Budget Overview 2021
On the 3rd March we received the budget update from the government. We have summarised the following points.
On the 3rd March we received the budget update from the government. We have summarised the following points
- Prior to the budget we heard rumours that Capital Gains Tax rates
would increase but this was not the case. We need to be aware that this is an
area the government will reapproach in the very near future.
- Income tax and VAT rates. They decided in this difficult climate
any upward major movement would be detrimental to business.
- The coronavirus job retention scheme and self-employment income
support scheme extensions provide further help.
- Claiming the SEISS, clients have got to be careful that this is
dependent on how covid has reduced your income.
- HMRC have stated that they will receive £100 million investment
in a specialist taskforce to tackle fraud across all covid 19 support packages.
This will include the possible non-repayment of bounce back loans in the
future. This will increase the possibility of clients getting HMRC investigations.
The changes in Corporation Tax rates that will be effective from
April 2023. This will force Accountants to review the best tax efficient method
of drawing profits by way of dividend or salary from the business.
This will be dependent on the business profits and any future
rate changes to personal tax or dividend surcharges. It will be HMRC intention
to get more business’s paying tax earlier. The more companies that change their
policy away from dividends and pay through the monthly payroll, the earlier
they receive their tax.
Extending the Coronavirus Job Retention Scheme
(CJRS) until the end of September 2021
The UK government will continue to pay 80% of employees’ usual
wages for the hours not worked, up to a cap of £2,500 per month, up to the end
of June 2021. For periods in July, CJRS grants will cover 70% of employees’
usual wages for the hours not worked, up to a cap of £2,187.50. In August and
September, this will then reduce to 60% of employees’ usual wages up to a cap
Employers will need to continue to pay their furloughed
employees at least 80% of their usual wages for the hours they do not work
during this time, up to a cap of £2,500 per month. They also need to pay the
associated Employer National Insurance contributions and pension contributions
on subsidised furlough pay from their own funds.
When claiming for periods 1 May 2021 onwards, eligible employees
must have been employed on 2 March 2021 and had a Real Time Information (RTI)
submission to HMRC notifying a payment of earnings for that employee by their
employer between 20 March 2020 and 2 March 2021. You can find out more about the
CJRS on GOV.UK.
Self-Employment Income Support Scheme (SEISS) will
continue until September with a fourth and fifth grant
The fourth and fifth grants will take into account 2019-20 tax
returns and will be open to those who became self-employed in the 2019-20 tax
year. To qualify, customers must have submitted their 2019-20 tax returns by 2
March 2021 at the latest.
Eligibility for the fourth SEISS grant will also depend on
whether you reasonably believe you have experienced a significant financial
impact from coronavirus between February 2021 and April 2021. For the fourth
grant, the UK government will pay a taxable grant based on 80% of average
trading profits for three months. It will be paid in a single payment and
capped at £7,500 in total.
The value of the grant is based on an average of trading profits
for up to 4 tax years between 2016 to 2020, where available. Further details of
the scheme can be found on GOV.UK by searching ‘Self Employment Income Support
Extended loss carry back for business
To help otherwise-viable UK businesses which have been pushed
into a loss-making position, the trading loss carry-back rule will be
temporarily extended from the existing one year to three years.
This will be available for both incorporated and unincorporated
businesses. Unincorporated businesses and companies that are not members of a
corporate group will be able to obtain relief for up to £2 million of losses in
each of 2020-21 and 2021-22.
Companies that are members of a corporate group will be able to
obtain relief for up to £200,000 of losses in each of 2020-21 and 2021-22
without any group limitations. Companies that are members of a corporate group
will be able to obtain relief for up to £2million of losses in each of 2020-21
and 2021-22, but subject to a £2 million cap across the group as a whole.
The VAT deferral new payment scheme
The new payment scheme helps businesses with deferred VAT to pay
what they owe in smaller, monthly instalments from March, interest free. The
scheme is now open and you can choose to make 2-11 monthly payments, depending
on when you join. The later you join the fewer instalments are available to
You can join through a simple online service without needing to
contact HMRC. You need to join the scheme before the end of June.
VAT reduction for the UK’s tourism and hospitality
The government will extend the temporary reduced rate of 5% VAT
for goods and services supplied by the tourism and hospitality sector until 30
To help businesses manage the transition back to the standard
20% rate, a 12.5% rate will apply for the subsequent six months until 31 March
Continuation of the home office equipment expenses
COVID-19 easement for the 2021-22 tax year
An Income Tax exemption and corresponding NICs disregard were
introduced for the 2020-21 tax year. This allowed employers to reimburse
employees for the cost of home office equipment deemed necessary to work from
home as a result of the COVID-19 outbreak free from Income Tax and Class 1
The exemption was due to end on 5 April 2021 but will now be
extended to have effect until 5 April 2022. Employees will need to apply
directly through HMRC’s portal to access the grant. The expense relief will be
paid through a change to tax codes.
Income Tax exemption for employer-reimbursed
coronavirus antigen tests for tax year 2020-21 and 2021-22
This measure will continue the income tax exemption for payments
that an employer makes to an employee to reimburse for the cost of a relevant
coronavirus antigen. There will be no Income Tax liability for the employee or
Temporary Stamp Duty Land Tax (SDLT) cut
The government will
extend the temporary increase in the residential SDLT nil rate band to £500,000
in England and Northern Ireland until 30 June 2021. From 1 July 2021, the nil
rate band will reduce to £250,000 until 30 September 2021 before returning to
£125,000 on 1 October 2021.
TAX RATE CHANGES
Personal Allowance and higher rate threshold (HRT)
income tax personal allowance will rise with CPI as planned to £12,570 from
April 2021 and will remain at this level until April 2026. The income tax HRT
will rise as planned to £50,270 from April 2021 and will remain at this level
until April 2026.
personal allowance applies across the UK. The HRT for savings and dividend
income will also apply UK-wide. The HRT for non-savings and non-dividend income
will apply to taxpayers in England, Wales, and Northern Ireland.
The rate of corporation tax will increase from April 2023 to 25%
on profits over £250,000. The rate for small profits under £50,000 will remain
at 19% and there will be relief for businesses with profits under £250,000 so
that they pay less than the main rate.
limits will be divided by the number of associated companies; in other words,
where one company controls another or both are under the same control.
This associated company definition is also going to replace the 51% group
company test previously used to identify which companies are required to pay
tax by quarterly instalment. This may well increase the number of companies
being required to pay tax by instalment and the cash flow impact of this will
need to be considered.
Pensions Lifetime Allowance
The government will maintain the Lifetime Allowance at its
current level of £1,073,100 until April 2026.
Annual Tax on Enveloped Dwellings (ATED) and 15 %
rate of Stamp Duty Land Tax (SDLT)
Relief for Housing Co-Operatives: Following a consultation on
draft legislation over the summer of 2020, the Government will introduce new
reliefs from ATED and the 15% rate of SDLT for certain qualifying housing
For SDLT, the relief can be claimed for land transactions where
the effective date of the transaction is on or after 3 March 2021. For ATED,
the relief will apply to chargeable periods beginning on or after 1 April 2020,
allowing eligible housing co-operatives who have already paid ATED for that
period to claim a refund.