The Chancellor, Rishi Sunak, presented his 2021 Budget on 3 March 2021. The extent to which the measures will affect you will depend on your personal circumstances.

Impact on individuals 

Personal allowance and income tax thresholds frozen

The personal allowance is increased in line with inflation to £12,570 for 2021/22. However, it will remain at this level for the next five years, until April 2026. The basic rate band will also remain at £37,700 for the next five years, freezing the starting point for paying higher rate at £50,270 until April 2026.

If your income increases during this period, for example, your pay rises in line with inflation, you may find that you move into the higher rate band, paying tax on some of your income at 40% where previously you were a basic rate taxpayer.

The basic rate of tax will remain at 20%, the higher rate at 40% and the additional rate at 45%.

Covid support continues

The Coronavirus Job Retention Scheme is extended until 30 September 2021. This means that if you have been furloughed or flexibly furloughed, you will continue to be paid 80% of your normal wages for your unworked hours, subject to the cap of £2,500 per month.

If you are self-employed and your business has been adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme.

Pension lifetime allowance frozen

The pension lifetime allowance will not be increased in line with inflation over the next five years. Instead, it will remain at its current level of £1,073,100 for 2021/22 to 2025/26. This may affect you if you already have pension savings at or near this level. If this is the case, you should review the amount of your pension pot before making further tax-relieved contributions.

Pension savings more than the lifetime allowance are taxed at 25% if the excess is taken as a pension, and at 55% if it is taken as a lump sum.

SDLT threshold to remain at £500,000 until 30 June 2021

The temporary increase in the SDLT threshold to £500,000 will remain in place until 30 June 2021. It will then fall to £250,000 until 30 September 2021, returning to the standard amount of £125,000 from 1 October 2021. If you are looking to move to a new house or to buy an investment property, there is still time to benefit from the higher threshold.

These comments refer to rates in England and Northern Ireland, the devolved administrations of Wales and Scotland may set alternative rates.

Inheritance tax nil rate band to remain at £325,000

The inheritance tax nil rate band will remain at its current level of £325,000 until April 2026. The residence nil rate band, available where your main residence is left to a direct descendant, also remains at its current level of £175,000 until April 2026. This should be considered when undertaking inheritance tax planning.

Impact on the self-employed

Two further grants available under the SEISS

If you are self-employed and you continue to be adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme (SEISS).

The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500. It can be claimed from late April.

The fifth and final grant covers the period from May to September 2021. The amount of the grant will depend on the impact that Covid-19 has had on your profits. If your turnover has fallen by 30% or more because of Covid-19, you will be able to claim a grant equal to 80% of your average profits for three months, capped at £7,500. However, if your turnover has dropped by less than 30%, you will be entitled to a reduced grant of 30% of three months’ average profits, capped at £2,880. The final grant can be claimed from late July.

Remember, you can only claim the grant if you have been adversely affected by the pandemic.

Grants received under the scheme are taxable and must be considered in working out your profits.

Help for the newly self-employed

Support under the SEISS was not available to traders who commenced self-employment in 2019/20 – to qualify a tax return had to be filed for 2018/19. However, as the deadline for filing the 2019/20 tax return has now passed, you may be eligible for the fourth and fifth grants if your 2019/20 tax return was filed by midnight on 2 March 2021. To qualify, your business must be adversely affected by the pandemic and your profits from self-employment must be at least 50% of your income and less than £50,000.

Carry-back period for losses extended

The period for which losses may be carried back is temporarily extended from one year to three years. For unincorporated businesses, the extended carry-back will apply to losses made in 2020/21 and 2021/22. Losses must be set against a later period before an earlier period.

If you have suffered losses due to Covid-19, carrying back losses for up to three years may generate a most welcome tax repayment.

Impact on small companies

Tax-efficient extraction of profits

For 2021/22, the primary threshold for Class 1 National Insurance purposes increases to £9,568, the secondary threshold to £8,840 and the personal allowance to £12,570.

If you extract profits by taking a mix of salary and dividends, the optimal salary level for 2021/22 (assuming you have not used your personal allowance elsewhere) will be equal to the primary threshold of £9,568 (equivalent to £797 a month) if you are not entitled to the employment allowance. This will be the case if you are a personal company with only one employee who is also a director. At this level, you will have a little bit of employer’s National Insurance to pay, but this will be outweighed by the associated corporation tax deduction.

If you can claim the employment allowance, for example, if your company is a family company with at least two employees, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Any further profits can be extracted as dividends but remember you can only pay dividends if you have sufficient retained profits to pay them from. Dividend tax rates remain at 7.5%, 32.5% and 38.1% for 2021/22.

Three-year carry back for losses

Companies, like unincorporated businesses, can benefit from a measure allowing losses to be carried back for three years, rather than for one year. For companies, this applies to losses incurred in accounting periods ending between 1 April 2020 and 31 March 2021 and to losses for accounting periods ending between 1 April 2021 and 30 March 2022. Losses carried back must be used against a later period before an earlier period.

This measure may provide you with earlier relief for losses suffered because of the Covid-19 pandemic and generate a useful tax repayment at a time where cash flow is tight.

Super-deduction for investment expenditure

Companies that invest in plant and machinery in the period from 1 April 2021 to 31 March 2023 will be able to benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%.

Investments in assets qualifying for special rate capital allowances benefit from a 50% first year allowance (although claiming the annual investment allowance instead where this is available will be more beneficial).

If you are looking to invest in plant and machinery, it can be advantageous to do so within this window to benefit from the super-deduction. However, it is not available where contracts were agreed before Budget day.

