Our immediate reaction to the 2021 Budget
Our immediate reaction to the 2021 Budget
Budget 2021 was, as many expected, a balance of measures to both support the economy and encourage investment as we emerge from Covid-19, as well as just the start of explaining how we will pay for the government borrowing. The Chancellor was very clear that corrective action to fix the country’s level of borrowing was needed and that it could take many decades. However, the rest of his speech was relatively limited in terms of tax raising measures and instead Rishi Sunak confirmed that now was not the time to be setting out detailed targets with so much uncertainty.
The Chancellor managed to keep some of his announcements under wraps with a surprising boost for businesses, announcing a 130% super-deduction against profits for business capital investment in the next 2 years. Whilst this was balanced by a planned increase in the CT rate to 25% from April 2023, investors and business owners may have been pleasantly surprised today as there was no mention of any short-term increase to capital gains tax.
The 3 major themes today were “Support”, “Pay Back” and “Building the Future Economy”.
Our summary of the key measures and how they will impact individuals and businesses in our region follows.
As ever, the devil will be in the detail and once we get the fine print there may be other areas to address. Certainly, some of the figures around the debt the UK has taken on are eyewatering and the direction of travel towards balancing the books to some degree was explicitly outlined by the Chancellor. Well, maybe just raise a glass this evening to a relatively benign Budget Day as after all alcohol duty remained frozen as well!
The support measures kicked off with the already announced extension of the Job Retention Scheme to the end of September 2021 with employers expected to pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September, as the economy reopens.
In other measures designed to support livelihoods and boost jobs, there will be £3,000 for businesses hiring new apprentices of any age between 1 April and 30 September 2021
Lower paid workers will benefit from an increase in the National Minimum Wage – rising to £8.91 and to include all 23- and 24-year-olds for the first time from April (they will see a jump from £8.20 to £8.91). Those claiming Working Tax Credits will get a one-off payment worth £500. This is designed to bring it in line with the additional £20 uplift to Universal Credit which claimants have received.
There was welcome news for those not eligible to claim under the existing self-employment schemes with the news that a fourth Self Employment Income Support Scheme (SEISS) worth up to £7,500 will cover February, March and April and be available for those who have filed a 19/20 tax return. The fifth and final SEISS grant will cover June, July and August which will include a turnover test to direct the support to those who need it most and further details of this will be announced later in the year.
There was some positive news for those businesses hardest hit by lockdown with a Restart grant per premises of £6k for businesses in non-essential retail and £18k for hospitality, accommodation, leisure, personal care, and gym businesses reflecting that these will be the last parts of the economy to reopen under the government’s roadmap.
There was also further support on Business Rates with 100% relief continuing to 30 June 2021 with rates then discounted by two thirds until March 2022. However, as already noted by many commentators, the long overdue review and reform of the business rates system has already been pushed into the Autumn, leaving bricks and mortar retailers and leisure operators unsure of the longer-term plan. And some businesses in this sector, particularly nightclubs and music venues who have faced the longest and complete closure may feel more targeted support could have been made available.
A new Recovery Loan Scheme will commence on 6 April 2021, once the existing Covid-19 loan schemes close. Loans of up to £10million will be available to businesses trading in the UK that can demonstrate they have been impacted by the coronavirus pandemic. Further detail of course to follow, but the headline is a further positive policy by the Chancellor to recognise the cash pressures, and difficulties accessing finance, being experienced by many UK businesses.
We have many fantastic food and drink businesses in our region and those in the food retail sector will be pleased to see the temporary reduced 5% rate of VAT for goods and services supplied by the tourism and hospitality sector will apply until 30 September 2021. To help businesses manage the transition back to the standard 20% rate of VAT, a 12.5% rate of VAT will apply for the subsequent six months until 31 March 2022.
There was also relief for home buyers who have not yet taken advantage of the Stamp Duty Land Tax holiday for purchases up to £500k as this was extended to 30 June 2021. And after that the nil rate of SDLT will be doubled to £250k until 30 September 2021.
Finally, there was a potential boost for tax cashflows with the Chancellor announcing that business tax trading losses incurred in accounting periods falling into the 2020/21 and 2021/22 tax years will be available to carry back against profits in the last 3 years (compared to the usual 1 year). This is subject to a £2million cap per year. The cap is apportioned for companies in a group, although it has been proposed that the cap would not apply if each group company carried back a maximum of £200,000 of losses per year.
