On the 3rd March 2021, the Chancellor of the Exchequer Rishi Sunak has delivered the 2021 UK Budget, his second budget since he started his role. This budget is extremely key as it sets out the roadmap to the UK’s recovery from the devastating lingering economic challenges that the COVID pandemic has created.
Mr Sunak’s announcements bring the government’s total coronavirus spending to £407bn, with this budget alone coming to around £58bn, and confirm that ‘huge challenges’ lie ahead to address record levels of borrowing.
Below you will find the key takeaways relating to taxation and our take on it. Use the contents list below to jump to the relevant parts.
Disclaimer: Please use this post as a guide and refer to any links throughout, or at the end of, this guide. Note that the information contained in this guide is provided solely for information purposes and should not be taken as legal advice. Although we try to keep everything up to date, the tax system is ever-changing and it is best to consult a professional regarding your own personal circumstances.
Last updated: 5th March 2021
Business:
– Furlough scheme extended to September
– Additional SEISS grants and more access for Self-Employed
– Corporation tax to increase from 2023 for certain profits
– Recovery Loan Scheme
– Business rates holiday and discount
– VAT reduction for hospitality businesses
– More generous losses carry-back rules
– “Super-deduction” announced for allowable investments
– “Help to Grow” scheme to up-skill management
Personal:
– Tax thresholds frozen from 2022
– Universal Credits boost extended
– Stamp duty holiday extended
– Mortgage Guarantee scheme for 5% deposit mortgages
– Pensions lifetime allowance freeze
Other:
– National Living Wage increased to £8.91 per hour
– Visa reforms to attract top talent
Business
Furlough scheme extension
The furlough scheme was previously due to end on 30 April and will now
continue until the end of September. Anyone on furlough during that time
will continue to receive 80% of their salary from the government,
capped at £2,500 a month.
In July, employers will have to contribute towards the hours their staff are not working at 10% and for August and September this will go up to 20%.
Additional SEISS grant and access for the Self-Employed
The Chancellor announced details of the fourth and fifth payments for the self-employed income support scheme (SEISS).
The fourth payment, which covers February, March and April, will cover up to 80% of average monthly profits and is capped at £2,500.
The fifth and final payment of the scheme will cover May to September, and its size will depend on how much turnover you have lost over the period. Businesses whose turnover has fallen by less than 30% will be eligible for a 30% grant rather than the full 80%.
These grants will also cover those who entered self-employment in the 2019/20 financial year – providing they had filed their 2019/20 tax return by midnight 2 March 2021.
Corporation Tax to increase from 2023
It has been confirmed there will be a corporation tax rise, bringing the rate from its historic low of 19% up to 25% from April 2023. This would still mean the UK has the lowest corporation tax rate of the G7 nations.
However, businesses with profits under £50,000 will still pay 19%. While businesses with profits over £250,000 will pay the 25% rate, there will be a taper in the rate on profits between £50,000 and £250,000.
Recovery Loan Scheme
From the 6 April, lenders will be given guarantees from the government of 80% on loans to businesses of between £25,000 and £10m.
Businesses that had received a COVID loan such as under the Bounce Back Loan scheme or Coronavirus Business Interruption Loan Scheme (CBILS) will still be eligible for additional finance under the new Recovery Loan Scheme. The new scheme will replace the BBL and CBILS.
Business rates holiday
The business rates holiday in England will be extended for a further 4 months from 1 April.
From July 2021 until April 2022, rates for qualifying businesses will be cut by 66%.
VAT reduction for hospitality sector
The Chancellor confirmed the current VAT reduction for hospitality businesses that has gone from 20% to 5% will be extended until 30 September.
From 1 October until 31 March 2022, a special rate of 12.5% will apply, before going back to the normal 20% rate.
More generous losses carry-back
Businesses will now be able to carry back losses of up to £2m to the previous 3 years to benefit from any Corporation Tax refunds this may bring.
