On 3 March 2021, the Chancellor, Rishi Sunak, submitted his budget for 2021 with the following highlights:
Extension of the Coronavirus Job Retention Scheme till September
Until the ninth month of the year 2021, the Coronavirus Job Retention Scheme will remain operational as employees continue to receive 80% of their salary for the period of their absence from work. However, every concerned staff needs to meet certain costs starting from July. The set employer contribution is 10% of the normal pay for furloughed hours for July, while the percentage will rise to 20% for August and September.
Self-Employment Income Support Scheme to Include Further Grants
With the Self-Employment Income Support Scheme, self-employed individuals can apply for additional two grants. Starting from February to April 2021, the fourth grant is expected to cover three months and worth 80% of the average profits made in three months, albeit capped at £7,500. Although the final grant depends on the pandemic’s impact on turnover, it is expected to cover May to September. Those who commenced their first self-employment in 19/20 can access the final two grants, provided they covered their 2019/20 tax return latest by 2 March 2021 midnight.
Continuation of the SSP Rebate Scheme
By utilizing the SSP rebate scheme, smaller employees can reclaim SSP per employee for up to two weeks from the Government, provided the coronavirus-related condition causes the absence. The same scheme is set to continue for now.
Income Tax Thresholds on Hold
While the basic rate stands at £37,700, personal allowance is set to rise to £12,570 for the 2021/22 period. This implies that higher rate tax is payable for any individual receiving the standard personal allowance immediately after the income surpasses £50,270. For 2021/22, the income tax rate remains the same at 20%, 40%, and 45%; the same applies to the 7.5%, 32.5%, and 38.1% dividend tax rates. Until 2026, it is expected to see personal allowance and high rate threshold frozen at their 2021/22 level.
IHT Nil-rate Band to Remain the Same
Currently, the inheritance tax nil-rate band stands at £325,000 – it is set to remain stagnant. Wherever the main residence belongs to a direct descendant, the resident nil rate band takes effect. In such an area, the current level of $175,000 is expected to continue till April 2026.
Capital Gains Tax Annual Exempt Amount stands still.
For the 2021/22 period, the capital gains tax annual exempt amount experiences no change and will remain so for the next half-a-decade (2025/26).
Zero change to Pension Lifetime Allowance
Currently, the pension lifetime allowance stands at £1,073,100. The allowance that places a cap on tax-relieved pension savings is expected to remain the same until 2021. Expectedly, the situation will affect people having pension savings close to or at the level by limiting future tax-relieved pension savings.
Huge deduction for Capital Expenditure
Companies having investment in plant and machinery with incurred expenditure between 1 April 2021 and 31 March 2023 will benefit from enhanced capital allowances for the investment in question. For expenditure on plant and machinery that qualifies for main rate capital allowances of 18%, there will be a first-year allowance of 130%. At the same time, expenditure on plant and machinery qualifying for special rate capital allowances of 6% can utilize the 50% first-year allowance. This doesn’t influence the Annual Investment Allowance, which is claimable when more rewarding.
A temporary increment of the carry-back period for losses
Companies and businesses that are unincorporated stand a chance to benefit from a momentary extension concerning the carry-back period for losses. The period has been increased by three years for a limited period. The unincorporated businesses can utilize the prolonged carry-back for losses suffered between 2020 and 2022. As for company groups, the offer is applicable to losses incurred between 1 April 2020 and 31 March 2021, as well as 1 April 2021 and 31 March 2022 – however, the offer is capped at £2 million for both accounting periods.
There will be a relief for the profits secured in the latter year before those meant for the earlier year.
There might be a need for tax repayment to benefit from the offer concerning the carry-back losses incurred due to the pandemic.
Corporation Tax to rise in the future
An increase of 6% has been added to the current rate of 19% for corporation tax that organizations having taxable profits of £250,000 or more need to pay. This new development will commence by 1 April 2023. For small companies with £50,000 profits or less, they have to pay 19% corporation tax while a 25% rate applies to companies making between £50,000 and £250,000. However, the latter can take advantage of the marginal relief. Taking into account the number of relevant companies and accounting periods below twelve months, the limits may reduce.
Covid-19 Antigen tests to come with tax exemption
If an employer chooses to refund a staff for the coronavirus antigen test cost, an income tax exemption will apply retrospectively for 2020/2021 and 2021/2022. The same exemption will cover National Insurance purposes.
Prolonged Temporary SDLT threshold
Before now, the Stamp Duty Land Tax (SDLT) residential threshold, which was increased to £500,000, is expected to close by 31st of March 2021. However, it has been prolonged until 30 June 2021. Starting from 1 July 2021, the threshold will come down to £250,000 and get back to the normal level of £125,000 by 1 October 2021. While SDLT is applicable to the property purchased in Northern Ireland and England only, Land Transaction Tax (LTT) applies in Wales as Land and Buildings Transaction Tax (LBTT) is applicable in Scotland.
VAT Registration Thresholds Stands Still at £85,000
The current £85,000 cap for VAT registration threshold will remain the same for 2021/22 and the subsequent two years.
Extended Temporary 5% VAT rate for Leisure and Hospitality
Until 30 September 2021, the current 5% VAT rate for holiday accommodation, leisure attractions, and hospitality will be the same. However, starting from 1 October 2021 till 31 March 2022, a new 12.5% rate applies. From there, it will revert to the normal rate of 20% by 1 October 2022.