On Wednesday 3rd March, the Chancellor of the Exchequer, Rishi Sunak delivered the 2021 Budget. Outlining the current state of the UK’s finances and the policies the government will implement to address this. Due to the nature of the Budget, there is a lot of information to take in and it can be hard to pinpoint exactly how policies will affect you and your business. Our team have diligently analysed and assimilated the Budget, bringing you a comprehensive and clear outline of the changes to tax, income support and other details that could apply to your business or personal finances. It is worth noting that these are headlines of the budget and may be subject to change when the Treasurer expands on the detail.
- Capital Gains Tax
- Corporation Tax
- Carry Back Loss Extension
- Research and Development Tax Relief
- Super Deductions
- Income Tax
- Inheritance Tax
- Pension Lifetime Allowance
- Reduced VAT for Hospitality
- Stamp Duty
- Self-Employment Income Support Scheme
- Universal Credit
- Recovery Loan Scheme
- 5% Mortgage
Capital Gains Tax
There are no changes to the current rates of capital gains tax. The capital gains tax annual exemption is remaining at the current level of £12,300 for five years, until 5th April 2026. This essentially means that the first £12,300 (for individuals, personal representatives and some types of trusts) of gains in a year will be free and anything over that will be charged to capital gains tax.
The rate will remain at 19% until 1st April 2023, thereafter for companies with profits over £250,000, the rate will increase to 25%, companies with a profit of £50,000 or less will still pay 19%. Companies with profits between £50,000 and £250,000 will pay the main rate tax, reduced by a marginal relief.
Carry Back Loss Extension
The government has extended the period which trading losses can be carried back for tax relief purposes, to accounting periods ending before 31st March 2022. Up to £2 million of losses can be carried back against profits of the 3 years prior. This will be useful for businesses which were previously profitable but have been heavily impacted by the pandemic.
Research and Development Tax Relief
From 1st April 2021 the government is introducing a cap on the amount a company can claim back on R&D. The cap will only apply to expenses and losses from after 1st April 2021, anything before this is not impacted. The cap will limit the repayable tax credit to £20,000 + three times the company’s total PAYE and NIC liability for the accounting period. Claims below £20,000 are unaffected, so smaller companies will likely not be affected.
The government intend to review R&D tax reliefs to ensure they remain fit-for-purpose in a rapidly changing R&D environment. It will now consider bringing data and cloud computing costs into the scope of relief alongside a number of other policy options and priorities. This will allow the government to ensure that any policy changes provide support to businesses across the economy in a fair way and that taxpayer money is effectively targeted towards activities that drive the best outcomes for the UK economy.
From 1st April 2021 companies buying new, qualifying, plant and machinery will benefit from new first year capital allowances. The company will be allowed to claim 130% on most new investments that usually qualify for 18% main rate, and a first-year allowance of 50% on most new investments that usually qualify for 6% special rate.
The tax-free personal allowance is rising to £12,570 (currently £12,500) and the basic rate limit will increase from £37,500 to £37,700. The higher rate threshold (personal allowance + basic rate limit) will increase by £270 to £50,270.
These rates will be frozen for the next five years until 5th April 2026.
The inheritance tax nil rate band is also frozen at £325,000 and the additional IHT residential nil rate band has stayed at £175,000. Both thresholds will stay the same until 5th April 2026, giving a couple an IHT free allowance of £1m.
Pension Lifetime Allowance
The lifetime allowance is the maximum amount you can save into your pension without having to pay extra tax, the current allowance is £1,073,100, this will be held until April 2026. The annual allowance of £40,000 has not changed either.
Reduced VAT for Hospitality
The reduced rate of 5% is continuing until 30th September 2021, a 12.5% rate will apply for the following 6 months until 31st March 2022. The standard rate of 20% will apply thereafter.
The current tax cut will be extended until 30th June, it will be reduced from £500,000 to £250,000 from July to September, then from 1st October the normal threshold of £125,000 for home movers will resume.
The freeports are: East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Teesside and Thames. The areas will attract favourable tax and other incentives including business rates relief, stamp duty tax relief, relief from employer national insurance contributions, these will be in place until 2026.
The furlough scheme has been extended up until September 2021. Until the end of June 2021 employers can claim 80% of an employee’s wages for the time they spend on furlough (up to £2,500 per month), in July it will drop to 70% with a £2,187.50 maximum and in August and September there will be decrease to 60%, with a maximum of £1,875 per month.
The national living wage will increase to £8.91 and is extended to 23- and 24-year-olds for the first time, national minimum wage has also increased for every other age bracket.
Self-Employment Income Support Scheme
The scheme has been extended to those who filed a 2019/20 self-assessment. This means if you were previously ineligible due to only becoming self-employed in 2019 or early 2020, you now may be. A fourth grant of 80% of three months average trading profit can be claimed from late April, the payment will be capped at £7,500 and will cover February- April 2021. A fifth and final grant can be claimed late July to cover May-September 2021.
The current universal credit rate has been extended for 6 months, until 30th September and the benefit of the extra £85 a month will stop from 1st October.
Recovery Loan Scheme
The Bounce Back Loan and Coronavirus Business Interruption Loan schemes will end as planned on 31 March 2021. These schemes will be replaced by the Recovery Loan Scheme. This will allow businesses of any size to claim loans from £25,000 to £10 million, between 6th April and 31ST December 2021. Businesses need to prove that they have been impacted by the pandemic and would be viable if not for the pandemic. The loans will be guaranteed by the government, up to 80% of the value of the loan.
This scheme involves the government guaranteeing 95% mortgages and major lenders will be offering deals from April. This will be available for new and existing properties up to £600,000, and will run until December 2022.
That is our full summary of the 2021 Budget – well done, you made it to the end! As ever with these announcements, there’s a lot to take in and its worth taking the time to assess what these changes will mean to your finances. If you would like to discuss how any aspect of this budget may impact on you and your business, please do not hesitate to get in touch.
On Wednesday 3rd March, the Chancellor of the Exchequer, Rishi Sunak delivered the 2021 Budget. Here's what he outlined. ”