Unfortunately, now comes the start of the pay back. As noted above though the measures announced were relatively light compared to the pre-Budget fears of significant increases to tax rates.
Income and Capital Gains Tax
Largely speaking, just like the recent weather it was a case of freezing and standing still. So, the major tax allowances, and rates, remain unaltered across Income Tax, CGT (Capital Gains Tax) & IHT (Inheritance Tax) as did the annual ISA allowance at £20,000 per person.
Sticking to the Government’s manifesto promise of not increasing Income Tax or NIC, by freezing tax allowances for five years the Chancellor has created a subtle stealth tax. By 2026, these measures will leave basic rate individuals £196 worse off and higher rate individuals £734 worse off, when compared to the thresholds being increased in line with inflation.
There was a freeze too of the annual exempt amount for CGT – which will remain at £12,300 until 2026 and the Inheritance Tax nil rate band will remain at £325,000 for the same period.
However, the many pre-Budget rumours of increasing Capital Gains Tax rates did not materialise, leaving investors and business owners to breathe a sigh of relief as they continue to benefit from low CGT rates… for now. With a fragile economy and Covid-19 restrictions, the Chancellor clearly thought that now was not the time to make such changes, but we can surely expect announcements on this in coming Budgets and perhaps as soon as the Autumn.
The other often rumoured change pre-Budget about a possible restriction on higher rate tax relief for pension contributions also did not materialise and so there remains an opportunity now to maximise pension savings in this tax year.
The biggest shake up of the day from a tax perspective was for corporation tax with two major measures announced to boost investment in the short term but tax profits in the longer term more heavily.
From April 2023 the main rate of corporation tax will increase to 25% on profits over £250,000. There will be a new small profits rate of 19% for companies with taxable profits less than £50,000 and for companies with profits between £50,000 and £250,000, relief will be available so that they pay less than the main rate. It is not yet clear what that tapering will look like.
In a surprise move, the government announced a temporary super deduction for companies investing in qualifying new plant and machinery assets from 1 April 2021 to 31 March 2023. For every £1 spent on qualifying main pool assets companies will be able to deduct £1.30 for corporation tax purposes (effectively reducing their tax bill by 25p for every £1 they invest). For qualifying special rate pool assets including long life assets companies will be able to claim a 50% first year allowance.
This appears to run alongside the annual investment allowance (AIA) which has already been increased to £1million until the end of 2021 at which point it is set to revert to £200,000. The AIA allows a 100% deduction for qualifying plant and machinery.
It is perhaps a shame that the new super deduction hasn’t at least in part been targeted at investment in environmentally friendly expenditure but nevertheless it will be a significant incentive for businesses who are in a position to invest, to do so in the next 2 years.
Building the Future Economy
The last few minutes of the Chancellor’s speech were dominated by good news stories about regional investments, supporting the UK as a “Scientific Superpower” and the green economy.
Amongst the detail, the highlights for our region were the announcement of a new Freeport status for the Humber although the South Yorkshire plan wasn’t selected. Businesses operating in the Freeport area can expect to benefit from simplified customs documentation and no tariffs if they import, process and then re-export goods. The 8 selected ports will also include a range of tax support measures which will reduce the after- tax cost of capex and make it cheaper to employ people. It remains to be seen of course how effective these new zones will be for incremental investment to the region and the wider UK economy.
Pudsey in Leeds got a Budget mention with the location here of the UK’s Green Infrastructure Bank with funds of £12bn to invest in green initiatives nationally from this Spring. Locating the Infrastructure Bank in Leeds will create new jobs, boost investment within the local economy and unlock ‘green initiatives’, both regionally and nationally, which will accelerate the government’s objective of achieving Net Zero. With Leeds already boasting a successful financial centre, this announcement will further strengthen its position not only in the north but within the UK as a whole.
In relation to incentivising fast growth sectors, there was a note of concern perhaps with news of a consultation to be issued on the effectiveness of 2 key tax incentives for SMEs – R&D tax relief and the Enterprise Management Incentive Scheme (“EMI”). There is no reason yet to think they will become less beneficial, but we will have to wait for the detail in the consultations to be issued on 23 March.
For investors, announcement of a new Green Bond to be issued via NS&I may be of interest. As yet, there are no details of the amount savers can invest, what projects it will be backing or the rate of return.
As for pensions, there is work to be done that will allow Pension funds to invest in more early-stage technology, an Enterprise Scheme for pension funds as it were, again we await more details of what this means, additional tax breaks perhaps?