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UK Budget 2021 – what does it mean for you and your business?

By Caroline Keenan, Tax Director, ASM Chartered Accountants

The Chancellor Rishi Sunak presented his second Budget on 3 March 2021, against the backdrop of the global pandemic, one year in, and the associated rise in government borrowing with the UK budget deficit exceeding £2trn.  It was always likely to be a balancing act between starting to balance the books and continuing to provide support to those businesses and individuals who are facing unprecedented challenges.  What we got overall was a Budget with a couple of notable surprises for businesses, plus the extension or modification of various Covid-19 support measures already in place, with most other measures of note having been previously announced.

Give with one hand…   the super-deduction

One of the biggest headline-grabbers was the announcement of a 130% “super-deduction” for investment in plant and machinery that would normally qualify for the main capital allowances pool.  This was billed as making the UK’s capital allowances regime more competitive internationally, with the aim of stimulating business growth. 

The incentive allows companies within the charge to corporation tax to deduct 130% of the cost of the asset against their taxable profits, compared to 100% under the current AIA, or 18% on a reducing balance basis if the AIA has already been used in full.  This runs for 2 years from 1 April 2021, so the window for making qualifying investments is fairly limited.  Businesses may want to look at whether investment plans can be accelerated in order to benefit from this additional relief, where there is scope to do so. 

Note that the 130% deduction does not apply to long life assets, integral features or special rate pool items, but there is a 50% FYA for qualifying special rate assets.

And take away…   a higher corporation tax rate

The most significant tax-raising measure was the greater-than-expected hike in the corporation tax rate, from 19% to 25%, although this is delayed until 2023.  This marks a significant reversal of government policy in recent times, which has seen the corporate tax rate fall from 30% to 19%, and appears to step away from the government’s previously stated aim of having the lowest tax rate in the G20. 

The 25% will apply to companies with taxable profits over £250k.  Profits below £50k continue to be taxed at 19%, which the government says will leave about 70% of companies unaffected by the rise, with marginal relief applying between £50k and £250k.

Other Coronavirus support measures

There was a commitment to continue short-term support measures, such as an extension to the existing Coronavirus JRS to 30 September 2021 (albeit with the level of grant reducing and employers being asked to contribute towards the wage bill) and additional Self-Employed Income Support Scheme payments.  A new Recovery Loan Scheme was introduced from 6 April 2021, following the closure of the previous Coronavirus loan schemes to new applicants.

The rules for carrying back trading losses of both companies and unincorporated business were temporarily extended, so that both can benefit from a 3 year carry back, subject to a cap of £2m when carrying back beyond the previous year.  This is a welcome extension, given the significant losses being incurred by many businesses during this period of disruption.

Businesses which deferred their VAT payments in 2020 will have the option of paying the deferred VAT in up to eleven equal payments, rather than having to settle in one larger payment as originally planned.  The particular difficulties faced by the tourism and hospitality sector during the pandemic continue to be recognised, with an extension of the 5% reduced rate of VAT until 30 September 2021. 

The SDLT holiday for residential properties in England and Northern Ireland was also extended, until 30 June 2021.

Personal tax

Income tax thresholds and the personal allowance will increase for 2021/22 but will then be frozen until 2025/26, generating additional tax revenues as income levels rise. 

Employment tax

As announced previously, new rules came into force from 6 April 2021, where an individual provides services via an intermediary to a medium or large client in the private sector.  From that date, the responsibility for operating the off-payroll working rules shifts from the individual’s personal service company to the client.  Businesses need to ensure that they have the systems and processes in place to identify in-scope engagements and meet the required compliance obligations in respect of these.

It is worth noting that the National Living Wage was extended to 23 and 24 year olds for the first time, which could catch out unwary employers currently paying such employees the National Minimum Wage.

There were also some welcome temporary changes relating to coronavirus issues, such as the income tax exemption for home office expenses and easement of the cycle to work scheme conditions.

What was left out? 

Any announcement of a potential online sales tax has been deferred until the Autumn.  There had been speculation that the rates of capital gains tax would be brought in line with income tax, but that did not materialise.  Similarly, the possible abolition of Business Asset Disposal Relief (formerly Enterpreneurs’ Relief) did not happen. 

Anything else of interest?

The Government plans to introduce a new penalty regime for income tax and VAT late filing and late payments, with the aim of making this fairer and more consistent.  This will be a points-based system with financial penalties only being levied once the set threshold has been reached.  The regime begins to come into effect from 1 April 2022.

Also previously announced was the introduction of a cap on the amount of R&D tax credit which can be paid to a loss-making small or medium-sized enterprise.  For accounting periods commencing on or after 1 April 2021, the payable credit is restricted to £20k plus three times the company’s total PAYE and NIC liability for the year.

Tax Day

Following on from the Budget, 23 March 2021 saw the UK’s first “Tax Day”, with the publication of a series of tax documents and consultations “in a move to strengthen policymaking and help create a more trusted, simple and modern tax system.”  There were more than 30 tax policy announcements and documents published. The main focus was the modernisation of the UK tax administration system, with the Government publishing a call for evidence on the frequency and timing of tax payments, focussed on income tax and NIC but also including payment of corporation tax by smaller companies.

There were also several announcements related to tackling non-compliance, such as clamping down on promoters of tax avoidance.  However, very little was said about the direction of future tax policy. 

What next?

Suffice to say that in these very uncertain times, we can expect further tax changes ahead.  There are various measures available to help businesses mitigate the impact of Covid-19 and it will be important to ensure these are fully utilised.   Businesses should also look to maximise existing reliefs such as capital allowances and R&D claims, review their group structures and consider how they ensure key employee retention.

For further information, please contact our Tax Director, Caroline Keenan, on 028 90 249222 or caroline.keenan@asmbelfast.com, or visit our website at www.asmaccountants.com

The content of this article is for information purposes only and advice particular to your circumstances should be sought from a professional adviser.

Did you miss our webinar on “Budget 2021 & Tax Day Update”?

CIMA Ireland, together with ASM Chartered Accountants, keep you up to date with all the latest tax changes announced in Budget 2021 and Tax Day.

Watch it on demand

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