Budget 2021 - COVID Support and tax changes

As part of the Budget announcements on Wednesday 3 March 2021, the Chancellor Rishi Sunak has announced further government support to individuals and businesses suffering as a result of the COVID pandemic.

Many of the announcements are broadly extensions of schemes previously announced and in place for a number of months, although several do have differing eligibility criteria, so support may be available to those who previously did not qualify. However, full details of any changes to criteria have not yet been made available.

Thankfully, given the ongoing restrictions on business, very limited tax changes were announced with virtually all (adverse) changes delayed for at least a year.

All information on the COVID-19 government support for businesses and individuals is available at https://www.rpgcrouchchapman.co.uk/services/covid-19-financial-support.

Coronavirus Job Retention Scheme

Previously extended to 30 April 2021, it was announced that the ‘furlough’ scheme will now be extended to the end of September 2021.

It was announced that the current level of government support, being 80% of the furloughed staff members’ gross salary, would continue to be paid to the employer until the end of June 2021, reducing to 70% in July and 60% in August and September.

This will therefore mean that employers will be responsible for the payment of the Employer’s National Insurance and Employer’s Pension Contributions throughout (as they have been for some months), but will also have to fund 10% of the furloughed employees’ salary in July rising to 20% in August and September.

It remains optional for the employer to ‘top-up’ the remaining 20% of the usual salary to the furloughed employees.

At the time of writing, there appears to be no changes to the current eligibility criteria (full details on our website – link above).

Self-Employed Income Support Scheme

The fourth and fifth SEISS payment of this grant scheme were announced.

The fourth grant – due to cover the months of February, March and April – will be available to claim from April in the usual manner through the individual’s Government Gateway.

This grant will be equivalent to 80% of average monthly profits up to a total for the three months of ￡7,500. This is the same rate as applied to the first and third grants.

However, unlike the previous three grants, those who were newly self-employed in 2019/20 and have submitted their 2019/20 self-assessment tax return by midnight on Tuesday 2 March 2021 will be able to make a claim.

Whilst eligibility criteria has not been released in full at the time of writing, it is anticipated that the criteria will remain similar to that for the first three grants, aside from the inclusion of the newly self-employed in 2019/20.

The fifth grant – due to cover the months of May to September – will be determined by a turnover test. This will be claimable from late July.

Individuals whose turnover has fallen by 30% or more will continue to be eligible for the full grant equivalent to 80% of average monthly profits up to a total for the three months of ￡7,500.

Those individuals whose turnover has fallen by less than 30% will be eligible for a grant equivalent to 30% of average monthly profits up to a total for the three months of ￡2,850.

Further information is awaited on how the turnover test will be calculated and implemented.

Restart Grants

Local authorities will be provided with funds to provide new Restart Grants in replacement of the Retail, Hospitality and Leisure Grant scheme.

This new grant scheme will provide 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.

Grants are expected to be available in April.

In addition, local authorities will also be provided with a further ￡425 million of discretionary business grant funding, but no further announcements have been made at the time of writing as to which businesses would be eligible or how claims could be made.

Business Rates Relief

Eligible retail, hospitality and leisure properties in England will continue to receive 100% business rates relief for the period of 1 April to 30 June 2021, with business rates relief then being set at 66% for the period from 1 July 2021 to 31 March 2022.

Eligibility criteria is yet to be announced at the time of writing.

VAT reduction for the Hospitality and Tourism sector

Following on from the cut in the VAT rate to 5% announced in July 2020, this temporary reduction in the rate of VAT for goods and services supplied by the tourism and hospitality sector will be extended to 30 September 2021.

Between 1 October 2021 and 31 March 2022, the VAT rate on these services will be increased to 12.5%, before being restored to 20% from 1 April 2022.

Recovery Loan Scheme

With the deadline for the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS) approaching on 31 March 2021, a new Recovery Loan Scheme will be open to all businesses from 6 April 2021.

This new scheme will allow businesses to apply for loans of between ￡25,000 to ￡10million – presumably linked to the business turnover (no details announced during the Budget) – and will be available to businesses who have already received support under the existing loan schemes.

Stamp Duty Land Tax Holiday

The current temporary increase in the residential nil rate band for SDLT to ￡500,000 will be extended in England and Northern Ireland until 30 June 2021.

From 1 July 2021, the nil rate band will be reduced to ￡250,000 for three months before returning to the original level of ￡125,000 on 1 October 2021.

The extended nil rate band applies to all purchases of residential property (including purchases by limited companies) but does not provide relief to the 3% surcharge applied to the purchase of additional residential properties.

