In his budget, Rishi Sunak has chosen a fine line between raising taxes to start paying down the massive Government borrowings but at the same time stimulate economic recovery and save jobs. Due to the government’s promises not to raise income tax, VAT and national insurance, changes will be applied to corporation tax, CGT and inheritance tax.
Below is a summary of the main updates and changes:
CJRS extended
The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2021. This scheme has now been extended and is scheduled to end 30 September 2021. Eligible employees will have an RTI submission between 20 March 2020 and 2 March 2021.
The grant will still cover 80% of wages until July when it will reduce to 70% and then 60% for August and September. Employers will have to top up the remaining 10% and 20% so that employees continue to receive at least 80% of their usual wage while on furlough.
Self-employed income support grants extended
The chancellor has also set out further support for the self-employed. The fourth SEISS grant will cover the period to 30 April and the support will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.
The scheme will now also include certain traders who were previously excluded. Those who commenced self-employment in 2019/20 will now be included- provided they had submitted their 2019/20 tax return by 2 March 2021.
Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.
Corporation Tax Increase
The chancellor has announced that the corporation tax rates will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.
Super deduction for investment in new equipment
In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.
Three year carry back of trading losses
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.
The chancellor has announced in the budget 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.
National Insurance Rates
The national insurance contribution (NIC) rates and bandings were announced 16 December 2020 to take effect from 6 April 2021.
Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, which is a £1 a week increase.
5% VAT rate extended
In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021.
The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK.
From 1 October until 31 March 2022 the rate will be set at 12.5%. It will then revert to 20% from 1 April 2022.
Vat Registration threshold frozen
The VAT registration limit normally goes up each year in line with inflation. However, it will remain at £85,000 for a further two years, until 1 April 2024.
Support for Small Accommodation providers Paying Council Tax Fund
B&Bs, self-catering businesses and guest houses that have not previously been supported are now eligible to apply for this fund
The Support for Small Accommodation Providers Paying Council Tax Fund (SAP-CTF) is there to support B&Bs, guest houses and self-catering properties etc. in Scotland that pay council tax, and which have been impacted by the coronavirus (COVID-19) restrictions.
Local authorities will contact businesses who were supported by the B&B Hardship Fund or the Creative, Tourism and Hospitality Hardship Fund to register for this new fund. Applications for new entrants will open on 15 March 2021 and will close on 22 March.
New recovery loan scheme
The government have already announced a longer repayment period for “Bounce-back” and CBIL loans. From 6 April 2021 a new Recovery Loan Scheme 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. The scheme will be open to all businesses. THis includes those who have already received support under the existing COVID-19 guaranteed loan schemes.
Kickstart Scheme
The “Kickstart” Scheme announced in the Summer 2020 Plan for Jobs will continue to be available for the 2021/22 academic year. It will 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.
Workplace Testing
The government are encouraging food production and processing businesses to take part in routine staff testing. This will help identify cases of coronavirus, keep their employees safe and reduce transmission of the virus.
Free lateral flow antigen test kits are available for eligible businesses via this link.
Please feel free to contact us if you have any questions about the various schemes and support available.