The Chancellor, Rishi Sunak, unveiled the 2021 UK Budget in parliament today and there were twelve key takeaways:
The Coronavirus Job Retention Scheme Extended To The End Of September 2021
Employees will continue to receive 80% of their current salary capped at £2,500 for hours not worked. However, the employer will need to make a 10% contribution in July and a 20% contribution in August and September.
Self-Employment Income Support Scheme Fourth Grant To Be Based On The 2019-20 Tax Return
The grant will be worth 80% of three months’ average trading profits covering the February to April period. As before, it will be paid as a single amount and will be capped at £7,500 in total. All other eligibility criteria will remain the same as for the third grant, so there remains no support for those who were remunerated by dividends. The grant can be claimed from late April.
Self-Employment Income Support Scheme Fifth And Final Grant
There will be a fifth and final grant covering the May to September period. The value of the grant will be determined by a turnover test. Individuals whose turnover has fallen by 30% or more will continue to receive the full grant, 80% of three months’ average trading profits capped at £7,500. Individuals 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.
Stamp Duty Land Tax Cut Extended
The temporary increase in the residential Nil Rate Band to £500,000 in England and Northern Ireland has been extended until 30th June 2021. From 1st July 2021, the Nil Rate Band will reduce to £250,000 until 30th September 2021 before returning to original level of £125,000 on 1st October 2021.
The Recovery Loan Scheme To Launch On 6th April
The government will underwrite lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the Bounce Back Loan Scheme or CBILS.
Restart Grants To Provide Support For Businesses As They Reopen
This measure applies to England and offers grants of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.
VAT Reduction For The UK Tourism And Hospitality Sector To Continue
The temporary reduced rate to 5% VAT for goods and services supplied by the tourism and hospitality sector will continue until 30th September 2021. A 12.5% rate will apply for the subsequent six months until 31st March 2022 with the rate then returning to 20%.
Business Rates Relief To Continue For Eligible Retail, Hospitality And Leisure Properties In England
There will be 100% business rates relief from 1st April 2021 to 30th June 2021 followed by 66% business rates relief for the period from 1st July 2021 to 31st March 2022. The relief will be capped at £2 million per business for properties that were required to be closed on 5th January 2021, or £105,000 per business for other eligible properties.
The Carry Back Loss Period Extended From One To Three Years
This will be available for both incorporated and unincorporated businesses. Relief for up to £2 million of losses in each of 2020-21 and 2021-22 years can be carried back against profits in the preceding three years to generate a Corporation Tax or Income Tax refund.
Corporation Tax Bears The Brunt To Fund The Deficit
In a reversal of the previous strategy, Corporation Tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits of up to £50,000 will remain at 19%. There will be an as yet undefined tapered increase in the rate on profits between £50,001 and £250,000.
Research And Development Tax Relief Rules Changed To Prevent Abuse
Despite there being little evidence of widespread abuse, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times their total PAYE and NICs liability. At the same time, there will be another R&D consultation to cover whether the schemes should be amended to remain internationally competitive and keep the UK at the cutting edge of innovation.
The Rabbit From The Hat – The Super-Deduction
Whilst the preceding policy announcements had been widely revealed before the Budget, the Chancellor held one announcement back. From 1st April 2021 until 31st March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
As ever, the Budget document runs to over one hundred pages covering a lot more than in the speech. For instance, the contactless payment card limit will increase to £100, and cumulative contactless payments up to £300. Banks are expected to implement the new limits during the year.
We will be reviewing the document to unearth other gems for our next newsletter over the weekend.
We will also be looking at how the changes to the Corporation Tax rate will impact the remuneration strategy between salaries and dividends. In April 2016, the personal tax treatment of dividends changed. This closed the gap on the overall tax paid between a salary and a dividend, but it still tilted in favour of a dividend.
At the time, the Corporation tax rate was 20%. From 2023, with the rate 5% higher, the overall tax basket may well tilt in favour of a salary.