and during covid for all those furloughed.
The Covid 100% Business Rates Relief for eligible retail, leisure and hospitality businesses will continue until the end of June 2021, followed by a 66% relief between July 21 and March 22.
The Reduced VAT Rate for hospitality and accommodation is extended and remains at 5% until 30 September 2021 and will be followed by a lower special VAT rate of 12.5% between October 21 and March 22.
Inevitably, taxes will ultimately have to rise to start repaying the huge debts incurred, the first major tax rise being that the main Corporation Tax Rate will rise to 25% from 1 April 2023. The good news is that smaller companies with annual profits under £50,000 will continue to pay the current lower rate of just 19%.
Some good news is that Tax Losses can temporarily be carried back 3 years instead of the current 1 year which means a business that has made a loss in 2020/21 due to Covid may be able to claim a refund of some of the tax paid in the preceding 3 years when it was profitable to help their cash flow.
To encourage Limited Company business to invest, there is a new Super Deduction against corporation tax for businesses buying equipment. Subject to limits, the company can reduce it’s taxable profits by 130% of the cost of qualifying equipment purchased from 1 April 2021 onwards. This means that for every £100 of equipment purchased, the company’s corporation tax charge is reduced by £25.
The VAT Threshold remains frozen at turnover (sales) of £85,000 which will bring more small businesses into being required to register for VAT as they grow, especially considering the effects of inflation. Smaller, growing businesses need to be very careful not to get caught by the late registration penalties if they don’t register on time when their turnover breaches the threshold.
Personal Tax Rates and Allowances will be frozen at current levels until 2025/26. The tax free personal allowance for income tax as already announced, for 2021/22 will be £12,570 and the higher rate threshold will be £50,270. Basic rate tax remains at 20%, higher rate staying at 40%. Capital Gains tax annual allowance will stay at £12,300 and rates will also remain frozen. The inheritance tax nil rate band remains at £325,000.
Previously announced changes to National Minimum Wage still stand. the NMW for those aged 23 and over will increase to £8.91, 21-22 £8.36, 18-20 £6.56, under 18s £4.62, and apprentices £4.30.
Also unchanged is the delayed extension of IR35 to private sector contracts originally intended to come into force last year. It’s important to note that the test behind IR35 – the employment status test – isn’t changing; it’s the liability for ensuring compliance that will be different under the new rules. When the IR35 changes come into effect in April 2021, the responsibility for determining a contractor’s IR35 status and paying relevant tax will be passed to the companies engaging them. In turn, what that means, is the engaging companies (e.g., end hirers or employment agencies) will be held liable should HMRC decide that status is incorrectly assessed. However, the changes exclude ‘small businesses,’ meaning that contractors working for them will continue to determine their own IR35 status for tax purposes.
Despite Covid, HMRC are pressing ahead with their Making Tax Digital initiative. At the moment VAT registered businesses with turnover of over £85,000 must keep digital records and submit VAT returns directly from their accounting software. This will be extended to all VAT registered businesses from April 2022. This will be followed from April 2023, by all self employed and landlords with annual business or property income over £10,000 and limited companies from 2026. A fundamental requirement will be for businesses and landlords to keep their book-keeping and accounting records in a digital format which effectively ends the use of “pen and paper”, handwritten account books, etc. over the next few years.
The following guides are provided by our professional/regulatory bodies giving more detail of all the Budget announcements.