Budget 2021 – Covid

Coronavirus Job Retention Scheme (CJRS)

The CJRS has been extended to 30 September 2021.

It will operate in the same format until 30 June 2020.  

From July, employees will still be entitled to 80% of their salary, but the employer will have to contribute.  The employer contribution will be 10% in July and 20% in August and September.

Self Employed Income Support Scheme (SEISS)

The SEISS has also been extended to 30 September 2021.

There will be a fourth grant, on the same terms as the third grant, covering February to April and then a fifth, opening for applications in late July, covering May onwards.

For the fifth grant, those whose turnover has fallen by more than 30% will receive the full 80% grant.  Those whose turnover has fallen by less than 30% will only receive a 30% grant.

The newly self employed will be eligible to claim the fourth and fifth grants if they had filed their 2019-20 tax return by midnight last night (2 March 2021).

There was also a technical amendment to ensure that the grants are taxable in the tax year in which they are received (without the amendments, all grants would have been taxable in 2020-21 no matter when received).

Restart Grants

The Chancellor announced Restart Grants in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality and other sectors that are opening later, together with an additional £425 million of discretionary business grant funding for local authorities to distribute.

Business rates

The retail, hospitality and leisure rates holiday will continue until 30 June 2021.  For the remaining 9 months of the rates year, the bill will then be discounted by 66%.

VAT on the hospitality industry

The VAT rate for hospitality, hotel and holiday accommodation and admission to certain attractions was previously reduced to 5% up until 31 March 2021 due to Covid.

The government announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at 5% until 30 September 2021.

A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.

VAT deferral

Businesses were permitted to defer payment of VAT payments that would have been due between 20 March 2020 and 30 June 2020.  This VAT was due for payment by 31 March 2021.

In September 2020, the Chancellor announced the the deferred VAT could be paid in up to 11 smaller interest free instalments.

Businesses can now opt in to the instalment scheme here.

NOTE: It was also announced in the Budget paperwork that there will be a penalty of 5% of the VAT outstanding if you have not paid in full, opted into the payment scheme or made an alternative arrangement to pay by 30 June 2021.

Recovery Loan Scheme

A new Recovery Loan Scheme will replace the Bounce Back Loan and CBIL schemes when they end on 31 March.

Businesses of any size will be able to apply for loans from £25,000 up to £10 million, and the government will provide a guarantee to lenders of 80%.  The scheme will be open from 6 April 2021 until 31 December 2021.

Those who have had a Bounce Back Loan or a CBIL will still be eligible for the new loans.

Further details are here.

Home office equipment – tax and national insurance exemption

Home office equipment is the equipment deemed necessary for the employee to work from home as a result of the coronavirus outbreak, and can for example include a laptop, a desk or necessary computer accessories.

During lockdown last year it was announced that expenses for home office equipment reimbursed to employees would be free of tax and national insurance.

The exemption was due to end on 5 April 2021 but will now be extended to have effect until 5 April 2022.

Coronavirus antigen tests – tax and national insurance exemption

During lockdown last year it was announced that that employees who are provided with, or reimbursed for the cost of, a relevant coronavirus antigen test by their employer would not not be liable to a National Insurance charge.

The exemption was due to end on 5 April 2021 but will now be extended to have effect until 5 April 2022, and will also be extended, with retrospective effect, to income tax.

Budget 2021 – Corporate and Business Tax

Corporation tax rates

Corporation tax will remain at 19% for the years beginning 1 April 2021 and 1 April 2022.

From 1 April 2023, the main rate of corporation tax will increase to 25%, and will apply to profits over £250,000.  A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.

The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

Trading losses

Currently, trading losses can be carried back to the previous year.

The Chancellor announced a temporary extension to the loss carry back rules for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020 to 2021 and 2021 to 2022 for unincorporated businesses.   Losses in these periods will be available to carry back for up to 3 years, with losses being carried back against later years first.

Carry back will be subject to a cap of £2,000,000.

National Insurance (NI) for the self employed

Class 2 NI will remain at £3.05 per week for 2021-22.

Dividend tax

The nil rate dividend allowance will remain at £2,000 for 2021-22.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past few years.   The current status of MTD is as follows:

VAT

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) have been required to file their VAT returns through compliant software under making tax digital.  From April 2021, the soft-landing rules cease, which means that all transfers of data must be by digital links (for example, you cannot take the information from a spreadsheet and type it into a website to file your VAT – you must be able to upload the information from the spreadsheet to the website digitally).

