The economy and headline figures
The 2021 Budget took place on 3 March 2021. Chancellor Rishi Sunak announced that, as a result of the Covid-19 crisis, GDP shrank by 9.9% in 2020, the largest annual fall in 300 years according to a Bank of England report, albeit lower than the 11.3% forecasted in November. However, the Office for Budget Responsibility (OBR) expects that the economy will recover quickly once the current restrictions are lifted.
In fact, the OBR expects that recovery to pre-crisis levels will be around six months earlier than was predicted in the November 2020 forecast.
In terms of annual borrowing, the figure for 2020/21 reached 16.9% of GDP (£355 billion), which is the highest level of peacetime borrowing on record. This is forecast to fall to 10.3% (£234 billion) in 2021/22, and to 2.8% (£74 billion) by 2024/25.
Underlying national debt (which excludes amounts owed to the Bank of England) is forecast to peak at 97.1% for GDP in 2023/24 before starting to fall in 2024/25. However, the OBR points out that the cost of servicing this has fallen to a record low of 2.4% of total revenue due to the fall in interest rates.
Aside from the forecasts, the Budget was also expected to see a number of Covid-19 support measures extended, and details of the next phase of support announced following the government publishing its roadmap out of lockdown in February.
Covid-19 support and other measures
The Chancellor announced that the government was committed to protecting jobs and livelihoods. Several support schemes are to be extended beyond end of the road map (currently scheduled to take place on 21 June) to accommodate the most cautious possible outcomes. Total public spending on Covid-19 support measures from 2020 to 2022 will eventually total £407 billion based on current announcements and support already given.
Furlough
The furlough scheme is extended to 30 September 2021. However, from July, employers will need to contribute toward it. Employees will still receive 80% of their pay, subject to a £2,500 per month cap, but for July, the government will only contribute 70% of this, meaning employers will need to pay the other 10%. For August and September, the government contribution will fall to 60%.
SEISS
The Self-Employment Income Support Scheme (SEISS) was also extended, with the announcement that there will be a fifth round of funding to apply from May to July 2021. The downside is that there will be a benchmark test, with claimants needing to show that their turnover has fallen by at least 30% to qualify for the full grant - which is 80% of average monthly profits, capped at £2,500. Where a claimant's profits have fallen, but by less than this benchmark amount, a smaller grant equal to 30% of average monthly profits may be available instead.
In terms of the fourth grant, i.e. that for February - April 2021, it was confirmed that claimants may now use their 2019/20 returns as evidence of profits. Unlike the previous tranches (which only looked at returns for the years to 2018/19), this means that people who were newly self employed in 2019/20 can now make a claim. The Chancellor estimated that this would open up the scheme to more than 600,000 people.
New wave of grants
There was also the announcement of a new Restart Grant up to £6,000 per premises for non-essential retail businesses. Businesses in the hospitality and tourism industry, as well as those offering leisure, personal care and accommodation may qualify for a larger grant of up to £18,000, owing to them having been more adversely affected by the lockdown restrictions, and likely to continue to be during the phased exit. They will also be required to stay closed longer under current plans.
Business rates
The business rates holiday for retail, hospitality and leisure businesses is extended until the end of June 2021. After this, rates will be discounted by two thirds - up to a value of £2 million for businesses who have had to close. A lower cap of £105,000 will apply to businesses that were able to remain open. An opt-out is available for businesses that were largely unaffected by Covid-19, or those who simply don't wish to take advantage.
New recovery loan scheme
The previously announced Recovery Loan Scheme was confirmed, replacing the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme. This will provide businesses with loans from £25,000 to £10 million, with 80% of the amount guaranteed by the government. The scheme will open on 6 April and will be available until 31 December 2021. Invoice financing will be available between £1,000 and £10 million.
To qualify, a business must be able to show that it:
- is viable or would be viable were it not for the pandemic;
- has been impacted by the coronavirus pandemic; and
- is not in collective insolvency proceedings.
Tax credit claimants
The Universal Credit uplift of £20 per week will be extended by six months in mainland Great Britain, and the Northern Ireland Executive will receive funding at a level allowing them to match this for claimants there. There will also be a one-off payment of £500 for claimants of Working Tax Credits.
