Chancellor Rishi Sunak outlined his three-part plan for UK plc in his second Budget speech today. He promises to continue to do whatever it takes to get the British people and businesses through the crisis, fix the public finances, and begin the work of building our future economy.
The big news was the hike in corporation tax to 25% (which will happen in 2023). This will raise £17 billion a year by 2025, says the Office of Budget Responsibility – so will be a key element in fixing the public finance. The Chancellor admitted that introducing rises in the corporation tax system might not be popular, but he felt they were ’honest’ and ‘responsible’. Sunak has also extended the Furlough schemes through to September, and kept the VAT rate cuts he introduced for the hospitality and tourist sectors.
Here’s some of the key takeaways from his March 2021 budget:
The Coronavirus Job Retention Scheme (CJRS) has been extended from May until the end of September 2021. Employees will continue to receive 80% of their current salary for hours now worked. There will be no employer contributions beyond National Insurance contributions and pensions required in April, May and June. From Jul, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, rising to 20% in August and September, as the economy reopens.
The Self-Employment Income Support Scheme (SEISS) fourth grant: To support the self-employed across the UK through the next stage of the pandemic, the government said that the fourth SEISS grant will be worth 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total. The grant will cover the period February to April, and can be claimed from late April. Self-employed individuals must have filed a 2019-2020 self assessment tax return to be eligible for the fourth grant. This means that over 600,000 individuals may be newly eligible for SEISS, including many new to self-employment in 2019- 20. All other eligibility criteria will remain the same as the third grant.
The government also announced that there will be a fifth and final SEISS grant covering May to September. The value of the grant will be determined by a turnover test, to ensure that support is targeted at those who need it the most as the economy reopens. People whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July.
Corporation tax: CT will rise to 25%, but not until 2023. The Chancellor is also creating a Small Profit Rate to ensure only businesses with profits over £250,000 will be taxed at the 25% rate. Small businesses with £50,000 profits or less will be protected and for them CT will remain at 19%. The rise to 25% is expected to raise £17 billion a year by 2025/26.
Personal Allowances: The basic income tax threshold for paying basic rate will rise to £12,570 from April 2021. For higher-rate payers the threshold will be £50,270. Both rates will then stay the same until 2026.
National Insurance Contributions thresholds: As previously announced, and legislated for in February 2021, in 2021-22 NICs thresholds will rise, bringing the NICs Primary Threshold/Lower Profits Limit to £9,568 and the Upper Earnings Limit (UEL)/Upper Profits Limit (UPL) to £50,270, in line with the income tax HRT. The UEL/UPL will then remain aligned with the HRT at £50,270 until April 2026. All other NICs thresholds will be considered and set at future fiscal events. NICs thresholds apply across the UK.
Inheritance Tax: The inheritance tax nil-rate bands will remain at existing levels until April 2026. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
VAT: The reduced VAT rate of 5% for tourism and hospitality has been extended to 30 September 2021. To help businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022. That’s a £5 billion cut in VAT. The VAT registration threshold will remain at £85,000 until 2024. Any business that took advantage of the original VAT deferral on VAT returns from 20 March through to the end of June 2020 can now opt to use the VAT Deferral New Payment Scheme to pay that deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021, as originally announced.
Universal Credit: The government is extending the temporary £20 per week increase to the Universal Credit standard allowance for a further six months in Great Britain, on top of the planned uprating. This measure will apply to all new and existing Universal Credit. It is making a one-off payment of £500 to eligible Working Tax Credit claimants across the UK, to provide continued extra support over the next six months. The government will maintain the higher surplus earnings threshold of £2,500 for Universal Credit claimants for a further year until April 2022, when the threshold will revert to £300.
Business rate relief: The government will continue to provide eligible retail, hospitality and leisure properties in England with 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties. Nurseries will also qualify for relief in the same way as other eligible properties. When combined with Small Business Rates Relief, this means 750,000 retail, hospitality and leisure properties in England will pay no business rates for 3 months from 1 April 2021, with the vast majority of eligible businesses receiving 75% relief across the year.
Extended loss carry back for businesses: To help otherwise-viable UK businesses which have been pushed into a loss-making position, the trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.
• Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22 9 ‘Winter Economy Plan’, HM Treasury, September 2020. 50 Budget 2021.
• Companies that are members of a corporate group will be able to obtain relief for up to £200,000 of losses in each of 2020-21 and 2021-22 without any group limitations.
• Companies that are members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22, but subject to a £2 million cap across the group as a whole This will be legislated in the forthcoming Finance Bill.
Contactless payment card limit: To support UK consumers and businesses during the COVID-19 response, and following a public consultation by the Financial Conduct Authority, the government has approved an increase to the legal contactless payment limits previously set by the European Commission. This will allow banks to support single contactless payments up to £100, and cumulative contactless payments up to £300, without the need for customers to input their chip and pin. The new limits should be introduced later this year.
Hiring apprentices: Incentive grants for apprenticeship hires will rise to £3,000, for all apprentice hires of any age. The fee for traineeships is £126. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme. This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies.
Other key points were:
- The duty rates on beer, cider, wine and spirits will be frozen for another year.
- National Living Wage will rise to £8.91 from April.
- The government is reducing the penalties that may be charged to people receiving Follower Notices as a result of using tax avoidance schemes, from 50% to 30% of the tax under dispute. A further penalty of 20% will be charged if the Tax Tribunal decides that the recipient’s continued litigation against HMRC is unreasonable.
- The government will invest a further £180 million in 2021-22 in additional resources and new technology for HMRC. This is forecast to bring in over £1.6 billion of additional tax revenues between now and 2025-26.