The 3 Step Plan Budget - How does this impact you?
Here we share some of the highlights with you of the Spring Budget 2021, announced on Wednesday 3rd March 2021, that may be relevant to your business, you & your family and your future.
It was the first budget since the start of the Coronavirus pandemic and following the end of the transition period arrangement between the EU and the UK. The Chancellor of the Exchequer announced a 3 staged approach:
1) Continued support for businesses and individuals through the pandemic;
2) Preparation to deal with the UK ever growing debt problem; and finally,
3) To put in foundations for a recovery.
Job Retention Scheme (CJRS)
The Job Retention Scheme (also known as the furlough scheme) has been extended until the end of September 2021. It will continue on the basis of furloughed employees receiving an 80% payment for their furloughed hours. However, employers will need to contribute to the furlough amount from July onwards. The employer contribution is similar to the approach seen in late summer 2020.
- In July employers will contribute 10% of the furlough pay.
- In August and September employers contribution will increase to 20% of furlough pay.
Self Employed Income Support Grants (SEISS)
There will be two further Self Employed Income Support Grants covering the period from February 2021 to the end of September 2021. These are the fourth and fifth grants under this scheme. Those who were not eligible for the earlier grants because they commenced self-employment during the 2019/2020 tax year may be able to claim this time round. The 2019/2020 tax return must have been submitted by midnight on 2 March 2021.
One of the criticisms of the SEISS has been the blanket application of “being adversely affected” with no definition of what that means. The last two grants both contain the criteria, in line with the third grant, that current trading (in the grant period) is impacted by reduced demand or the business is temporarily unable to trade due to coronavirus, along with other declarations as well.
Fourth SEISS Grant
For the fourth grant, the individual may be able to claim up to 80% of their average trading profits. This grant represents support against February to April 2021. The portal for claiming is expected to open in late April, with payments being made in May. The maximum grant will be £7,500.
Fifth SEISS Grant
The fifth and final grant has a defined level of impact on turnover that will result in differing percentages of grant being paid out. The grant will only pay out 80% of average trading profits, if there is a 30% reduction in turnover during that period of May to September 2021, to a maximum of £7,500. If not, then the maximum claim will only be 30% of average trading profits, giving a maximum of £2,850. This assumes the rest of the criteria is met.
The corporation tax rate will go up from 1 April 2023, from 19% to 25%, for companies with profits exceeding £250,000. However, for companies with profits of £50,000 or less they will continue to pay Corporation Tax at 19%. For those in between there will effectively be a sliding scale. The small profits rate will not apply to close investment-holding companies. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.
Recovery Loan Scheme
The Recovery Loan Scheme is aimed at giving businesses access to loans and other kids of finance once the existing COVID-19 loan schemes close, at the end of March 2021.
- Term loans and overdrafts will be available between £25,001 and £10 million per business.
- Invoice finance and asset finance will be available between £1,000 and £10 million per business.
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
One big difference from the COVID-19 loan schemes we saw through 2020, is that the interest and fees are payable from day one and there is no capital repayment holiday. For that reason, if your business is considering taking finance and has not taken a BBL/CBIL loan then these may be preferable to the Recovery Loan Scheme, but time is of the essence.
- The taxable turnover threshold for determining whether a person must register for VAT will remain at £85,000 and the point at which a person can apply to deregister will also remain at £83,000 until 31 March 2024.
- The temporary VAT rate cut from 20% to 5% for the hospitality, hotel and accommodation sectors which was due to finish on 31 March 2021 has now been extended for a further six-month period at 5% until 30 September 2021. A new reduced rate of 12.5% will then be introduced, which will end on 31 March 2022.
Investing in Equipment
An enhanced temporary first year allowance is available on purchases from 1 April 2021 for companies who invest in new plant and machinery. This could potentially be 130% or 50%, depending on the level of writing down allowance it would normally qualify for (18% main rate and 6% rate, respectively). This 130% rate has been referred to as a “super-deduction” rate. This temporary allowance will remain in place until 31 March 2023.
The Annual Investment Allowance limit of £1 million has been extended to 31 December 2021 for all businesses. The limit will reduce to £200,000 from 1 January 2022.
In England, eligible businesses in retail, hospitality and leisure sectors will continue to receive a business rates holiday of 100% up to the end of June 2021. For the remaining nine months of the year, business rates will still be discounted by two-thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.
