For those tax professional who were waiting with bated breath for the Budget announcement, they may well have been left a little deflated. The Chancellor’s announcements on Wednesday were more do with continuing to support the UK economy due the financial pressures caused by the pandemic, which is obviously welcomed, but there was very little in terms of immediate tax elements. Over the next few years though, taxes are going to rise and we expect the next couple of Budgets will target areas that escaped this week.
However dealing with the present, the main changes from the Budget are summarised as follows:
Increase in the personal allowance to £12,570 for the year ended 5 April 2022 and to be frozen at this amount until April 2026. This applies to Scotland and the rest of the UK.
The UK’s basic rate band is to increase to £37,700 and the higher rate band to £50,270, and again frozen until April 2026. These changes will effectively mean that taxpayers will start to pay more income tax from 6 April 2022 onwards.
There were no changes to the pension contributions rates which remain at £40,000 if your adjusted income is below £240,000 and are tapered down to a minimum of £4,000 if your adjusted income is above £240,000. The lifetime allowance remains at £1,073,100 and this will be frozen until April 2026.
Currently no change has been made to the dividend tax rates, or the £2,000 zero rate dividend allowance.
Capital Gains Tax (CGT) and Inheritance Tax (IHT)
Despite the fears, no changes of any sort, in any of the rates, exemptions or rules but we do expect this to be revisited, perhaps as early as the Autumn, so it potentially worth realising capital gains for those considering action anyway. More details here.
Home workers will still be able to claim tax relief for the additional costs being incurred. Individuals can claim either £6 per week without receipts or you can claim the exact amount of extra costs but you would be required to provide evidence such as receipts, bills or contracts.
National insurance threshold for employees (not employers) will increase to £184 per week or £9,568 per annum. There were no changes to the national insurance rates.
Statutory Sick Pay (SSP) rules remain the same at this time, if your employee is off work sick for a non-coronavirus illness then the normal rules apply, that is you pay SSP from day 4. If the employee has contracted coronavirus or having to self-isolate, then SPP is paid from day 1.
The much dreaded and delayed off-Payroll working rules come into force from 6 April 2021, and this will most likely leave those affected significantly worse off.
A welcome announcement is an extension until 5 April 2022, of the time-limit that ensures employees who are furloughed or working reduced hours because of coronavirus continue to meet the working time requirements for Enterprise Management Incentive (EMI) share schemes. The change will apply to existing participants of EMI schemes and it also allows employers to issue new EMI options to employees who do not meet the working time requirement as a result of COVID-19.
The biggest news for companies is that from April 2023 the corporation tax rate will be increased to 25%. However, companies with profits of less than £50,000 tax will remain at 19%, and companies who have profits between £50,000 and £250,000 will have the rate of tax tapered.
The R&D tax credits companies can claim under the Small and Medium Sized Enterprises (SME) scheme is also changing. The amount that can be claimed will be capped at £20,000 plus 3 times the company’s total PAYE and NIC liability.
A consultation on the future of the R&D tax credits will also take place shortly.
As previously announced, the annual investment allowance of £1,000,000 has been extended to 31 December 2021.
There was some surprise news for companies and unincorporated businesses, from 1 April 2021 to 31 March 2023 if they invest in new qualifying plant and machinery they will be able to claim:
These measures have been brought in to encourage business to investment in their future success.
Some other good news for companies and unincorporated businesses regarding the carry back of trading losses, under current rules losses can only be set against other income in the same period or carried back one year, however if losses are incurred during the period 1 April 2021 to 31 March 2022 these can be carried back three years, up to a limit of £2,000,000.
Value Added Tax
The reduced rate of 5% VAT in July last year for the hospitality and tourism sector has been extended until 30 September 2021, when it will be replaced by a rate of 12.5% applicable until 31 March 2022.
A new payment scheme has been in place since February that allows businesses with deferred VAT to spread their payment over 11 equal monthly instalments on an interest free basis from March 2021. Businesses can also choose to pay the full deferred amount by 31 March 2021.
One sting is the introduction of a penalty for the late payment of deferred tax. If businesses have not paid their deferred tax or entered a scheme to pay the tax by 30 June 2021, a penalty of 5% of the deferred VAT outstanding will become chargeable.
The VAT registration and deregistration thresholds of £85,000 and £83,000 respectively will remain unchanged for 2 years from 1 April 2022.
Stamp Duty Land Tax/Land and Buildings Transaction Tax (LBTT)
The Stamp Duty Land Tax (SDLT) holiday that is currently available in England has been extended to June 2021, so no properties purchased up to £500,000 would pay any stamp duty. At present the Land and Buildings Transaction Tax (LBTT) holiday in Scotland, for properties purchased up to the value of £250,000 is due to come to an end at the end of March. From 1 April 2021 the ‘nil-rate band’ will revert back to £145,000 but the big question is, will Scotland follow and extend the holiday window?
General Business Matters
Furlough Scheme (Job Retention Scheme)
No surprise that the furlough scheme is to be extended until 30 September 2021, which will undoubtedly bring relief for employers and employees. Employees will continue to receive a minimum of 80% of their gross wages, however from July 2021 employers will be asked to contribute 10% of the costs and for August/September 2021 employers will be asked to cover 20% of the costs.
Self-Employment Income Support Scheme
It was announced that the Self-Employment Income Support Scheme (SEISS) would continue until 30 September 2021 with a fourth and fifth grant. In our view this was one of the major disappointments as the vast majority of those who were excluded before will continue to be treated appallingly. For many they will have had no income from their business for over a year and it does make a mockery of the statement that “we will do whatever it takes”.
Yes, the grants will now take into consideration those who become self-employed during the 2019/20 tax year, which includes some taxpayers who had not previously been able to claim. To qualify the taxpayer should have filed their 2019/20 tax return by 2 March 2021.
The fourth grant must be claimed by 31 May 2021 at the latest and for those who had previously received grants, the profits for 2019/20 tax return will now be taken into account which may mean you latest grants will be lower depending on the level of your profits for the year.
The fifth and final grant will be based on how much your turnover has been reduced. The taxpayer will still receive 80% of their three months average trading profits, capped at £7,500, however this will only be for those who have a reduced turnover of 30% or more. For those with a reduced turnover of 30% or less will receive a grant worth 30% of the three months average trading profits.
As before the taxpayer must make claim the grants and will be contacted by HMRC by mid April.
Business reopening grants
It was announced that business reopening grants of £6,000 for non-essential shops that can reopen in April and £18,000 for other businesses that cannot reopen until a later date would be awarded in England. The devolved governments are to receive similar money to assist businesses in their countries and we await news from the Scottish Government how they will allocate this money which will be in addition to Scottish retail, hospitality, leisure and aviation business who will not have to pay any non-domestic rates throughout the whole of the 2021/22 financial year.
Business Recovery Loans
As a successor to the Bounce Back Loan (BBL) and the Coronavirus Impact Business Loan (CIBLS) a new loan scheme is to be introduced. Although not as generous as the previous schemes which are to be closed to new applicants from the end of March. Under the new scheme the government will provide lenders with a guarantee of 80% of loans between £25,000 to £10,000,000 provided to assist businesses rebuild from the pandemic.
A major overhaul of the penalty regime in relation to late submission of tax returns, late payment of tax and harmonisation of interest rate for VAT and Income tax was announced and this will come into effect in future years. Details of this can be found here.