Apprentices
Incentives for businesses to hire apprentices will double to £3,000, and the government extending the end date to 30 September 2021. The apprentice can be of any age but must be a new hire to qualify.
Property
The SDLT 0% band was temporarily increased to £500,000 in 2020. The Chancellor confirmed that this would be extended to the end of June 2021. After this, the band will fall to £250,000, before returning to its standard level of £125,000 from 1 October 2021.
The proposed non-resident surcharge of 2% for purchasers of UK residential property will be implemented from 1 April 2021.
The government will also provide mortgage guarantees for homebuyers. This will not be limited to first-time buyers but will not be able to be used for second homes or buy-to-let properties. It will have a maximum purchase value of £600,000. This intended to encourage lenders to return to offering mortgages to lenders with low deposits. The scheme will open in April 2021 and run to the end of 2022 (though the government will review whether an extension is appropriate).
There are new reliefs from the annual tax on enveloped dwellings (ATED) and the 15% SDLT rate for qualifying housing cooperatives from 3 March 2021.
Tax measures: introduction
Of course, the focus of the annual budget for accountants, tax advisers and their clients are the fiscal measures. Despite pre-Budget speculation, there was no alignment of the capital gains tax (CGT) and income tax rates, nor any slashing of the annual exempt amount. In fact, the announcements affecting individuals were relatively minor changes.
The increases to the levels of the personal allowance and basic rate band had already been confirmed, but what was not known previously was that these would be the last increases for five years. The NI upper earnings limit and upper profits limit remain aligned to these for the full five-year period.
Companies on the other hand will see an increase of up to 6% in corporation tax rates, depending on their profit level. However, there will be a two-year delay in implementing this.
A summary of the measures announced at the 2021 Budget on 3 March 2021 follows. This largely does not include any measures that were previously included in the draft legislation published in July and November 2020, unless there have been changes.
Individuals
Rates, bands and thresholds
The headline announcement was that there will be no increase in income tax rates, in line with previous promises made by the government.
However, the personal tax allowance will increase to £12,570 for 2021/22, as previously announced, but will remain frozen until at least April 2026. The basic rate band will also be frozen at £37,700 for this period, meaning the higher rate threshold will be £50,270.
The NI Upper Earnings and Profits threshold will also be frozen at £50,271 for the next five years.
For savers with only modest non-investment income, the starting rate for savings will remain at £5,000 for 2021/22.
The current ISA, Junior ISA and Child Trust Fund subscription limits will all remain the same for 2021/22.
Self-employed traders
For self-employed taxpayers, the Budget documents confirm that grants received under SEISS received on or after 6 April 2021 will be taxable in the year of receipt instead of solely in 2020/21. A working household in receipt of Working Tax Credits will enjoy an income tax exemption for Covid-19 support payments.
There will be a temporary extension to the loss carry back provisions for years 2020/21 and 2021/22. The extension will permit a carry back for the three previous tax years rather than just the previous tax year. The extension will permit losses to be offset against profits from the same trade, rather than general income. The existing sideways loss relief provisions remain unchanged, and an extended loss claim can be made as well as a s. 64 claim. There will be an overall cap of £2 million on losses that can be relieved under the extension.
Capital taxes
There are also freezes to the CGT annual exemption (at £12,300 for individuals and £6,150 for trustees) the IHT nil-rate band and residence nil rate band (at £325,000 and £175,000 respectively), as well as the pensions standard lifetime allowance (£1,073,100).
Turning to gift holdover relief for business assets, there will be an amendment to the anti-avoidance rule that prevents relief applying to a transfer to a company controlled by a non-resident person connected to the person making the gift. This rule will be amended slightly to ensure it applies where the person controlling the company is also the person making the gift.
Social Investment Tax Relief (SITR) has been extended until at least April 2023 - it was originally due to end in 2021.
Benefits-in-Kind and expenses
There will be a limited easing of the rules regarding employer-provided bicycles, removing the requirement that the equipment provided must be used mainly used on journeys relating to work, e.g. commuting until April 2022. To qualify, the equipment must have been provided on or before 20 December 2020.
For optional remuneration arrangements (OpRAs), a disregard for users of long-term arrangements that are currently enjoying a tax advantage due to transitional rules will be introduced to ensure they do not lose this advantage if they start to receive Statutory Parental Bereavement Payment (SPBP). This will work by specifically excluding SPBP from being a variation in a contract, as this would normally end the entitlement to the transitional rules. This will be retrospective and apply to the 2020/21 tax year.
