Budget 2021 ‘Whatever it takes’
As Rishi Sunak stood up at midday yesterday to give his second budget as Chancellor, much had been made in previous weeks of this eagerly anticipated speech. Commentators have been speculating on how he would seek to recoup the billions he has spent on keeping the economy afloat during this unprecedented time.
In recent days, however, these speculations have dissipated with the realisation that perhaps the economy is too fragile at the moment to warrant large scale changes and tax rises.
He named the budget, his ‘Three Point Plan’ and reaffirmed his commitment to do “whatever it takes to support the British people and businesses through this moment of crisis’”.
Here we summarise the key area
1. Your Finances
- Personal tax rates and duties frozen
- Some much-needed help for first-time buyers with the introduction of the new mortgage guarantee scheme with small deposit
- Initiatives to help the UK achieve its net-zero carbon emissions target with the new Retail Green Savings Bond
Here’s some of the detail:
- No changes to rates of income tax, National Insurance or VAT
- Personal income tax allowance will rise this April to £12,570 and then be frozen from April 2022 to 2026
- Higher rate income tax threshold will rise this April to £50,270 and then be frozen at £50,270 from April 2022 to 2026
- Stamp duty holiday extended to June, with no levy on sales of under £500,000
- Inheritance tax, lifetime pension allowance, and capital gains tax allowances remain at the current levels until the 2025/26 tax year
- Mortgage guarantee scheme to help people with small deposits get on the housing ladder
- A new Retail Green Savings Bond announced investing in such things as renewable and clean transportation
- No changes in excise duties in this coming tax year 21/22 for wine, beer and fuel.
2. Your Business
The headline takeaway here is the increase to the rate of corporation tax on profits to increase from 19% to 25% from April 2023. However, this isn’t just a simple increase that will apply to all; instead it will be phased in as follows:
- Companies with £50,000 annual profits or less will retain the 19% tax rate
- Companies with annual profits between £50,000 and £250,000 will pay a tapered corporation tax rate, rather than the full 25%
- Companies with profits of upwards of £250,000 will pay the full rate of 25%.
- Don’t forget that your allowable expenses and pension contributions are still deductible and will help you reduce your corporation tax bill – especially pertinent if you are seeing your corporation tax bill rise in 2023.
Not only are there the existing deductibles but a new ‘super-deduction’ will come into force with effect from this April. 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
- The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
Other welcome statements from Mr Sunak were:
- Business rates holiday for firms in England will continue until June with a 75% discount after that
- Furlough extended until the end of September 21, with companies starting to pay a proportion of this from July onwards
- VAT for hospitality businesses to remain at 5% until September and then increased to 12.5% for a further 6 months, before increasing to a standard level
- £5bn in Restart grants available for shops and other businesses forced to close
- £6,000 per premises available for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
- To help start-ups and rapidly growing tech firms source talent from overseas, a new visa scheme will be put in place
- Contactless payment limit will rise to £100 later this year
3. Your Future
- With UK borrowing at levels not seen since World War 2, it is inevitable that the government will outline changes in the years to come. However, for now, here are the headline projections:
- Economy forecast to rebound in 2021, with projected annual growth of 4% this year
- Economy forecast growth of 7.3% next year to return to pre-Covid levels by middle of 2022,
- A reduction in the expectation of unemployment levels, now expected to peak at 6.5% next year, lower than the previously predicted 11.9%
- UK to borrow a peacetime record of £355bn this year
- In 5 years’ time the OBR predicts the UK economy will be 3% smaller due to the pandemic
Our Key Takeaways from the Spring Budget:
Freezing of tax allowances is essentially a tax rise in disguise. Even though tax allowances have been frozen, please don’t forget the importance of good financial planning to make use of them.
At this stage, businesses seem to be the main target to help pay back the debt created by the pandemic with the changes to Corporation tax.
This was not the sea change many expected; no doubt there will be many further changes by future governments to balance the books.
As ever, the devil is always in the detail.