Future increases in corporation tax

To help meet some of the costs of the pandemic, companies with profits of £250,000 or more will pay corporation tax at a rate of 25% from 1 April 2023. A lower rate of 19% will apply to companies with profits of £50,000 or less. Companies with profits of between £50,000 and £250,000 will pay corporation tax at the 25% but will be able to claim marginal relief. The thresholds will be proportionately reduced to take account of associated companies and short accounting periods.

Extension of the Coronavirus job Retention Scheme

If you have furloughed or flexibly furloughed employees, you will be able to continue to claim grant support under the Coronavirus Job Retention Scheme until the end of September.

Until the end of June, you can claim 80% of your employee’s normal pay for their unworked hours, subject to the cap of £2,500. However, while your employees must continue to receive 80% of their normal pay for their furloughed hours, you can only claim 70% from the Government in July and 60% in August and September. You must pay the remaining 10% in July and the remaining 20% August and September. As now, you must meet the employer’s National Insurance and employer pension contributions on all payments to employees.

The scheme will come to an end on 30 September 2021.

 

If you need any more information regarding matters discussed in this report, please call 01242 370298 or email office@wfrancisandco.co.uk

On Wednesday 11 March 2020, the Chancellor of the Exchequer announced in his budget £7 billion of extraordinary measures to help support businesses and individuals who will be affected by the COVID-19 Coronavirus outbreak.

A brief summary of the Budget in respect of the Coronavirus is as follows:

  • The cost of statutory sick pay (SSP) for Coronavirus-related absence will be covered for businesses with fewer than 250 employees. SSP will be available to all those advised to self-isolate even if they haven’t yet presented with symptoms, people will soon be able to obtain a sick note by contacting 111 rather than having to go to the doctors.
  • For businesses with fewer than 250 employees, the cost of providing statutory sick pay to any employee of work due to Coronavirus will, for up to 14 days, be refunded by the government in full.
  • Those on contributory Employment and Support Allowance (ESA) will be able to claim from day one instead of day eight.
  • HM Revenue & Customs will “scale up” the Time To Pay service, which enables tax owed to be paid in instalments, allowing businesses and the self-employed to defer tax payments over an agreed period of time. A dedicated helpline with 2,000 staff has now launched.
  • Business rates will be abolished for shops, cinemas, restaurants and music venues with a rateable value of less than £51,000.
  • Extending this, 100% retail discount to others in the leisure and hospitality sector: museums, art galleries and theatres, caravan parks and gyms, small hotels and B&Bs, sports clubs, nightclubs, clubhouses and guest houses.
  • For small businesses currently eligible for the small business rate relief, there will be a £3,000 cash grant per business, representing a £2 billion cash injection to 700,000 small businesses.

Information correct as at 11 March 2020.

If you have any questions please get in touch by emailing office@wfrancisandco.co.uk or call 01242 370298.

A quick summary of the main points to come of the 2013 budget:

  • Date set for increase in the personal allowance to £10,000.
  • New scheme for tax free childcare.
  • Further reduction in the main rate of corporation tax to 20% from 1st April 2015.
  • Employee-shareholder contracts will be exempt from income tax and NIC for the first £2,000 of shares received.
  • The introduction of an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 NIC liability from April 2014.
  • A capital gains tax re-investment relief for gains made in the tax year 2013/14 where the gain is invested in Seed Enterprise Investment Scheme shares.
  • Significant non-tax measures have been announced to tackle long term problems in the housing market and are covered in the Other Matters section of this summary.

2013 Budget Summary

A quick summary of the main points to come out of the 2012 Budget:

  • The Income Tax basic personal allowance is to be increased to £9,205 in 2013/14, and the higher rate threshold reduced by £1,025 to £41,450. 2012/13 basic personal allowance is £8,105.
  • Age allowance to be frozen from 2013/14 and then phased out
  • Additional rate of income tax reduced to 45% from 2013/14
  • 7% Stamp Duty Land Tax to be brought in for residential properties valued at over £2million and new measures to counter ownership through companies
  • Child benefit will be phased out where income is over £50,000
  • The main rate of Corporation Tax is being cut to 24% from April 2012 and to 22% by April 2014
  • Voluntary cash basis to be based on turnover for tax on profits of small unincorporated businesses.

The basic points to come out of the 2011 Budget were as follows:

-The individual personal allowance for 2011/12 will be £7,475 representing an increase of £1,000 each as previously announced.
-For 2012/13 this will increase by a further £630 to £8,105.
-The 40% band will start at the lower level though of £42,475 this year and 50% will be charged on income over £150,000!
-The lower rate of corporation tax is being reduced to 20% (applicable on profits below £300,000)
-Full rate of corporation tax is reduced by 2% to 26% this year, and will fall by a further 1% p.a. over the next 3 years
-Lifetime limit for Entrepreneurs’ Relief for capital gains tax on the disposal of business assets is increased from £5 million to £10 million.
-R&D tax credit for small and medium sized enterprises will be increased to 200% from April 2011 and to 225% a year later.
-The main rates of National Insurance will increase by 1% from 6/4/11 as previously announced. The primary threshold for employers NI will be £139 per week, and the secondary threshold will become £136 a week. Employees will not pay NI on earnings below £139 per week.
-From April 2011 losses on furnished holiday lettings will only be offset against income from the same business and so cease to be treated as trading losses allowable against other earned income.
Approved mileage rates which employers can pay employees is increased to 45p per mile (from 40p) for the first 10,000 miles. The excess over 10,000 p.a. will still be at 25p per mile.
-Capital Gains annual exemption increases to £10,600.
-VAT registration threshold will increase from £70,000 to £73,000 from 1/4/11.