There will be legislation included in Finance Bill 2021 for income tax exemption for employer-funded (or reimbursed) Covid-19 antigen tests for 2020/21 (retrospectively) and 2021/22. There is already an NI exemption for 2020/21 and this will be extended to 2021/22.
The exemption for Covid-19-related home office expenses, e.g. reimbursements for purchases of equipment to allow working from home, is extended for 2021/22.
IR35
A technical change to the off-payroll working rules legislation was announced in November 2020 to address an unintended widening of the definition of an intermediary in the off-payroll working rules legislation, where it is a company. The Budget confirmed that an equivalent change will be made to the NI regulations, as well as introducing a targeted anti-avoidance rule to prevent exploitation of the definition of "intermediary". There are also some minor changes relating to information sharing and use of information in the labour supply chain.
Companies
Corporation tax rates
The big headline announcement is that the corporation tax rate will increase to 25% from April 2023. Despite this, the UK will still have lowest rate in the G7 based on current rates. To protect the smallest businesses, companies with profits below £50,000 will retain the current 19% as a "small profits rate". Above this profit level, but where profits are below £250,000, there will be an entitlement to marginal relief to ensure that there is no cliff-edge. No detail about how this relief will operate have yet been published, but it is confirmed that the £50,000 and £250,000 thresholds will need to be proportionately reduced where there are associated companies or short accounting periods.
The small profits rate will not apply to close investment companies.
The bank surcharge, currently set at 8%, will be reviewed this Autumn (ahead of the changes) to ensure the crucial UK banking sector does not lose its competitive global position in terms of tax rates.
Diverted profits tax
When the increased rate takes effect, the rate of diverted profits tax will also increase to 31%, maintaining the 6% difference.
Losses
The temporary extension to the loss relief provisions also apply to companies, and will apply to relevant company accounting periods ending in the period from 1 April 2020 to 31 March 2022. The carry back to the previous year is unlimited, however for carry back claims for the earlier years, there will be a restriction to £2 million of unused trading losses to offset profits from the same trade. The losses must be relived in a specific order, starting with the most recent year.
Capital allowances
An enhanced first-year allowance, termed a "super-deduction", will be available for most purchases of equipment that would normally qualify as a main rate asset. The deduction will be 130% of actual expenditure. There will be a corresponding 50% super-deduction for special pool assets. To qualify, the expenditure needs to be incurred between 1 April 2021 and 1 April 2023. There are certain assets that will be excluded, including those covered by CAA 2001, s. 46 and second-hand assets.
An enhanced rate of Structures and Buildings Allowance (at 10%) will apply in the eight "Freeports" confirmed in the Budget. These Freeports are:
- East Midlands Airport
- Felixstowe and Harwich
- Humber Region
- Liverpool City Region
- Plymouth
- Solent
- Thames
- Teesside
Expenditure will qualify if it is incurred and the structure is brought into use before 30 September 2026. There will also be an enhanced first-year allowance for purchases of plant and machinery in these designated regions until 30 September 2026. Further Freeport sites may be designated at a later date.
Certain anti-avoidance legislation relating to the extension of leases relating to Covid-19 will be "switched off", returning the entitlement to capital allowances to the pre-crisis position.
VAT
The VAT registration threshold will remain at £85,000 for a further two years, i.e. until 31 March 2024. The corresponding deregistration threshold will also remain at its current level of £83,000 for two years.
The 5% reduced rate for hospitality, holiday accommodation and attractions is extended to 30 September 2021. There will then be an interim rate of 12.5% for 6 months.
The scope of Making Tax Digital for VAT will be extended to all registered businesses from 1 April 2022. Until then, only businesses that are compulsorily registered are mandated.
Indirect taxes
Freezing of duties
A number of duties, rates and levies have been frozen for 2021/22:
- All alcohol duty rates;
- Fuel duty (for the eleventh consecutive year);
- The aggregates levy;
Additionally, the Carbon Price Support rate per tonne of CO2 emitted will be frozen to £18 for 2022/23. It had already been frozen for 2021/22.
