A year ago Rishi Sunak delivered his first Budget as Chancellor. That was against the pandemic just starting and events overtook it rapidly.
This year, with the pandemic appearing to be coming under control, he had a chance to lay out a future plan to restore the economy.
The Chancellor’s second budget painted a grim picture of the UK’s public finances and set out a plan to repair them. Whether we all agree with who bears the burden of that will be argued over the coming weeks and months.
The public finances are in bad shape with the chancellor explaining that over £400bn will be spent on the pandemic response alone.
Economic growth forecasts were given. Growth it is expected to be 4% in 2021, in 2022 7.3%, 2023 1.7% and 2024 1.3% and 1.7% in 2025.
Businesses will be interested to see the super deduction on Investment expenditure announced by the chancellor and the ability to carry back losses for a further 2 earlier years. However, the increases to Corporation tax from 2023 are significant for any company making profits greater than £50,000
There was welcome news on the extension of the furlough scheme and the extension of the scheme for the reduction of business rates to small retailers and the leisure and hospitality industry and the tapering in of the return to the full amounts. In these industries the reduced VAT rate continues with an interim rate until a return to the full standard rate of VAT.
Also announced were new freeports to be located at East Midlands Airport, Felixstowe and Harwich, Humberside, Liverpool, Plymouth, Solent, Thames and Teesside. These are low tax and low regulation areas to encourage investment. The chancellor was short on details of what this actually means
Our main ‘take-aways’ from the Budget are:
Personal taxes
There is a small increase to the personal allowance and Basic Rate Band from 6 April 2021 to £12,570 and £37,700 respectively. Increasing the point at which higher rate tax is paid to £50,270. However, these allowances will now not increase for another five years.
The Capital Gains tax allowance has been frozen at £12,300 and will be at this level until 2026. Perhaps the best news from the Budget was the fact that no mention was made of changes to Entrepreneur’s Relief.
For those clients operating a low salary high dividend remuneration, their salary income can increase to £737 per month (£8,840 per annum) from 6 April 2021, before attracting a National Insurance charge.
Some clients may be happy to pay a higher amount of £9,500 per annum, or £792 per month but this will incur an employer’s NI charge and thus making regular payments to HMRC (these payments are avoided when the salary is £8,840).
VAT
There were no significant VAT changes announced bar the extension to the lower rates for hospitality businesses.
Corporation Tax
As expected, the Government left Corporation Tax at 19% for the moment.
From 1 April 2023 this will increase to 25% for profits above £250,000. For profits under £50,000 they will continue to be taxed at 19% with tapering for profits between £50,000 up to £250,000.
The effective corporation tax rates from 1 April 2023 are, therefore:
| Profits | Effective tax rate in band |
| Up to £50,000 | 19% |
| £50,000 to £250,000 | 26.5% |
| over £250,000 | 25% |
This appears to bad for businesses on the surface but is far in the future (and due to come in just before the next election). The cynical amongst us think this could be a political ploy to reduce it before it ever comes in.
Good news is that the loss relief carry back has been improved. Hitherto, it has only possible to carry back losses for 1 year. This is being improved to a three year carry back. Good news as it can mean a company getting an earlier tax refund than otherwise.
Business Taxes
A new ‘Super-deduction’ is being brought in for certain types of investments in assets and equipment. These are items that would qualify for Capital Allowances anyway. Most of our clients claim the full 100% in the first year anyway already but it does give a free 30% extra deduction on top of that claim.
Stamp Duty Land Tax
On 8 July 2020, the SDLT nil rate band threshold was increased to £500,000 until 31 March 2021. The chancellor has now extended this by three months until 30 June 2021. It will then be held at £250,000 until 30 September 2021, before returning to its permanent level of £125,000 from 1 October 2021. This is welcome news for all buyers of residential property.
On 1 April 2021 a new tax charge of an extra 2% of Stamp Duty Land Tax will apply on top of the standard rates for all overseas purchasers of property. The definition of overseas is widely drawn and covered in a separate article on our website. It can capture purchases by UK Limited Companies if the majority of the owners live outside of the UK.
Property taxes
There were no changes to any of the taxation elements applying to property investors bar the Stamp Duty change mentioned above
If you have any questions based upon anything in the Budget please do not hesitate to contact us.