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Budget 2021

COVID RELATED MEASURES

 Coronavirus Job Retention Scheme (Furlough) extension

The Coronavirus Job Retention Scheme has been extended from the end of April 2021 until the end of September 2021.

Until the end of June the scheme rules remain unchanged, which principally means that grants are available for 80% of employees normal salary for furloughed hours.

For July 2021 the grant is restricted to a maximum of 70% of normal wages for furloughed hours, although employees are still required to receive 80% of their normal pay for furloughed hours.

For August and September 2021 the grant is restricted to 60% of normal pay for furloughed hours.

In all cases no grant is available in respect of employer National Insurance Contributions or employer pension contributions.

For grant claims for May 2021 onwards, employees who were employed by 2 March 2021 are eligible to be covered by the grant.

Self-employed Income Support Scheme (SEISS)

The SEISS has been extended by the addition of 2 further claims. To date there have been 3 claims under the SEISS. Claims 4 and 5 cover the periods from February to April 2021 and May to September 2021 respectively. Claims for the first of these can be submitted from late April.

In order to be eligible for the claim, the self -employed person is required to have submitted a self-assessment tax return for 2019/20 by 2 March 2021.

The forth SEISS grant will be worth 80% of three months average trading profits and is capped at £7,500.

The value of the fifth SIESS grant will be determined by a turnover test. Turnover must have fallen by 30% to receive the full grant of 80% of average monthly trading profit. The full grant is capped at £7,500. Where turnover has fallen by less than 30%, a 30% grant will be received, capped at £2,850.

The fifth grant is stated as being for a period of 5 months, however the grant payable will be based on profits for 3 months.

Restart grants

Businesses in the hospitality and non- essential retail sectors are eligible for restart grants. The maximum amount of the grant is £6,000 for non –essential retail and £18,000 for businesses in hospitality.  These grants will be administered by Local Authorities.

Business rates holiday

The business rates holiday is extended by 3 months to 30 June 2021 for the retail, hospitality and leisure sectors. From 1 July 2021 until 31 March 2022, this relief is reduced from 100% to 66%. The relief is capped at £2million per business.

Reduced VAT rate for hospitality sector

The reduced 5% VAT rate has been extended from 31 March 2021 until 30 September 2021. The rate then increases to 12.5% until 31 March 2022 when it returns to standard VAT rates.

The reduced rate applies to catering (excluding alcohol), hotel accommodation and entrance fees for attractions (eg parks and cinemas).

VAT – payment of deferred liability

VAT due for payment between 20 March 2020 and 30 June 2020 could be deferred for payment until 31 March 2021.

Businesses who chose to take advantage of this now have 3 options:

  • Pay the VAT due in full by 31 March 2021
  • Apply online for HMRC’s scheme to pay the amount due in 11 equal instalments
  • Telephone HMRC if additional help is required to pay this liability

Full details can be found on the following link:

https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19

Stamp Duty Land Tax

The nil rate band applicable for residential properties costing up to £500,000, which was due to end on 31 March 2021, has been extended until 30 June 2021. A reduced nil rate of £250,000, on residential properties will apply from 1 July 2021 until 30 September 2021. After that date the nil rate band reverts to £125,000.

 

OTHER MEASURES

Increase in corporation tax rates

Corporation tax rates are being increased from 19% to 25% from April 2023. However for businesses with profits of less than £50,000, the rate remains at 19%.

The tax rate increases on a sliding scales with the full 25% rate being applicable for businesses with profits of £250,000 or above. Thus a company with profits of £150,000 would be charged corporation tax at the rate of 22%.

Tax avoidance measures are expected in this area. One of the most likely measures will be the restriction of the bands where companies are associated or are within the same group.

For example two companies owned by the same people are likely to have the profit limits restricted by 50% (ie at £25,000 / £125,000 rather than £50,000 / £250,000 per company).

Loss relief extended

A corporation tax refund is available where a company makes a taxable loss for the current year. Loss relief is arrived at by carrying back the loss to the previous period and recalculating the taxable profits for that period. As the prior periods taxable profits will now be reduced, the company will be due a refund of some of the corporation tax already paid.

The budget announced that for accounting periods from 1 April 2020 until 31 March 2022 losses can be carried back 3 years, rather than just 1 year.

For the self-employed the 3 year carry back of losses applies to tax years 2020/21 and 2021/22.

Super deduction capital allowances

Capital allowances for expenditure on plant and machinery will be available at the rate of 130% of actual expenditure. Hence if an item of machinery is purchased for £10,000, taxable profits will be reduced by £13,000.

The expenditure is only available for new assets (ie not second hand items) and is not available for cars (other than electric cars).  The allowance applies to expenditure on plant and machinery up to 1 April 2023

For items which are subsequently disposed of prior to 01 April 2023, there is a clawback of the capital allowances.

Super Deduction capital allowances are not available for self-employed businesses.

Research and Development tax relief review

The government is undertaking a major review of the R &D tax relief currently available.  The implication is that the government is committed to the continuation of R&D tax relief but feels that the relief currently being claimed is not being correctly targeted to those businesses genuinely undertaking R&D activity.

The 3 arears that the review is focussed on are

  • Definition
  • Eligibility and
  • Scope

VAT registration and deregistration thresholds

The Chancellor announced that the thresholds will remain unchanged for a further 2 years, with the VAT registration level remaining at £85,000 sales.

Other tax allowances frozen

The Chancellor announced that income tax, capital gains tax and inheritance tax bands and allowances would be frozen until 5 April 2026.

For income tax this means that the personal allowance will remain at £12,570 and the basic rate tax band ends with income on £50,270.

The exempt band for capital gains tax will remain at £12,300

The nil rate band for Inheritance tax remains at £325,000.

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