It was confirmed in the Budget that MTD for VAT will be extended to all VAT registered businesses from April 2022.

Income tax

MTD ISTA (Income tax self assessment) will be compulsory for the self employed and landlords with gross income (ie before deducting any costs) of £10,000 or more.  Tax payers will be required to make quarterly reports of their income and expenses digitally, together with a fifth filing to finalise the figures and report any other income.

Every transaction will have to be recorded individually (ie you can’t add the sales/rent receipts for the quarter together and report a total figure, you have to enter every receipt individually), and that the information has to be transferred electronically to HMRC quarterly, with no retyping at any stage.

Corporation tax

MTD for corporation tax is currently in consultation and will not be made compulsory until 2026 at the earliest.

Capital Allowances

Businesses can claim an annual investment allowance” (AIA) when they buy plant and machinery for use in the business.  The standard limit is £200,000, which means that businesses can claim an immediate tax write down of the first £200,000 of expenditure every year.  The AIA was temporarily increased to £1,000,000 for two years from 1 January 2019.  This has been extended, so the AIA will remain at £1,000 to 31 December 2021.

For asset purchases in excess of the AIA, as well as some non-qualifying expenditure such as cars, expenditure goes into one of two pools – the main rate or the special rate pool, with current writing down allowances of 18% and 6% respectively, on a reducing balance basis.

The Chancellor announced a new ‘Super-deduction’ to encourage companies (NB Companies only, it does not include personal tax payers) to invest.  From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

  • a 130% super-deduction capital allowance on qualifying plant and machinery investments
  • a 50% first-year allowance for qualifying special rate assets

Cars with zero emissions are entitled to a 100% tax write down in the first year, those between up to 50g/km go into the main (18%) rate pool and those with emissions over 50g/km into the special (6%) rate pool.

The Structures and Buildings Allowance remains at 3%.

Off Payroll Working

A reminder that the reform the off-payroll rules in the private sector, due to come into effect from 6 April 2020 but delayed due to Covid, will now come into effect from 6 April 2021.

Budget 2021 – Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

Allowances and tax bands

The personal allowance for 2021-22 will be £12,570, with the income on which you start to pay tax at 40% increasing to £50,270.  These rates will be frozen up to and including the 2025-26 tax year.

(NB if you earn over £100,000 you lose £1 of personal allowance for every £2 you earn over £100,000 so your 40% threshold will effectively be less).

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1259L.

Other allowance levels can be found on the HMRC web site here.

ISAs

The ISA limit will remain at £20,000 for 2021-22.

The Junior ISA and Child Trust Fund subscription limits will remain at £9,000.

The Lifetime ISA

A reminder that the ‘Lifetime ISA’ was introduced from 6 April 2017.  This allow adults under 40 to open a Lifetime ISA and pay in up to £4,000 per annum.  The government will add a 25% bonus to the ISA, so, up to £1,000.

Contributions can continue up to the age of 50.

Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.

Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government.  Normally, an additional 5% charge applies if the withdrawal is not for the purchase of your first home, however, this additional charge was temporarily suspended up to 5 April 2021 due to Covid.

Dividend tax

The nil rate dividend allowance will remain at £2,000 for 2020-21.

Child Benefit

There were no changes announced to child benefit in Budget.  Rates for 2021-22 will increase to £21.15 for the first child and £14.00 for subsequent children.

Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

Landlords

Capital gains tax

The rumoured changes to capital gains tax did not happen, but the capital gains tax allowance has been frozen at £12,300 until 5 April 2026.

A reminder that, for disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.

Interest deduction

A reminder of the interest restrictions announced in the Summer Budget 2015 that started to come in to effect from April 2017, are fully in effect for 2020-21.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Making Tax Digital

MTD ISTA (Income tax self assessment) will be compulsory for the self employed and landlords with gross income (ie before deducting any costs) of £10,000 or more.  Tax payers will be required to make quarterly reports of their income and expenses digitally, together with a fifth filing to finalise the figures and report any other income.

