Following on from the Chancellor’s highly anticipated Budget of 3rd March, we would like to highlight some of the measures announced to our business and personal tax clients.
The Chancellor has outlined measures for the Government’s continued support directly as a result of the Covid-19 pandemic, together with budget and tax measures for the coming year, as well as the near, and not so near, future.
We have split our summary under the three headings of Continuing Coronavirus Support, Tax Changes and Updates, and Other Items of Interest.
As well as the budget day of the 3rd March, the Chancellor has announced a ‘Tax Day’ which this year will be on Tuesday 23rd March. This is expected to be an annual occurrence with additional detail added to the Budget announcements. It is also planned that Budget day will return to its previous slot in the Autumn, so expect a further Budget later this year, when hopefully the Government will be able to ascertain how the economy is performing as we leave the pandemic behind us! Presumably amending forecasts and Tax rates and plans if need be?
It was interesting to hear very little on the specific taxation of large on-line businesses, which has been frequently in the News in recent days, as well as Capital Gains Tax rates. Perhaps we should expect more on these later in the year?
Continuing Coronavirus Support
Coronavirus Job Retention Scheme (CJRS)
The Chancellor has announced the extension of the CJRS Scheme, which will now run to the end of September, with employers expected to make additional contributions from July.
For employees there will be no change to the terms of the Coronavirus Job Support Scheme which will remain available until the end of September 2021 across the UK. As businesses reopen, the Government will ask employers to contribute – from July there will be a 10% contribution and then 20% through August and September.
There will be no employer contributions beyond National Insurance contributions (NICs) and pensions required in April, May and June. However, from July, the Government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.
Self Employed Income Support Scheme (SEISS) – 4th and 5th Grants
Details of the eligibility criteria for the 4th and 5th grants under this Scheme have now been announced. Calculated differently to the previous grants, with the Government’s aim to catch some of the people missed in the earlier tranches. The new claims will be based on amounts included in 19/20 Self-Assessment Tax Returns.
To be eligible for the fourth grant you must be a self-employed individual or a member of a partnership.
To work out eligibility, trading profits must be no more than £50,000, for 2019/20 and be at least equal to your non-trading income.
If you are not eligible in 2019/20 (i.e. you fail the above), we understand that HMRC will look at earlier years (so, as before, 2016/17, 2017/18, and 2018/19).
You must also have traded in both tax years:
- 2019/20 and submitted your Tax Return by 2 March 2021
You must either:
- be currently trading and impacted by reduced demand due to coronavirus
- have been trading but are temporarily unable to do so due to coronavirus
You must also declare that:
- you intend to continue to trade
- you reasonably believe there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus
The fourth grant will provide a taxable grant calculated at 80% of 3 months’ average trading profits.
The fourth grant will be paid out in a single instalment, capped at £7,500 in total, and it is understood that this will be claimable from the end of April up to 31st May 2021
The fifth grant under this Scheme covers the period from May 2021 to September 2021.
The amount of the fifth grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021.
The fifth grant will be worth:
- 80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more
- 30% of 3 months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%
We understand that this will be claimable from late July 2021 and we expect further details to be provided in due course.
Recovery Loan Schemes (RLS)
The Recovery Loan Scheme will launch in April of this year and will provide Government backing for 80% of the value of loans under the Scheme. The amount that can be borrowed ranges from £25,000 to £10,000,000 with most, if not all, high street banks expected to make loans available under this incentive.
This Scheme takes the place of previous CBILS and BBL loan schemes that have now closed for new applications. We expect that banks will start to take applications in the next few weeks with the actual launch of the scheme on 6th April.
One key aspect is that businesses will need to demonstrate they are viable or would be viable if not for the pandemic, similar to CBILS and in contrast to Bounce Back Loans where viability was not assessed
Restart Grant Scheme
A £5bn Restart Grant Scheme has been set up by the Government. Announced in the budget, the introduction of ‘Restart’ grants, replace the Local Restriction Support Grant Funds, which close at the end of this month.
From April it will see non-essential retail businesses being able to claim up to £6,000 for each premise, while leisure and hospitality organisations can claim up to £18,000 per premise.
These funds will again be administered by your local council and we expect details of how you can make these claims to be released shortly.
Reduced rate of VAT for the Hospitality industry
Also announced in respect of the hospitality sector was the extension to the 5% reduced rate of VAT for businesses in the hospitality and tourism sectors. The Chancellor, who described these sectors as some of the “hardest hit” by Covid-19, stated that they will pay lower VAT rates for a year.
The 5% reduced rate will continue to apply until 30 September. From 1 October, such businesses will not go straight back to the 20% rate, but instead will pay an interim rate of 12.5% for another six months. Returning to the full rate in April 2022.
Apprenticeships Schemes - extended
The current Apprenticeship Scheme will be improved with payments of £3,000 to employers in England for each new apprentice they hire aged under 25, and will continue to pay the employer £1,500 for each new apprentice they hire aged over 25. The Schemes will now run until 30 September 2021.
Starting in January 2022 there will be a new “flexi-job” apprenticeship which will allow individuals to work for more than one company via an agency.
The “Kickstart” Scheme announced in the “Summer 2020 Plan for Jobs” will continue to be available for the 2021/22 academic year, to create 6-month work placements aimed at those aged 16-24 who are on Universal Credit and at risk of long-term unemployment. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
Tax Changes and Updates
Personal Allowances and Tax rates
From 6th April 2021 the Personal Allowance will increase to £12,570 (from £12,500) with the higher rate threshold increasing to £50,270 (from £50,000) with these levels then frozen up to and including the 2025/26 tax year.