Apprenticeship & Traineeship Schemes

Employers who take on new apprentices between 1 April and 30 September 2021 will be able to claim a payment of ￡3,000 per each new apprentice that they hire. This is an increase from ￡1,500 for apprentices aged 25 or over, or ￡2,000 for those aged 24 or under from the scheme announced in the 2020 Summer Statement.

These payments will be in addition to the existing ￡1,000 payment already available for new apprentices aged 16-18 years old or those aged under 25 on an Education, Health and Care Plan.

Employers providing work experience or traineeships for 16-24 year olds will continue to be eligible for government funding of ￡1,000 per trainee.

Tax announcements

Personal tax allowances and bands

o   Income Tax: The planned increases for 2021/22 will come in, with the personal allowance increasing to ￡12,570 and basic rate band will increase to ￡50,270 but then these will be frozen until April 2026.

o   Capital Gains Tax: The annual exemption will remain at ￡12,300 until April 2026. Crucially this indicates that there is not going to be alignment of capital gains treatment with income tax under this parliament but a rate change from 22/23 cannot be ruled out.

o   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 with the threshold for the residence nil rate band also remaining at ￡2m.

o   Pensions: The government will maintain the lifetime allowance for pensions at its current level of ￡1,073,100 until April 2026. No changes have been announced in respect of the annual contribution allowance or the tax relief available on pension contributions for higher and additional rate taxpayers.

Corporation Tax

o   From April 2023, Corporation Tax on profits will change.

§ Businesses with less than ￡50,000 profit will be classed as small and exempt from the tax increase with the tax rate frozen at 19%.

§ Businesses with profits between ￡50,000 and ￡250,000 will have tax rate tapered between 19% to 25% 

§ Businesses with profits over ￡250,000 will see tax rate increase to 25%.

VAT

o   The VAT registration (￡85,000) and deregistration (￡83,000) thresholds will not change for a further period of two years from 1 April 2022.

Tax compliance

o   A new penalty and interest regime will be introduced which will be points based with a financial penalty only issued when threshold is breached.

§ For VAT registered businesses, this will apply from April 2022

§ For those with business or property income over ￡10,000 per annum, this will apply from April 2023

§ For everyone else, this will apply from April 2024.

o   A new late payment regime will be introduced to replace the current 5% surcharge system. This will be proportionate to amount of tax due and how late it is.

Loss carry back extension

Businesses can now carry back trading losses further than normal to provide additional cashflow support.

Incorporated businesses (Companies)

·        For accounting periods ending between 1 April 2020 and 31 March 2022, the current rules allowing trading losses to be carried back one year will be extended to three years, with losses required to be set against profits of the most recent years first before being carried back to earlier years.

·        There is a cap of ￡2m.

·        The extended loss carry backs will be required to be made in a return, however, claims below a de minimis limit of ￡200,000 may be made outside a return so at anytime. 

Unincorporated businesses (partnerships and self employed)

·        For trade losses of tax years 2020/21 or 2021/22 additional relief is being provided by allowing unrelieved trade losses to be carried back and set against profits of the same trade for the three years before the tax year of loss.

·        There is a cap of ￡2m.

·        A claim to loss relief will normally be made in an Individuals tax return, but where a claim will affect more than one year a stand-alone claim may be made outside of a tax return.

·        The time limit for making a claim to the extended relief in a relevant tax year is 12 months from the submission deadline.

Super deduction for capital expenditure

For the next two years when businesses invest in new qualifying plant and machinery a ‘super deduction’ applies providing an enhanced 130% allowance on most new plant and machinery investments. 

The expenditure needs to be incurred after 1 April 2021 but before 1 April 2023 so anyone planning on purchasing new equipment now should consider deferring the purchase until the 1 April.

R&D relief consultation

o   This consultation has now been completed and HMRC has published the responses.

o   The main aim of the review is to ensure that the R&D scheme is stimulating and rewarding the right kind of activity and whether the scope of the scheme should be extended to allow a wider range of costs to qualify.

o   Notable changes expected are the inclusion of data and cloud computing costs.

Consultation into the Enterprise Management Incentive scheme (EMI)

o   The government have launched a consultation review in to the possible extension of the EMI scheme to enable more companies that do not currently qualify to access this. The consultation will run until 26 May 2021.

o   EMI schemes are the most tax incentivised approved share scheme available to UK employers currently but there are currently exclusions around the size of company and industry they work in.

The information provided here is based on the announcements made by the government up to 3 March 2021 and does not constitute advice. If you have any queries on how this information may affect you or your business please contact us.