Looking back at what I predicted last month, I don’t think I did too badly! Here’s a round-up of my predictions and the measures announced in the Spring Budget 2021.
Business rates holiday
Extension of the business rates holiday, which may target those businesses hardest hit, including non-essential retail, hospitality and leisure. I would not be surprised if the Chancellor also retained the 5% VAT level for tourism and hospitality for 2021/2022.
Eligible retail, hospitality and leisure businesses and nurseries in England have enjoyed 100% business rates relief in 2020/21. This will be extended to 30 June 2021, and there will be a further 66% relief for the period 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.
To help support businesses heavily impacted by the pandemic, the rate of VAT on most supplies by hospitality, leisure and entertainment businesses was cut from 20% to 5% in July 2020. This was initially intended to expire in January 2021, but that was extended to 31 March, and it has now been further extended to 30 September 2021.
An intermediate rate of 12.5% will apply for qualifying supplies from 1 October 2021 to 31 March 2022, after which the standard 20% rate will apply again.
Extension of the furlough scheme. The scheme was due to be replaced in November 2020 but expect to see the scheme extended further before potentially being withdrawn in accordance with the roadmap recently announced by the Prime Minister.
The Coronavirus Job Retention Scheme (furlough) will continue to reimburse employers with the salaries of furloughed employees until 30 September 2021. The employee should receive at least 80% of normal pay for hours not worked. Until 30 June, the employer will only be required to contribute employer’s National Insurance contributions and pension contributions (as at present). However, in July, the employer will have to contribute 10% of a furloughed employee’s normal salary, rising to 20% of their normal salary in August and September.
For the time being, small and medium-sized employers across the UK can still reclaim up to two weeks of eligible Statutory Sick Pay costs per employee, where the absence is coronavirus-related. The Government will set out steps for closing this scheme in due course.
Self-Employment Income Support scheme
A fourth Self-Employment Income Support Scheme (SEISS) grant – there is likely to be a further announcement covering the period February to April 2021.
Self-employed people with profits up to £50,000 have been able to claim grants under the Self-Employment Income Support Scheme (SEISS). So far, there have been three grants under the SEISS, each covering three months; two amounted to 80% and one amounted to 70% of average monthly profits up to limits of £2,500 and £2,187.50 respectively per month.
A fourth grant, covering February to April 2021, can be claimed from late April at 80% of three months’ average profits, capped at £7,500 in total. Claimants must have filed a 2019/20 tax return to be eligible for this grant.
People who began self-employment in 2019/20, who did not have a record of earnings, could not claim the first three grants, but may be able to claim the fourth grant if they filed a 2019/20 return by midnight on 2 March 2021.
A fifth grant, covering the period from May to September 2021, can be claimed from late July. This will be targeted at those who need it most as the economy reopens. Those whose turnover has fallen by 30% or more will be eligible for the full grant, which will be 80% of three months’ average profits, capped at £7,500. The fact that the grant covers a five-month period appears to allow for the likelihood that the business will be reopening in that time. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. Further details will be published in due course.
The Budget confirms that SEISS grants will be treated as taxable income of the business in the tax year in which they are received.
It was suggested that the uplift in Universal Credit would be ended in the Budget, but politically, this is unlikely to happen, and the Chancellor may well announce an extension, although many are calling for the extra £20 per week to become permanent.
The uplift of £20 per week is extended to 30 September 2021. For those claiming Working Tax Credit, a one-off payment of £500 will be made to provide equivalent support over the next six months.
Further measures were introduced to help businesses bounce back.
Loans and grants
There have been several government-backed loan schemes to support businesses through the pandemic. Some of these are coming to an end on 31 March 2021, but the Chancellor announced a new ‘Recovery Loan Scheme’. This will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. This will be open to all businesses from 6 April 2021, including those who have already received support under the existing COVID-19 loan schemes.
The Chancellor also announced ‘Restart Grants’: as they reopen after the present lockdown, non-essential retail businesses can claim up to £6,000 per premises; hospitality, accommodation, leisure, personal care and gym businesses can claim up to £18,000 per premises. The Government is also providing £425 million to local authorities to use for discretionary grants to businesses.
Generating income potential
It has been suggested that these areas of taxation may be the targets for generating more income:
Freezing of tax allowances
The main Personal Allowance increases with inflation from £12,500 to £12,570 for 2021/22, and the basic rate band increases from £37,500 to £37,700. That means that the threshold for 40% tax is now £50,270. Income tax rates are complicated by different rates and allowances applying to different types of income (for example, salary, profits, rent, interest, dividends), so the effect of these increases are not the same for all taxpayers; someone with a salary of £50,270 will pay £68 less tax in 2021/22 than they did in 2020/21 (falling from £7,608 to £7,540).
However, they will also pay £19 more in employees’ National Insurance contributions. Since January 2013, there has been a clawback charge on the higher earner of a couple where one claims Child Benefit and either has an income of over £50,000. This has always been called the ‘High Income Child Benefit Charge’, but now it appears that it can apply to a basic rate taxpayer, because there has been no mention of a change to the £50,000 threshold.
The level of income at which the Personal Allowance is withdrawn has been £100,000 since the rule was introduced in April 2010, and inflation means that far more people are now affected. Every £2 of income over that level reduces the allowance by £1. This results in an effective marginal rate of tax of 60% in the band of income up to £125,140 in 2021/22, above which the taxpayer will have no Personal Allowance.
An increase in the rate of corporation tax
The corporation tax rate will remain 19% until 31 March 2023. It will then increase to 25% for companies with profits over £250,000. Since 1 April 2015, all corporate profits have been taxed at the same rate; the ‘small profits rate’ that was familiar before that will be reintroduced, at 19% for companies with profits up to £50,000, in April 2023.
Between £50,000 and £250,000, there will be a tapering calculation that produces an effective marginal rate of 26.5%. The limits will be divided between associated companies under common control.
Capital gains tax
The Office of Tax Simplification has been looking at how the tax could be simplified, potentially aligning rates to income tax rates and reducing the annual exempt amount. However, there were no changes other than a freeze of the annual exempt amount of £12,300 until the end of 2025/2026.
Raising fuel duty
Reducing pension tax relief
No significant announcements. The Lifetime Allowance is frozen at its 2020/2021 level of £1,073,100 until the end of 2026/2026.
VAT registration threshold
The VAT registration and deregistration thresholds will remain frozen at their present levels of £85,000 and £83,000 until 31 March 2024. This will tend to require more businesses to register for the tax as they grow, and therefore represents a small tax-raising measure.
VAT deferral payments
Businesses were able to defer the payment of VAT that fell due between March and June 2020. Initially the deferred amount was to be paid in full by 31 March 2021, but businesses can now apply to pay it by interest-free instalments up to 31 March 2022. Applications must be made online by 21 June 2021, but if the scheme is applied for earlier, the payments can be spread over a longer period.
You can download a copy of our Budget Summary here.
If you have any queries, you can contact me on 01473 833411 or [email protected]
Peter is the Guild’s accountant. This article is designed for the information of readers. Whilst every effort is made to ensure accuracy, information contained in this article may not be comprehensive and recipients should not act upon it without seeking professional advice. “Larking Gowen” is the trading name of Larking Gowen LLP, which is a limited liability partnership registered in England and Wales (LLP number OC419486). Where we use the word partner it refers to a member of Larking Gowen LLP. © Larking Gowen.