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The Budget 2021 – What Changes Might Impact Me & My Business

This week, the Chancellor announced extensions to a number of current COVID-19 schemes, alongside additional support for individuals and businesses, as the UK continues to navigate the impact of the pandemic.

We have sought to summarise some of the immediate key measures for employers below, and we have also included a very brief synopsis of 2021/22 tax changes..  

If you want to know more detail about the Budget, follow this link: www.gov.uk/government/publications/budget-2021-documents

 

  1. Coronavirus Job Retention Scheme (CJRS)
  • The CJRS Scheme has been extended until the end of September 2021.
    • Employers will continue to pay their furloughed employees associated Employer National Insurance contributions and pension contributions on subsidised furlough pay from their own funds.
    • When claiming for periods from 1 May 2021 onwards, eligible employees must have been employed on 2 March 2021 and been included upon a Real Time Information (RTI) submission to HMRC notifying a payment of earnings for that employee between 20 March 2020 and 2 March 2021.
  • Until June 2021
    • The government will continue to pay 80% of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month
  • For July 2021
    • CJRS grants will cover 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50.
  • For August & September 2021
    • CJRS grants will then reduce to 60% of employees’ usual wages, up to a cap of £1,875.

 

  1. Self-Employment Income Support Scheme (SEISS)
  • The eligibility criteria for the fourth SEISS grant has now been confirmed; the Chancellor also announced a fifth and final grant.
    • The eligibility criteria for these grants have been updated to take into account 2019/20 self-assessment tax returns, which must have been filed by 2 March 2021.
    • Some newly self-employed taxpayers who were not eligible for the first three grants will consequently be eligible for the final two grants.
  • The fourth SEISS grant
    • has been set at 80% of three months’ average trading profits and is capped at £7,500.
    • HMRC will contact potentially eligible taxpayers in mid-April and applications will be open from late-April to the end of May 2021.
  • The fifth grant
    • has been set at 80% of three months’ average trading profits capped at £7,500 for those whose turnover has reduced by 30% or more.
    • Those with a turnover reduction of less than 30% will receive a grant based on 30% of three months’ average trading profits, capped at £2,850.
    • Applications are expected to open in late July.

 

  1. The VAT Deferral Payment Scheme
  • The new payment scheme helps businesses with deferred VAT to pay in smaller, monthly instalments from March, interest free;
  • The scheme is now open, and you can choose to make between 2-11 monthly payments, depending on when you join.
    • The later you join the fewer instalments are available to you;
    • You can join the Scheme through an online service without needing to contact HMRC.

www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19

  • You must join the scheme before the end of June if you want to make use of this Scheme.

 

  1. 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 carry back rule will be available for both incorporated and unincorporated businesses.

 

  1. Capital Allowances
  • From 1 April 2021 to 31 March 2023, a “super deduction” of 130% will be available to companies incurring expenditure on qualifying plant and machinery (P&M).
  • This will generate a reduction in tax of 7p for every £1 pound spent.
  • There are some exclusions to the assets eligible for the relief, broadly those that have been excluded from first year allowances in the past as well as used and second-hand assets and expenditure on contracts entered into prior to 3 March 2021 even if expenditure is incurred after 1 April 2021.
  • Expenditure on special rate assets (eg, hot and cold water systems and other ‘integral assets’) will attract a 50% rate and a 9.5p tax reduction.

 

  1. Business Rates Holiday 
  • The Chancellor also announced a three-month extension of the business rates holiday from 1 April 2021 to 30 June 2021.
  • Thereafter, for the remainder of 2021/22 (ie, nine months) businesses will enjoy 66% rates relief up to a cap of £2m per business.

 

  1. Stamp duty land tax (SDLT)
  • The temporary increase in the residential SDLT nil rate band to £500,000 in England and Northern Ireland is extended until 30 June 2021.
  • The nil rate band will then reduce to £250,000 until 30 September 2021 before returning to £125,000.

 

  1. VAT Reduction for the UK’s Tourism and Hospitality Sector
  • HMRC have extended the temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector until 30 September 2021;
  • To help businesses manage the transition back to the standard 20% rate, a 5% rate will apply for the subsequent six months until 31 March 2022.

 

  1. Continuation of the Home Office Equipment Expenses COVID-19 Easement
  • An Income Tax exemption and corresponding NICs disregard were introduced for the 2020-21 tax year to 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 NICs.
  • The exemption was due to end on 5 April 2021 but will now be extended to have effect until 5 April 2022.

