Budget 2021 – The key issues to be aware of

Budget 2021 followed a year of extraordinary economic challenge, resulting from the ongoing coronavirus crisis. The economic climate is one where we have the highest levels of peacetime borrowing in living memory and the deepest recession for 300 years against a backdrop of Brexit.

The Chancellor had to produce a budget that looked to stimulate the economy whilst also looking to repay the debt UK Plc has taken on – no mean feat.  The most surprising thing about the budget was actually the lack of content.  Only one major tax rise in two years’ time, with most increased tax revenues being generated from the freezing of allowances.

The Budget sets out how the Government is extending economic support and reflect the cautious easing of social distancing rules and the gradual reopening of the economy, as outlined in the Government’s roadmap.

Budget 2021 sets out the steps the Government is taking in supporting the recovery as the economy reopens. Short-term priorities continue to be supporting those businesses and individuals hardest hit. Announcements included extensions to furlough, the self-employed support scheme, business grants, new loans and extensions to the VAT cuts.

The Budget also set out the Government’s plan to drive employment, growth and investment to assist the economy to rebound. The Chancellor also spoke about tough choices that are now required to place the public finances on a more sustainable path.

What does Budget 2021 mean for your own plans?

If you would like to review your current situation or discuss how Budget 2021 could affect your plans, please contact us and we will be happy to advise you.

We have summarised below some of the key issues that are likely to affect you. In addition, we have produced a guide to the Budget 2021, which you can download as a PDF here.

Extended and new coronavirus support measures for businesses announced in Budget 2021

The Chancellor announced an expected extension to the Furlough scheme until September. He also confirmed a fourth, and a fifth grant under the Self Employed Income Support Scheme (SEISS).

Further support measures include the introduction of Restart Grants, an extension to the existing Business Rates reliefs and an extension to the VAT rate reduction for the hospitality sector. A new Recovery Loan Scheme was also introduced, aimed at replacing existing business loan schemes that are coming to an end.

Corporation Tax increase

Corporation Tax will remain at its current rate of 19% rate until 1 April 2023, at which point it will increase to 25% for companies with profits over £250,000.

A small profits rate of 19% will apply to companies with profits of £50,000 or less. Companies that have profits between £50,000 and £250,000 will pay tax at the main rate, which is reduced by a marginal relief, this will provide a gradual increase in the effective corporation tax rate.

A freeze on other tax rates and allowances

No other tax rate increases were announced and there was a freeze on most tax allowances. The expected Capital Gains Tax increases were excluded. As the second report from the Office of Tax Simplification on this subject is due shortly, this can still change in the year ahead. Capital gains tax should be considered carefully when considering tax planning for the year ahead

The freezing of tax allowances, including the pension lifetime allowance and the Inheritance tax nil rate band, will mean that unfortunately, people will be paying more taxes going forward.

Tax Losses

A temporary extension for the period over which a business may carry trading losses back for relief against profits of earlier years to get a repayment of tax paid will come into force for accounting periods of companies that end in the period 01.04.2020 to 31.03.2022 and for tax years 20/21 and 21/22, for unincorporated businesses.

Trade loss carry back is to be extended from the existing one-year entitlement to a period of three years, with losses being able to be carried back against later years first.

After carry back to the preceding year, for companies, a limit of up to £2,000,000 of unused losses will be available for carry back to be set against profits of the same trade to the two years earlier. The £2,000,000 limit separately applies with regards to unused losses of each of the twelve-month period within the duration of this extension.

A £2,000,000 cap will separately apply for individuals to the extended carry back of losses made in each of the tax years 2020/21 and 2021/22.

During this extension, the £2,000,000 limit applies separately to the unused losses of each tax year.

Super Deductions

From 01.04.2021 until 31.03.2023, companies investing in (qualifying) new plant and machinery will benefit from a new rate of first-year capital allowances.

This means that a company will be allowed to claim:

• A super-deduction which will provide allowances of 130% on most new plant and machinery investments (that ordinarily qualify for 18% main rate writing down allowances)
• A 50% first-year allowance will apply to most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.

This relief is not available for unincorporated businesses.

Freeports

The Government consulted in 2020 on proposals to create Freeports across the UK. Freeports in the UK are to be defined as a geographical area, up to 45km in diameter, closely linked to a seaport, rail port or airport. Liverpool City Region is one of the successful areas in the Freeports bidding process for England.

A range of measures are now being considered by the Government, these cover tax reliefs, planning, regeneration funding, customs and innovation. Freeports are intended to create national hubs for global trade and investment throughout the UK.

Stamp Duty Land Tax & Mortgage Guarantee Scheme

The stamp duty nil rate band on residential properties in England up to £500,000 will continue until the end of June 2021. This rate reduces to £250,000 up until 30 September 2021, after which it will return to the previous level of £125,000.

Additionally, a new mortgage guarantee scheme will be introduced in April 2021. Providing a guarantee to lenders across the UK who offer 95% mortgages on homes with a value of up to £600,000. This scheme is to be available for new mortgages up to the end of 2022.

Contact Alexander & Co for advice on Budget 2021 and any other business matters

For further advice on any of the topics covered in this update, or to discuss any other business matters, please do not hesitate to get in touch with us by emailing info@alexander.co.uk or calling 0161 832 4841.