2021 Budget Highlights
Following the Budget speech to Parliament on March 3rd 2021, the Chancellor outlined measures to continue to help businesses deal with the impact of Covid-19, as well as identify the measures being taken to repair the economic damage sustained
The main rate of corporation tax will be increased to 25% from April 2023 for companies with profits of at least £250,000. At the same time, a new small companies’ rate of 19% will apply to companies with profits of up to £50,000.
For the two years from April 2021, companies investing in qualifying new plant and machinery will benefit from a 130% first-year capital allowance.
The personal allowance will rise to £12,570 and the higher rate threshold will be £50,270 for 2021/22 and both will then be frozen for the next four years.
The capital gains tax annual exemption, inheritance tax rate nil rate bands and pensions lifetime allowance will all be frozen at their current levels until April 2026.
The exemption from stamp duty land tax on the first £500,000 of residential property value will be extended to 30 June 2021 and then replaced by a £250,000 exemption until 30 September 2021.
The coronavirus job retention scheme will be extended in full until 30 June 2021 and will be phased out over the following three months.
The self-employed income support scheme will also be extended at its current level with a fourth grant covering the period February to April. A fifth grant will cover the period May to September, but this will be at a lower level for those who have seen less than a 30% drop in turnover.
The personal allowance will rise to £12,570 and the higher rate threshold for 2021/22 will increase to £50,270, as previously announced. From 2022/23 to 2025/26, both the personal allowance and higher rate threshold will be frozen. In Scotland, the higher rate threshold for non-savings, non-dividend income will rise to £43,662 in 2021/22 as announced in the Scottish Budget.
National insurance contributions (NICs)
The NIC upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for 2021/22 and through to 2025/26.
Taxation of payments under the self-employment income support scheme (SEISS)
Grants from the SEISS made on or after 6 April 2021 will be taxed in the year of receipt regardless of the accounting year end. Legislation in the Finance Bill will ensure this measure has effect for the tax year 2020/21 and for subsequent tax years.
Income tax exemption for employer-reimbursed COVID-19 tests
There will be an income tax exemption for payments that an employer makes to an employee to reimburse the cost of a relevant coronavirus antigen test in 2020/21 (retrospectively) and 2021/22. The corresponding NIC disregard is already in force for 2020/21 and will be extended to 2021/22.
Mortgage guarantee scheme
A new residential mortgage guarantee scheme will run from April 2021 to December 2022, aimed at increasing availability of 91% to 95% loan-to-value mortgages. The maximum property value will be £600,000 and mortgages must be arranged on a repayment basis.
Extension of social investment tax relief (SITR)
The government will extend the operation of SITR to April 2023.
Individual savings account (ISA) subscription limits
The ISA annual subscription limit for 2021/22 will remain at £20,000 and the corresponding limit for junior ISAs (JISAs) and child trust funds (CTFs) will stay at £9,000.
Capital gains tax (CGT) annual exempt amount
The annual exempt amount for individuals and personal representatives will remain at £12,300 until 5 April 2026, and the amount for most trustees will likewise remain at £6,150 (minimum £1,230).
Inheritance tax (IHT)
The IHT nil rate band will remain at £325,000 until 5 April 2026. The residence nil rate band (RNRB) will likewise stay at £175,000 and the RNRB taper will continue to apply where the value of the deceased’s estate is greater than £2 million.
Stamp duty land tax (SDLT) temporary rates
The temporary increase to £500,000 to the SDLT nil rate band for residential property in England and Northern Ireland is extended until 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000 and will then return to £125,000.
Non-UK resident SDLT
As previously announced, there will be an SDLT surcharge on non-UK residents buying residential property in England and Northern Ireland from 1 April 2021. The surcharge will be 2% above the existing residential rates.
Corporation tax, diverted profits tax and bank surcharge
The main rate of corporation tax will remain at 19% for the year beginning 1 April 2022 and will rise to 25% from April 2023 for businesses with profits of £250,000 and over. The rate for businesses with profits of £50,000 or less will remain at 19% and there will be a marginal taper for profits between £50,000 and £250,000.
These thresholds are proportionately reduced for the number of associated companies and for short accounting periods. The rate of diverted profits tax will increase to 31%. The government will review the bank surcharge rate of 8% in light of the corporation tax increase.
The period over which incorporated and unincorporated businesses may carry back trading losses will be extended temporarily from one year to three years.
This extension will apply to a maximum £2 million of unused trading losses made in each of the tax years 2020/21 and 2021/22 by unincorporated businesses. The same maximum will apply separately to companies’ unused trading losses, after carry back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and for periods ending between 1 April 2021 and 31 March 2022.
The £2 million cap will be subject to a group-level limit, requiring groups with companies that have the capacity to carry back losses above £200,000 to apportion the cap between their companies.
Research and development (R&D) tax credits
As previously announced, for accounting periods beginning on or after 1 April 2021, the amount of payable R&D tax credit that a small and medium-sized enterprise (SME) can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NIC liability.
Super-deduction for investment in plant and machinery and 50% first-year allowances
Companies investing in qualifying new plant and machinery between 1 April 2021 and 31 March 2023 will benefit from new first-year capital allowances. Investments in main-rate assets – those that qualify for 18% writing down allowance (WDA) – will be relieved by a 130% super-deduction, while investments in assets qualifying for 6% WDAs will benefit from a 50% first-year allowance.
Annual investment allowance (AIA) extension
As previously announced, the temporary £1 million limit for the AIA will be extended again – to 31 December 2021.
VAT Registration and deregistration thresholds
Until 31 March 2024 the VAT registration threshold will remain at £85,000 and the deregistration threshold will stay at £83,000.
VAT deferral new payment scheme
As previously announced, businesses that deferred VAT payments due between 20 March and 30 June 2020 will be able to pay them in 8 to 11 interest-free equal monthly instalments up to 31 March 2022. Businesses may opt into the scheme until June 2021 and the number of instalments depends on the date of opting in.
Businesses that do not choose this option must pay deferred VAT by 31 March 2021. A penalty will be charged where the deferred VAT is not paid or there is no arrangement to pay.
Tourism and hospitality
The temporary reduced rate of 5% for hospitality, holiday accommodation and attractions is extended until 30 September 2021. A new reduced rate of 12.5% will apply from 1 October 2021 to 31 March 2022, at which point the rate will revert to the 20% standard rate.
Making tax digital (MTD)
MTD will be extended to all VAT registered businesses with effect from 1 April 2022, as previously announced.