Every transaction will have to be recorded individually (ie you can’t add the sales/rent receipts for the quarter together and report a total figure, you have to enter every receipt individually), and that the information has to be transferred electronically to HMRC quarterly, with no retyping at any stage.

Penalties for late submission and late payment of tax

A new points based penalty regime will be introduced for VAT and Income Tax Self Assessment (ITSA) to replace existing penalties for regular tax return submission obligations.

Late submission penalties

When a taxpayer misses a submission deadline they will incur a point. Points accrue separately for VAT and for ITSA.

A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold.

The level of points threshold depends on the taxpayer’s submission frequency: Annually = 2 points / Quarterly = 4 Points / Monthly = 5 Points.

Late payment penalties

There is no penalty at all if the taxpayer pays the tax late but within 15 days of the due date.

The first penalty is set at 2% of the outstanding amount if they pay between 16 days and 30 days after the due date.

It is set at 4% of the outstanding amount if there is tax left unpaid 30 days after the due date.

A second late payment penalty is charged at a rate of 4% per annum, calculated on a daily basis on the total unpaid tax incurred from day 31.

To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a Time to Pay Arrangement (TTP).  The penalty will stop accruing from the date the TTP is agreed.

Budget 2021 – Employment Issues

National Insurance Contributions (NI)

No changes to the rates of income based NI contributions on employment were announced in the Budget.

Class 2 NI will remain at £3.05 for 2021-22.

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) will increase to £184 and £170 per week, respectively.  This means that the lower national insurance threshold for employees and the self employed will be £9,568 per annum, and the threshold for employers will be £8,840.

This means that company directors paying themselves the national insurance threshold can have an increase in pay from April 2021 to £736.67 per month (from £732.33).  It may be beneficial for some to increase their pay to £9,568, or even £12,570, depending on their circumstances.

The upper earnings (or profits for the self employed) limit will be £50,270 (£967 per week), aligned with the point at which 40% tax becomes payable.

Details of the rates of NI can be found here.

Employer’s Employment Allowance

The employment allowance will remain at £4,000 per annum for 2021-22.

A reminder that it was announced in Budget 2018 that, from 2020-21, the allowance will be restricted to companies with employer national insurance bills of less than £100,000.

Statutory Sick Pay

Small and medium sized businesses (with under 250 employees) can still reclaim SSP for up to two weeks for employees who have been off work with COVID-19.

Minimum wage

The Minimum Wage rates from 1 April 2020 will be:

  • 25+ (National Living Wage) – increases from £8.72 to £8.791 per hour
  • 21 to 24 year olds increases from £8.20 to £8.36 per hour
  • 18 to 20 year olds increases from £6.45 to £6.56 per hour
  • 16 to 17 year olds increases from £4.55 to £4.62 per hour
  • apprentices increases from £3.15 to £4.30 per hour

Home working allowance

The maximum flat rate Income Tax deduction available to employees to cover additional household expenses will remain at £6 per week where they work at home under homeworking arrangements from 6 April 2021.

Budget 2021 – Pensions

The lifetime allowance increased in line with the Consumer Prices index to £1,073,100 for 2020-21.

The Chancellor announced in the Budget that this allowance will be frozen until 5 April 2026.

The annual allowance remains at £40,000.  This currently tapers to £10,000 for those earning over £150,000, reducing by £1 for every £2 that income exceeds £150,000.  The chancellor announced that the taper threshold would be increased by £90,000 such that tapering starts at £240,000, however, it will now taper to £4,000 rather than £10,000.

There is a reduced annual allowance for those who have started to draw from a pension. This remains at £4,000 for 2021-22.

Budget 2021 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits will remain frozen at £85,000 and £83,000 respectively and will now be frozen until at least 31 March 2024.

VAT on the hospitality industry

The VAT rate for hospitality, hotel and holiday accommodation and admission to certain attractions was previously reduced to 5% up until 31 March 2021 due to Covid.

The government announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at 5% until 30 September 2021.

A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.

VAT deferral

Businesses were permitted to defer payment of VAT payments that would have been due between 20 March 2020 and 30 June 2020.  This VAT was due for payment by 31 March 2021.

In September 2020, the Chancellor announced the the deferred VAT could be paid in up to 11 smaller interest free instalments.

Businesses can now opt in to the instalment scheme here.