The additional rate threshold remains fixed at £150,000 for the same time period.
The Government announced that the rates of tax in the above bandings will remain unaltered from current rates.
NI Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.
As with the personal taxation, the rates of National Insurance in these bandings remain unchanged.
One of the announcements made by the Chancellor that made the headlines was the planned increase in Corporation Tax rates from 1st April 2023.
In April 2023, the main rate of Corporation Tax will increase to 25% for companies making profits above £250,000, a 6% increase from the current 19%. A new “small profits rate” for businesses with profits of less than £50,000 will be introduced, effectively meaning that they continue to pay Corporation Tax at the current 19% rate. A tapered scale will be introduced for profits made between these two levels.
‘Super Allowance’ for Capital Investment
For a two year period from 1 April 2021 to 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This upfront ‘super allowance’ will allow companies to cut their Tax bill by up to 25p for every £1 they invest, the aim being to ensure the UK capital allowances regime is amongst the world’s most competitive. Companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.
It should be noted that the Annual Investment Allowance (giving a 100% deduction for qualifying asset additions) continues to run alongside this new allowance, so care and some amount of planning will have to take place to ensure the most beneficial Capital allowance claims are made.
Trading Losses – Extension to the loss carry back rules
Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment. Trading losses can normally only be set against profits of the preceding accounting period, or previous Tax year in the case of unincorporated businesses. However, the Chancellor has announced that the “carry back” period will be temporarily increased to three years, thereby enabling the business to obtain a Tax refund.
For companies this will apply to loss making accounting periods ending in the period 1 April 2020 to 31 March 2022.
For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.
The amount of trading losses that can be carried back to the preceding year remains unlimited for companies.
After carrying back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carry back against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.
Extension to the cut in Stamp Duty Land Tax
The temporary cut in Stamp Duty Land Tax for the housing market in England and Northern Ireland remains until September 2021 – the current limit of £500k remains in place till the end of June, followed by a reduction in the allowance to £250k for the final three months
Making Tax Digital (MTD)
The Government has confirmed that the requirement to maintain accounting records in a digital format, and submit the data to HMRC electronically, will be extended to all VAT registered businesses from 1 April 2022 regardless of the level of taxable supplies.
Reform of Penalties for VAT and Self-Assessment
A new late payment regime will introduce penalties proportionate to the amount of Tax owed and how late the Tax due is. The Government will introduce a new approach to interest charges and repayment interest to align VAT with other Tax regimes. These reforms will come into effect for VAT from periods starting 1 April 2022.
For Taxpayers with business or property income over £10,000 per year, the new regime will start for accounting periods from 6 April 2023 and for all other Taxpayers from 6 April 2024.
We are expecting more detail on this to arrive in the coming weeks.
Other Items of Interest
The Budget included an announcement on the location of eight English “freeports”. Once Tax sites within these “freeports” have been designated, businesses in those Tax sites will be able to benefit from a number of Tax reliefs. These include:
- an enhanced rate of Structures and Buildings Allowance (SBA) of 10%, which will have effect for qualifying expenditure where the first contract for construction of the relevant structure or building is entered into on or after the date the “Freeport” Tax site is designated. To qualify, the structure or building must be brought into use on or before 30 September 2026.
- a 100% enhanced Capital allowance, which will be available for expenditure on plant and machinery incurred on or after the date the “Freeport” Tax site is designated, until 30 September 2026.
- Stamp Duty Land Tax (SDLT) relief for purchases of land or property, subject to that land or property being acquired and used for qualifying purposes and subject to a control period of up to three years. It will apply to qualifying transactions with an effective date from the date the “Freeport” Tax sites are designated, until 30 September 2026.
New Mortgage Guarantee scheme
A new Mortgage Guarantee Scheme will enable all UK homebuyers to secure a mortgage up to £600,000 with a 5% deposit. This provides many with the opportunity to buy a home without a large deposit. The 95% mortgages will be available from a wide range of lenders and High Street Banks including Lloyds, NatWest, Santander, Barclays and HSBC.
Employers of ex-military – National Insurance Holiday
Relief applies to the recruitment of former members of the UK regular armed forces.
The Chancellor announced the introduction of a National Insurance contributions (NIC) holiday for employers that hire former members of the UK regular armed forces. The relief is available to all employers of veterans, regardless of when the employee left the regular armed forces, provided they have not previously been employed in a civilian capacity.
The relief will be available from April 2021. A full digital service will be available to employers from April 2022 and transitional arrangements will be in place in the 2021 to 2022 tax year. This means that from April 2021 to March 2022, employers will need to pay the associated secondary Class 1 employer’s NIC.
From April 2022, employers will be able to claim back the associate NIC that would have otherwise been relieved. Employers will need to keep records that demonstrate they are eligible for relief for those periods.
We hope that you have found the information detailed above of use and hope that this has highlighted parts of the Government’s Budget that will be of relevance to you. It by no means covers all the topics, grants, funding, taxation detailed by the Chancellor, but is hopefully a brief run through of the major topics.
If you need help or clarification on any of the above, please speak to either your portfolio manager or a Director, who will be only too glad to give you more guidance.