Landfill
The standard and lower rates of Landfill tax will increase with the Retail Prices Index, rounded to the nearest 5p.
The value of the Landfill Communities Fund for 2021/22 will be £34.5 million. This is a tax credit scheme that allows operators to claim a credit in exchange for a contribution to certain environmental bodies. The cap on contributions by landfill operators remains unchanged at 5.3% of their Landfill Tax Liability.
Red diesel and biofuels
The entitlement to use red diesel and rebated biofuels will be largely removed from 1 April 2022, with exceptions for specified sectors, e.g. agriculture. Fuel duty will be extended to biofuels and fuel substitutes used in heating from 1 April 2022.
Vehicle Excise Duty
VED for cars, vans, motorcycles and motorcycle trade licences will increase in line with the Retail Price Index from 1 April 2021. However, in order to support the haulage sector with the Covid-19 recovery efforts, VED for heavy goods vehicles will be frozen for 2021/22, and the heavy goods vehicle levy will be suspended for a year from 1 August 2021.
Tobacco Duty
The Finance Bill will consolidate the changes announced in November 2020, i.e. to increase the duty rates on all tobacco products by 2% above the Retail Price Index. The duty rate for hand-rolling tobacco increased by an additional 4% above this and the minimum excise tax by an additional 2%. The Budget confirmed that there were no additional increases above these rates.
Plastic packaging tax
A new plastic packaging tax will be introduced from 1 April 2022. This will be a charge at the rate of £200 per tonne of plastic packaging that contains less than 30% recycled plastic content.
Administration and other matters
Interest and penalty harmonisation
A new harmonised penalty regime will be rolled out for VAT and income tax for late filing of returns or late payment of amounts due. This was first proposed back in 2018/19. There have been several consultations since, and a new regime will be introduced from 1 April 2022. The new regime will apply for VAT first, and then for traders or landlords within income tax self-assessment (with income in excess of £10,000 a year) from 6 April 2023 for, then for all income tax self-assessment taxpayers the following year.
The new regime aims to align the treatment of taxpayers across the spectrum of taxes for similar behaviours.
The new late submission regime will be points-based, and a financial penalty of £200 issued for every missed submission on and after relevant points threshold is reached.
The new late payment regime will introduce penalties which are proportionate to the amount of tax owed and how late payment is, with no penalty chargeable on tax paid up to 15 days after the due date, a 2% penalty chargeable on tax paid between 16 and 30 days after the due date, which increases to 4% penalty chargeable on tax unpaid after 30 days, with a further 4% annualised penalty rate chargeable on outstanding tax due after 30 days.
This will signal the end of the VAT default surcharge regime. Interest relating to VAT under and overpayments will be aligned with the other taxes.
Promoters of tax avoidance
Following a consultation, there will be further measures to enable action against promoters/marketers of tax avoidance schemes to help strengthen public finances as the UK recovers economically from Covid-19. Finance Bill 2021 will contain measures that will:
- strengthen information powers for HMRC's existing regime to tackle enablers of tax avoidance schemes and ensure enabler penalties are issued sooner for multi-user schemes;
- enable HMRC to act promptly where promoters fail to disclose their avoidance schemes under the Disclosure of Tax Avoidance Scheme and Disclosure of VAT and other Indirect Taxes (DOTAS and DASVOIT) regimes;
- allow HMRC to stop promoters from marketing and selling avoidance schemes earlier and ensure promoters fulfil their obligations under the Promoters of Tax Avoidance Schemes (POTAS) regime;
- make further technical amendments to the POTAS regime, so the regime can continue to operate effectively;
- make additional changes to the General Anti-Abuse Rule (GAAR) so it can be used as intended to tackle avoidance using partnerships.
These measures will take effect from the date of Royal Assent.
Follower notices and penalties
The rate of penalty applied to recipients of a follower notice who do not subsequently amend their returns, or otherwise take corrective action, will be reduced from 50% to 30%. However, a new penalty of 20% will be introduced that will apply if a tribunal later decides that the recipient continued their litigation on an "unreasonable" basis.
Tax conditionality
From 4 April 2022 (in England and Wales), the renewal of certain licences will be conditional on the applicants passing checks to show that they are registered for tax. This will affect:
- taxi drivers;
- private hire vehicle firms; and
- scrap metal dealers.