 

  1. Tax rate changes 2021/22 And Beyond
  • Personal Allowance and Higher Rate Threshold (HRT)
    • The 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 Higher Rate Tax Allowance
      • will rise as planned to £50,270 from April 2021; and
      • will remain at this level until April 2026.
    • Corporation Tax
      • 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.
      • Pensions Lifetime Allowance
        • The Lifetime Allowance will remain at its current level of £1,073,100 until April‌‌‌ ‌2026.
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Budget 2011: first the cuts, now the growth plan

Last year’s Budget, coupled with the Comprehensive Spending Review, was intended to get most of the unpleasant news out of the way – large spending cuts – in the Government’s efforts to tackle the public finance deficit.

Now comes what may be the harder part: encouraging sufficient private sector growth both to boost the tax take and to compensate for the inevitable slide in public sector employment.

The Chancellor, George Osborne has already offered appropriate acknowledgements of the need to rev the economy. But while manufacturing has turned in a sturdy performance in recent months, other areas of the economy, retail included where the effects of the VAT rise to 20 per cent are being felt, remain under the cosh of sluggish growth.

So what may Mr Osborne have to tell us when he gets to his feet at 12.30pm on Wednesday 23 March?

Much of the detail of the Budget is likely to stay in step with the measures set out in the draft Finance Bill 2011 as published last December.

But the Chancellor has already created one surprise by announcing that the levy charged on bank profits is to rise by an extra £800 million this year. This will take the amount of tax to £2.5 billion, and the levy is to set to become permanent. Changes to the levy were due to have been made public in the Budget, but the Chancellor said that stronger than expected performances from the banks had encouraged him to increase the levy sooner rather than wait until March.

So there may be other surprises in the offing.

Changes to tax

The suggestions so far have been to indicate that there will be no imminent change in the top income tax rate of 50 per cent.

However, Mr Osborne may well have some announcements to make on the proposals of the Office for Tax Simplification review, the final version of which was made public on 3 March.

In its review of over 150 tax reliefs, the OTS suggested that 54 remained unchanged and that 47 be scrapped. A further 17 should be simplified, while the remainder require further examination.

Of those that could be simplified, the OTS proposed that the rule which demands a 5 per cent shareholding in order for business owners to qualify for the 10 per cent entrepreneurs’ relief rate of capital gains tax be dropped. The report also suggested introducing a checklist for the four reliefs covering the enterprise investment scheme.

Will income splitting and the IR35 regime, both vexed issues for business and the tax authorities, be in for an overhaul too?

With petrol prices soaring, much debate has surrounded the increase in fuel duty planned for April. Mr Osborne, speaking after an ‘on the road’ cabinet meeting in Derby, hinted that he may use his annual statement to take action on petrol prices.

He said: “I am looking, of course, at fuel duty, particularly this increase in duty that the last Labour government planned for April. I understand how families are hit hard by the rising cost of oil around the world – but I can’t make any promises.”

It has been mooted, too, that the Treasury is examining ways of making a fuel duty stabiliser – he tax falls if fuel prices rise – a practical possibility.

Business tax and encouraging enterprise

The Budget may include news about improved tax reliefs for small firms. Entrepreneur, Sir James Dyson has said that he believes the Treasury is considering a boost to the R&D tax credit system. One possibility is the tax credit will be increased to 200 per cent for small technology businesses.

Mr Osborne, keen to increase the amount of funding available to firms while the banks are still shy of lending, may offer plans to deal with the shortfall in private investment for smaller enterprises. One possible policy measure may be to make the tax incentives available for business angels more attractive, and a beneficiary could be the Enterprise Investment Scheme (EIS) which provides private investors with relief on income and capital gains tax.

The Chancellor said: “Equity finance has been a weakness in the British economy for a long time. The Government can do things. One is to provide tax advantages for angel investors. We’ve got the EIS and VCT schemes. EIS is a scheme that is working well, but there are improvements that we could make to expand it.”

The outlook on the Venture Capital Trust scheme may not be quite so good, with the Treasury said to be reviewing the income tax and capital gains tax incentives in an effort to place greater emphasis on risk capital. The Chancellor added: “With the VCT scheme, there’s a question mark over whether it’s real venture capital, and risky in a good sense of investing in growth businesses.”

Reforms to the corporate tax system may be on the agenda too.

However, given the ever-growing emphasis on the greening of the economy, carbon taxes may be on the up, and the climate change levy may make an appearance in the statement.

What businesses are looking for

As with every Budget, business groups have been busy submitting their ideas to the Chancellor ahead of the announcement in the hope that he will incorporate some of the items on their wish lists.

Here is a brief summary of who has been asking for what.

British Chambers of Commerce (BCC)

In its submission, the BCC detailed a number of areas where policy needs to change.

On employment, the Government should make it easier for firms to recruit employees. This, the BCC said, can be done by delaying or scrapping the implementation of all new employment legislation, and by introducing a moratorium on additional employment regulations for the remainder of this Parliament.

The youth and development rates of the national minimum wage should be suspended in order to combat unemployment levels among young people. Failing that, employers should be provided with a National Insurance incentive to take on younger workers.