NOTE: It was also announced in the Budget paperwork that there will be a penalty of 5% of the VAT outstanding if you have not paid in full, opted into the payment scheme or made an alternative arrangement to pay by 30 June 2021.

VAT on e-publications

A reminder that, from 1 December 2020, e-publications (e-books, newspapers, magazines etc) are now entitled to the same, zero rated, VAT treatment as their physical counterparts.

VAT fraud in labour provision in the construction sector

The VAT domestic reverse charge for building and construction services came into force on 1 March 2021.

The measure, for certain supplies of construction services and related goods, means that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier.

Making Tax Digital for VAT

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) have been required to file their VAT returns through compliant software under making tax digital.  From April 2021, the soft-landing rules cease, which means that all transfers of data must be by digital links (for example, you cannot take the information from a spreadsheet and type it into a website to file your VAT – you must be able to upload the information from the spreadsheet to the website digitally).

It was confirmed in the Budget that MTD for VAT will be extended to all VAT registered businesses from April 2022.

Penalties for late submission and late payment of tax

A new points based penalty regime will be introduced for VAT and Income Tax Self Assessment (ITSA) to replace existing penalties for regular tax return submission obligations.

Late submission penalties

When a taxpayer misses a submission deadline they will incur a point. Points accrue separately for VAT and for ITSA.

A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold.

The level of points threshold depends on the taxpayer’s submission frequency: Annually = 2 points / Quarterly = 4 Points / Monthly = 5 Points.

Late payment penalties

There is no penalty at all if the taxpayer pays the tax late but within 15 days of the due date.

The first penalty is set at 2% of the outstanding amount if they pay between 16 days and 30 days after the due date.

It is set at 4% of the outstanding amount if there is tax left unpaid 30 days after the due date.

A second late payment penalty is charged at a rate of 4% per annum, calculated on a daily basis on the total unpaid tax incurred from day 31.

To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a Time to Pay Arrangement (TTP).  The penalty will stop accruing from the date the TTP is agreed.

Budget 2021 – Capital Gains Tax

The rumoured changes to capital gains tax (CGT) failed to materialise. (Watch this space though because there will be a ‘Tax Day’ on 23 March where consultations on future tax changes could be announced).

For the tax years 2021-22 to 2015-26, the capital gains tax (CGT) annual exempt amount will remain frozen at £12,300 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees will be £6,150.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will remain at 10 and 20 per cent respectively.

Gains on residential properties (not qualifying as your personal private residence) and carried interest (the share of profits or gains that is paid to asset managers) will remain at the 18 and 28 per cent for basic and higher rate tax payers respectively.

Residential properties

A reminder that, for disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.  No return will be required if no tax is due (for example, for disposals covered by private residence relief).

Entrepreneurs’ Relief

Entrepreneurs’ Relief provides for a lower rate of Capital Gains Tax (10%) to be paid when disposing of all or part of a business where certain criteria are met, subject to a lifetime limit of £1 million of qualifying gains.

Budget 2021 – Motoring costs

Fuel prices

Fuel duty was frozen again.

Vehicle Excise Duty (VED)

VED (Road Tax) for cars, vans, motorcycles and HGVs will increase in line with the Retail Price Index from 1 April 2021.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax-free.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

Car benefits are based on a percentage of the list price of the car.  The percentage depends on the CO2 emissions of the vehicle.
The rates for 2021-22 to 2024-25 can be found here (there is no direct bookmark, so you have to scroll down – sorry!!).
Note that there was a 0% benefit rate for zero emission cars for 2020-21, increasing to 1% in 2021-22 and 2% in 2022-23.  The Budget documents confirm that the rate will remain at 2% for 2023-24 and 2024-25.
Van benefit
The van benefit in kind charge will increased from £3,430 to £3,490 for 2020-21.
The benefit for zero emission vans will be reduced to zero from 6 April 2021.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase with CPI to £24,600 (from £24,500) with effect from 6 April 2021.

The van fuel benefit charge will be £669 (increased from £666) for 2021-22.

Budget 2021 – Other matters

Inheritance tax (IHT)

There were no changes to inheritance tax rates.

The standard nil rate band remains at £325,000 and the he residence nil rate band at £175,000.  These bands will be frozen up until 5 April 2026.