“Super-deduction” for allowable investments
From 1 April until 31 March 2023, businesses that invest in the right kind of plant and machinery will be entitled to a 130% first-year capital allowance, which will allow to cut tax bills by as much as 25p for every £1 they invest.
“Help to Grow” scheme to up-skill management
Help to Grow: Management will provide management training and mentoring for UK SMEs with growth ambitions in a 12-week course, with a 90% government subsidy.
Help to Grow: Digital will provide productivity-enhancing software with a 50% subsidy up to a maximum of £5,000 per business, as well as free online advice on digital transformation.
Eligibility criteria and steps on registering can be found on the Gov website
Personal
Tax thresholds frozen from 2022
Income tax and National Insurance thresholds, which determine how much of your income is taxed, will increase for the 2021-22 tax year in April but will be frozen after that until 2026.
The tax personal allowance will rise from £12,500 to £12,570 next year. Then it will stay at that rate for five years. Similarly, the threshold at which you would pay the higher tax rate will rise from £50,000 to £50,270, where it will also be frozen.
| 2020-21 | 2021-22 | 2022-23 | |
|---|---|---|---|
|
Personal Allowance |
£12,500 |
£12,570 |
£12,570 |
|
Higher Rate Tax |
£50,000 |
£50,270 |
£50,270 |
Though this isn’t technically a tax rise, it does mean many will pay tax on more of their income than they would have if the thresholds had continued to rise over the next few years.
Universal Credits boost extended
The £20-a-week universal credit uplift will be extended for another six months ending in September.
Stamp duty holiday extended
The Chancellor has extended the temporary stamp duty holiday beyond its original 31 March deadline to now last until 30 June in its current form, which offers 0% stamp duty on the first £500,000 of property purchases.
The threshold will then be reduced to £250,000 for the three months from 1 July to 30 September, and rates will return to normal from October.
Mortgage Guarantee scheme announced
Mr Sunak confirmed plans for the government to guarantee 95% loan-to-value mortgages, which could help first-time buyers get on the property ladder with lower deposits.
The government will underwrite 95% mortgages on properties worth up to £600,000. Several major banks are said to be on board, and the deals should be available from April.
However, since low-deposit mortgages have high interest rates at the moment, and property prices remain high, some first-time buyers could still struggle.
Pensions lifetime allowance freeze
In another measure to raise funds for the Treasury, the total amount you can save into a private pension without being taxed will be frozen at £1,073,100 until April 2026.
Since most people’s pensions are nowhere near this size, you’re unlikely to be affected by this change. It’s estimated that 10,000 pension savers will exceed the threshold over this period and become liable for a tax of 25% or 55% (depending on how they access their pension).
In other pensions news, the Budget documents confirmed the state pension will rise by 2.5% next tax year and the triple lock will remain in place.
Other
National Living Wage increased
The National Living Wage will be increased from 6 April to £8.91 per hour from the current rate of £8.72 per hour, worth up to an additional £350 in earnings per year.
Visa reforms to attract top talent
As part of the Government’s plans to rebuild the UK economy, the Chancellor announced further measures to modernise the UK’s immigration system. New measures will be implemented to attract and retain the most highly skilled individuals to drive innovation and support jobs by:
- Creating a new Elite Points Based visa;
- Reforming the existing Global Talent visa to make it easier for holders of international prizes, scholarship holders and programmes for early promise to automatically qualify;
- Making it easier to qualify for the Innovator visa for those with the requisite skills and experience to establish an innovative business;
- Creating a new Global Business Mobility visa to help overseas businesses to establish a presence or transfer staff to the UK;
- Supporting small businesses who are using the visa regime for the first time;
- Expanding the Global Entrepreneur Programme to market the UK’s visa offering and developing an overseas talent network.
To date, the Government has implemented a number of changes significantly shifting the immigration landscape following the end of Free Movement. These new measures aim to build on the UK’s increasingly global outlook and make the UK a leading destination for the most talented individuals and innovative entrepreneurs from around the world.