On the question of regional development, to help businesses expand their premises without falling foul of lengthy bureaucratic planning decisions, the Government needs to look at creating opportunity zones where high-value firms can grow with the backing of tax breaks and a relaxation of planning laws.

To bolster those firms that are struggling both to break into emerging overseas markets and to gain access to trade finance, the Government needs to make greater efforts to extend the work of the Export Credits Guarantee Department amongst smaller businesses.

On business investment, the BCC pointed out that since smaller firms will not be gaining from the phased reduction of the headline rate of corporation tax, they should be allowed to carry forward unused relief, helping them to invest in new plant.

EEF

The EEF, the group representing UK manufacturers, argued the Government must take action in four key areas: tax, regulation, access to finance and skills.

Each Budget, the EEF continued, should report on the following measures: the change in total tax costs faced by businesses; estimates of the net change in bank and non-bank external finance; the change in total climate and environment policy costs faced by businesses; all new and withdrawn regulations, and the change in the total cost of all regulation; the change in the proportion of companies facing skills shortage and hard-to-fill vacancies; and the change in apprenticeship starts.

In addition, the EEF put forward a series of recommendations on tax and employment policies. The R&D tax credit system should be reformed to take into account development costs; the capital allowances regime should be modernised so that it recognises the actual cost of re-investment; the burden of environmental taxes needs to be minimised; and the remit of the Office of Tax Simplification should be made more wide-ranging.

On business access to finance, the EFF argued the case for introducing independent monitoring of how banks stick to their lending principles; for increasing competition among banks; and for developing alternative sources of finance, such as non-bank debt and venture capital.

On improving skills, the EEF said that the future funding and demand for 14-19 diplomas must be reviewed with the aim of increasing support and improving delivery. Meanwhile, the Growth and Innovation Fund should implement a pilot scheme designed to support SME collaboration on industry placements.

Federation of Small Businesses (FSB)

Small business stability was the watchword of the FSB. As such, the group called on the Chancellor to work towards a consistent economic background as essential for allowing small firms to play their role in the recovery.

The FSB put forward the case for extending the National Insurance holiday for one year to existing businesses with less than four members of staff if they take on up to three new employees.

Plans to increase fuel duty from 1 April 2011 should be reversed, and a fuel duty stabiliser should be introduced to help to control inflation, the FSB added.

To tackle rising youth unemployment, the Government should provide finance for micro-businesses to enable them to offer places to apprentices and should extend the Graduate Internship Scheme, which is due to come to an end in March 2011.

Lastly, the Government needs to declare a moratorium on all new employment legislation for the 12 months following the Budget, allowing for a more predictable regulatory environment in which small firms can recruit staff, the FSB concluded.

British Venture Capital Association (BVCA)

The BVCA put forward the case for amending the rules on entrepreneurs’ relief. At the moment, the rules place a ceiling of 10 per cent on capital gains tax on the sale of business assets under set conditions.

The BVCA said that the relief should be extended from business owners to include all angel investors. The qualification of a minimum 5 per cent holding requirement should be removed, so that employees and investors with small equity stakes can take advantage of the tax break, and the limit of a £5 million lifetime cap should be abolished.

The BVCA went on to say that the Enterprise Investment Scheme (EIS) should include preference shares in order to offer an incentive to seed investments from early-stage backers.

Investments made though Venture Capital Trusts (VCTs) should be expanded to cover firms employing up to 250 workers, and the annual investment limit should climb to £5 million.

CBI

In its pre-Budget letter to George Osborne, the CBI said the Government should focus on three critical areas: boosting export performance, unleashing domestic investment spending, and removing barriers for high-growth firms.

The CBI’s specific proposals included creating a new corporate bond market for mid-caps to increase the supply of capital; speeding up the planning system to stimulate infrastructure investment; and encouraging companies to become more energy efficient by restoring the incentive element of the Carbon Reduction Commitment.

The letter also highlighted the need for changes to the tax system. It argued that the 50p income tax rate is discouraging entrepreneurship, as, too, is the narrow definition of business assets laid by capital gains tax law.

Other measures that the CBI said would boost exports and investment are: strengthening UKTI to provide more targeted support for exporters; improving the Enterprise Investment Scheme (EIS) to bridge the funding gap for larger SMEs; and ensuring the extra support announced through the Export Credits Guarantee Department (ECGD) reaches the firms at which it is aimed.

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Date set for 2011 Budget

Next year’s Budget will be delivered on 23 March.

The date was announced by the Chancellor, George Osborne as he was giving evidence to the House of Commons Treasury Select Committee on the consequences of October’s Comprehensive Spending Review.

Mr Osborne told the MPs: “You can put that in your diary.”

The announcement is unusual in recent years in that it gives months rather than weeks of notice of the timing of the Budget.

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