There is a tapered withdrawal (at a rate of rate of £1 for every £2) of the additional nil-rate band for estates with a net value of more than £2m.  It is also available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

Any unused nil rate bands can be transferred to a surviving spouse or civil partner

Stamp Duty Land Tax (SDLT)

As announced in Budget 2020,  2% surcharge will be applied for all non-UK residents buying residential property in England and Northern Ireland from 1 April 2021.

The stamp duty holiday was extended, as widely expected.  The £500,000 nil rate band will remain until 30 June 2021.  There will then be a £250,000 nil rate band until 30 September 2021, at which the nil rate band will return to the usual £125,000.

Help to Grow Schemes

The Chancellor announced two Help to Grow schemes: Management and Digital.  The schemes will commence in the Autumn, but businesses can register interest now.

The Management scheme will will offer a new executive development programme with mentoring and peer learning, and government will contribute 90% of the cost.

The Digital scheme will help small businesses develop digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software, worth up to £5,000 each.

The schemes are only available to businesses employing between 5 and 249 employees that have been trading for more than 12 months.

Further details can be found here.

Freeports

The Chancellor announced the creation of 8 Freeports in England.

Freeports are special economic zones with different rules to make it easier and cheaper to do business. They’re well-established internationally, but we’re taking a unique approach.

Freeports will have:

  • Simpler planning;
  • Infrastructure funding;
  • Cheaper customs – with favourable tariffs, VAT or duties;
  • Lower taxes – with tax breaks to encourage construction, private investment and job creation.

The English Freeports will be at:

  • East Midlands Airport.
  • Felixstowe and Harwich.
  • Humber.
  • Liverpool City Region.
  • Plymouth.
  • Solent.
  • Thames.
  • Teesside

The government will work with the Scottish, Welsh and Northern Irish administrations with regard to Freeports throughout the rest of the UK.

Budget 2020 – Summary

Rishi Sunak presented the (first) 2020 Budget on Wednesday 11 March 2020.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2020-21 tax year and beyond for English tax payers.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

COVID-19 Response

Following on from the Bank of England’s reduction in the base rate from 0.75% to 0.25%, Mr Sunak announced a packages of measures aimed to help deal with the disruption likely to be caused by the coronavirus.  These include:

  • Funding to support public services including increased funding for the NHS and other public bodies
  • Support for individuals, including statutory sick pay (SSP) being due from day 1 for those self isolating and relaxation of benefits for the self employed
  • Help for businesses, including:
    • Allowing small and medium sized businesses (with under 250 employees) to reclaim SSP for up to two weeks for employees who have been off work with COVID-19. This will not be an automated refund via the normal PAYE system since the system is no longer set up to refund SSP.
    • Increasing and extending business rates retail/leisure/hospitality discounts
    • The provision of one-off grants of £3,000 to help small businesses currently eligible for small business rate relief.
    • Introducing a temporary loan scheme for businesses
    • Extension of the HMRC time to pay scheme through a new dedicated helpline.

More details of these measures can be found on the government website here.

Main Budget proposals from the Budget

  • The lifetime limit for Entrepreneur’s relief will be reduced from £10,000,000 to £1,000,000 with immediate effect.
  • VAT will be reduced to zero from 1 December 2020 for e-publications and 1 January 2021 for women’s sanitary products.
  • The maximum flat rate Income Tax deduction available to employees to cover additional household expenses will increase from £4 to £6 per week where they work at home under homeworking arrangements from 6 April 2020.
  • Corporation tax rates will remain at 19% rather than falling to 17% from 1 April 2020 as announced in the 2018 Budget.
  • It was confirmed that the new off-payroll working rules for workers in the private sector will come into force from April 2020.

A reminder of key changes announced previously

  • The income tax personal allowance for 2020-21 will remain at £12,500 and the 40% threshold remain at be £50,000.  For subsequent years, increases to the personal allowance and basic rate limit will be indexed with the CPI (The Consumer Price Index).
  • From April 2020, where tax is due, a tax return and payment on account of tax will be due on the sale of residential properties by UK residents.
  • The VAT registration threshold will be frozen at £85,000 until 31 March 2022 and its future will be reviewed once the terms of the EU exit are clear.
  • The changes to interest deduction rules for landlords started in April 2017, and are still being phased in over a 4 year period.  Relief for interest will be limited to basic rate tax.