The Chancellor, Rishi Sunak, presented his 2021 Budget on 3 March 2021. We’ve detailed below some of the key changes announced.
Coronavirus Job Retention Scheme to run until September 2021
The Coronavirus Job Retention Scheme is extended until September 2021. Employees will continue to receive 80% of their pay for their furloughed hours, but employers will be required to meet some of the costs from July onwards. The employer contribution is set at 10% of the employee’s normal pay for unworked hours for July, and at 20% for August and September.
Further grants under the Self-Employment Income Support Scheme
The self-employed will also be able to claim two further grants under the Self-Employment Income Support Scheme. The fourth grant will cover February to April 2021 and be worth 80% of three months’ average profits, capped at £7,500. The final grant will cover May to September and will depend on the impact that the pandemic has had on turnover. The final two grants will be available to those who started their self-employment in 2019/20, as long as they filed their 2019/20 tax return by midnight on 2 March 2021.
SSP rebate scheme to continue
The SSP rebate scheme which allows smaller employers to reclaim up to two weeks’ SSP per employee from the Government for coronavirus-related absences is to continue for the time being.
Income tax thresholds frozen
For 2021/22, the personal allowance is increased to £12,570. The basic rate band remains at £37,700, meaning that higher rate tax becomes payable for someone in receipt of the standard personal allowance once income exceeds £50,270. Income tax rates are unchanged for 2021/22, at 20%, 40% and 45%, as are the dividend tax rates, which remain at 7.5%, 32.5% and 38.1%.
The personal allowance and higher rate threshold will remain at their 2021/22 level until April 2026.
IHT nil rate band frozen
The inheritance tax nil rate band will remain at its current level of £325,000. The residence nil rate band, available where the main residence is left to a direct descendant, will also remain at its current level of £175,000 until April 2026.
No change to capital gains tax annual exempt amount
The capital gains tax annual exempt amount is unchanged at £12,300 for 2021/22. It will remain at this level to the next five years, up to an including 2025/26.
Pension lifetime allowance unchanged
The pension lifetime allowance, which places a cap on tax relieved pension savings will remain at its current level of £1,073,100 until April 2026. This will impact on individuals with pension savings at or near this level, limiting future tax-relieved pension savings.
Super-deduction for capital expenditure
Companies will be able to benefit from enhanced capital allowances for investment in plant and machinery where the expenditure is incurred between 1 April 2021 and 31 March 2023. A first-year allowance of 130% will be available for expenditure on plant and machinery that qualifies for main rate capital allowances of 18%, while expenditure on plant and machinery qualifying for special rate capital allowances of 6% will qualify for a 50% first-year allowance. This is independent of the Annual Investment Allowance, which can be claimed instead where this is more beneficial.
Carry-back period for losses temporarily increased
Unincorporated business and companies can benefit from a temporary extension in the period for which losses can be carried back. The carry-back period is increased from one year to three years for a limited period. For unincorporated businesses, the extended carry back will apply to losses incurred in 2020/21 and 2021/22. For companies, it will apply to losses incurred in accounting periods ending between 1 April 2020 and 31 March 2021 and 1 April 2021 and 31 March 2022 (subject to a cap of £2m for each accounting period).
Relief is given against profits of a later year before those of an earlier year.
Taking advantage of the measure to carry back losses incurred as a result of the Covid-19 pandemic may generate a much needed tax repayment.
Future rises in corporation tax
From 1 April 2023, companies with taxable profits of £250,000 or more will pay corporation tax at 25% — an increase of 6% over the current rate of 19%. A small companies’ rate of 19% will apply to companies with profits or £50,000 or less. Companies with profits of between £50,000 and £250,000 will pay corporation tax at the main rate of 25%, but will benefit from marginal relief. The limits will be reduced to take account of the number of associated companies and for accounting periods of less than 12 months.
Tax exemption for Covid-19 antigen tests
An income tax exemption is to be introduced to apply retrospectively for 2020/21 where an employer reimburses an employee for the cost of a coronavirus antigen test. The exemption will also apply for 2021/22.
The exemptions will also apply for National Insurance purposes.
Temporary SDLT threshold extended
The temporary increase in the Stamp Duty Land Tax (SDLT) residential threshold to £500,000, which was due to come to an end on 31 March 2021, has been extended and will remain in place until 30 June 2021. From 1 July 2021 the threshold will be reduced to £250,000, returning to its usual level of £125,000 from 1 October 2021.
SDLT applies to property purchases in England and Northern Ireland only; Land and Buildings Transaction Tax (LBTT) is payable in Scotland and Land Transaction Tax (LTT) is payable in Wales.
VAT registration threshold remains at £85,000
The VAT registration threshold will remain at its current level of £85,000 for 2021/22 and for the following two years.
Temporary 5% VAT rate for hospitality and leisure extended
The temporary 5% rate of VAT for hospitality, holiday accommodation and leisure attractions will remain in place until 30 September 2021. From 1 October 2021 until 31 March 2022 a new reduced rate of 12.5% will apply, before reverting to the standard rate of 20% from 1 October 2022.