New Restart Grants (in England)
In England there is are two restart grants, availability depends on the sector. Non-essential retail business up to £6,000 per premises. Hospitality and leisure businesses, including personal care and gyms, may be eligible for grants up to £18,000 as these are expected to open later in the year than other businesses.
Schemes targeted at increasing employment, including businesses receiving an increased incentive payment for the hiring of new apprentices.
- To encourage recruitment, the cash incentives for employers to take on an apprentice will increase to £3,000 per apprentice - regardless of age. This is for apprentices taken on between 1 April 2021 and 30 September 2021.
- The Kickstart and Restart schemes will continue together with doubling the number of Department of Work and Pensions work coaches, under the Government’s Plan for Jobs.
- The Help To Grow Scheme will be introduced in Autumn 2021 targeting SMEs with between 5 and 249 employees. This scheme aims at helping SMEs (small and medium enterprises) to become more productive by providing access to some of the UK’s top business schools, with the Government potentially funding 90% of the costs.
- Businesses could also receive expert technology advice and discounted software, with the aim to spark innovation as the UK plots its recovery out of the pandemic. It will aim to help businesses to save time, reduce costs, and reach more customers. Eligible SMEs will also be given vouchers to get up to 50 per cent off the purchase of new productivity-enhancing software, up to £5,000 each.
Personal Tax Allowance
The personal allowance for individuals will increase from £12,500 to £12,570. It will remain at that level until April 2026. The phased withdrawal of the personal allowance remains at £100,000, with it being fully removed once the income has reached £125,140. The starting rate for savings will remain at £5,000 for the whole of the UK.
Inheritance Tax was an area that some expected there may be significant changes, but not this time. The Inheritance tax exemption, presently at £325,000 and the capital gains tax annual exemption of £12,300, will be frozen until April 2026.
Pensionsremain a potential area of tax efficiency for many, with an understanding on the limits and allowances.
The pension lifetime allowance limit (PLTA) normally increases in line with the consumer price index. However, the Chancellor has decided to freeze the PLTA at £1,073,100 until April 2026. Any excess attracts a tax charge of 25% if it is withdrawn as an income (for instance from an annuity or a drawdown arrangement) or 55% if it is withdrawn as a cash lump sum.
When calculating whether or not an individual is liable to suffer a pension tax charge the two threshold criteria will remain in line with the present tax year. The threshold income limit will be £200,000 and the adjusted income limit will rise to £240,000. House Purchases have two policies that may make now the time to look to move. The Stamp Duty Land Tax concession of 0% on the first £500,000 is to be extended to 30 June 2021, followed by a step down to £250,000 to 30 September 2021, before reverting to pre-COVID percentages from 1 October 2021. In addition, the Government is backing a new 95% mortgage scheme to enable those with low deposits to get onto the property ladder.
Stamp Duty Land Tax (SDLT)
If buying a residential property in either England or Northern Ireland, the present SDLT concession (the first £500,000 at 0%) will remain until 30 June 2021. From 1 July to 30 September 2021 the 0% rate will then apply to the first £250,000 of the purchase price. After that it will revert back down to the first £125,000, as it was before the pandemic.
The 3% SDLT surcharge when acquiring a second residential property remains as it is.
It was announced in the Scottish Budget in January, that their Land and Buildings Transaction Tax (LBTT) concession, regarding residential property purchases, will end on 1st April 2021. Unless the purchaser is a first time buyer, the LBTT rate of 0% will revert back to the first £145,000 (presently £250,000).
Wales Land Transaction Tax (LTT) concession for residential purchases will also finish on 1st April 2021. The LTT rate of 0% will go back down to £180,000 (presently £250,000). Note that the LTT threshold of £180,000 has always been in place where the purchaser is acquiring a second home or buy to let property in Wales.
Worth remembering that if you dispose of a residential property which triggers a Capital Gains Tax liability, then this must be reported, and any liability paid to HMRC, within 30 days of completing the sale.
Mortgage Guarantee Scheme
The Government is backing a new 95% mortgage scheme which aims to help people with low deposits to purchase a residential property. It relates to property purchases of up to £600,000. It is not linked solely to first time buyers or restricted to new build homes.
There are lots of opportunities and issues to consider following this Budget for businesses, individuals and families. As always, we are here ready to help. We believe it’s important to discuss all plans you are considering before taking any action and so if you would like to see how the 2021 Budget changes might affect you, your family and your business, please get in touch and we can get a time in the diary to catch up.