2021 Budget: what it means for your business
Updated: Apr 13
Thanks to the now-standard flurry of leaks, pre-briefings and heavy hints, we had a pretty good idea of what was going to be included in the government’s Spring Budget.
There was just one big surprise: contrary to some rumours, Rishi Sunak seems to have left Capital Gains Tax virtually untouched (for now, at least); focusing his revenue-raising firepower almost exclusively on Corporation Tax.
There were also several measures (e.g. loss relief, so-called ‘super deductions’ on certain categories of capital expenditure and late penalties), that were easy to miss, but are important for small businesses to know about.
So now that we’ve had time to digest the small print behind the headlines, here’s a closer look at what’s changed, and what it means for your business.
As expected, the Coronavirus Job Retention Scheme (CJRS) has once again been extended. This is CJRS version 3, and will now run until 30 September 2021.
Employees will continue to be entitled to up to 80% of their current salary for hours not worked, up to a monthly cap of £2,500.
There is still an option for employees to be either fully or flexibly furloughed, making it possible for employees to work part-time while receiving furlough pay for unworked hours.
The tapering off for support is now scheduled to start on 1 July 2021. From that date, employers can claim 70% of usual wages for hours not worked. For August and September, this reduces to 60%.
Key points to note…
Unlike with the second version of the scheme, employees do not need to have been furloughed previously to be eligible for CJRS version 3.
The cap on employee numbers has also been lifted. There is no limit on the number of eligible employees who can be furloughed under version 3.
You can access the updated rules on how to apply here.
The Self-Employment Income Support Scheme (SEISS) will continue until September with a fourth and fifth grant.
Good news if you moved to contracting or self-employed status just before the pandemic: these final two grants will take into account 2019/20 tax returns and will also be open to those who became self-employed in the 2019/20 tax year. It means that some individuals will be able to claim for the first time, even if they weren’t eligible for the first tranches of support.
As with previous payments, the grant is calculated based on 80% of three months’ average trading profits, paid out in a single payment and capped at £7,500 in total.
Claims for the fourth grant must be made by 31 May 2021. HMRC will be contacting individuals they believe may be eligible for the grant from mid-April. Find out more here.
Business rates holiday and hospitality VAT
In a just in time announcement, the existing business rates holiday (which was due to finish at the end of March), will be extended until the end of June. After that, rates will be discounted to one-third of the normal charge for the remainder of the financial year.
The discounted VAT rate of 5% for food and drink sold in pubs and restaurants will now stay put until the end of September. It will then increase to 12.5% for a further six months, before reverting back to the standard 20%.
Stamp duty holiday
Heavily trailed in the run-up to the Budget, the stamp duty holiday has been extended. The threshold has been raised to £500,000 until 30 June 2021. (However, of course, the 3% surcharge on BTL and second properties still remains.
Between 1 July and 30 September 2021, a stamp duty threshold of £250,000 will apply. Further details are here.
Given the government’s self-imposed triple tax lock, it came as little surprise that actual income tax rates have not been increased. Instead, the Chancellor went down the route of tinkering with the rate thresholds.
The Personal Allowance will increase to £12,570 and the basic rate limit will increase to £37,700 for 2021 to 2022. The higher rate threshold will increase to £50,270 for 2021 to 2022.
These rates will be frozen until 2026. It means that more individuals are likely to become eligible for income tax for the first time (especially when minimum wage increases take hold). At the other end, more people are likely to fall into the higher bracket as wages increase.
Corporation Tax: new small profits rate
The big announcement was the 6% increase in Corporation Tax to 25%. This applies from 1 April 2023.
From that date, for businesses with profits of less than £50,000, a new small profits rate of 19% will apply.
There will also be a new marginal relief system in place for profits of between £50,000 and £250,000. So in effect, the headline rate of 25% will only apply to businesses whose profits exceed £250,000.
Under the normal rules, businesses can carry back trading losses to the previous year. To give more scope for businesses to utilise tax losses they may have incurred as a result of the pandemic, the carry-back period has been temporarily extended.
Under this temporary change, trading losses can be carried back for up to three years.
This applies to unused trading losses up to a maximum of £2 million made in each of the tax years 2020 to 2021 and 2021 to 2022.
A super deduction of 130% of capital expenditure is aimed at companies that invest in innovation.
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery can make use of new first-year capital allowances. Main-rate assets benefit from a 130% super-deduction, while investments in assets qualifying for special rate relief will benefit from a 50% first-year allowance.
Replacement of the VAT default surcharge
Under the current rules, if you are late with filing your VAT return, there’s no standalone penalty (unlike the £100 you’re liable for if you’re late with your Income Tax return). Rather, the ‘Default Surcharge’ applies; essentially a combined late submission and late payment sanction.
For the last couple of years, HMRC has been looking at ways to harmonise the treatment of these two taxes, and to make the system fairer. Alongside the Budget, the government also published its fleshed-out proposals for late payment sanction reform. Here’s what we know so far:
New rules will apply to VAT for accounting periods beginning on or after 1 April 2022.
Similar rules will also apply to Income Tax Self Assessment from April 2023.
No penalty will arise if the amounts due are paid within 15 days after the due date. After 15 days a penalty of 2% of the tax outstanding will be applied. It increases to 4% if the tax remains outstanding after 30 days (this will be known as the ‘first penalty).
If the tax remains outstanding after 31 days, a second penalty will arise. This will accrue on a daily basis of 4% per annum on the outstanding amount and will stop accruing when the tax due is paid.
The good news is that, in the first year at least, HMRC says it will take a ‘light-touch approach to the initial 2% penalty. What’s more, so long as taxpayers with outstanding amounts engage with HMRC to agree to time-to-pay arrangements, any penalty will cease to accrue.
It seems we’re about to see a move away from automatic, fixed penalties for failure to meet submission obligations. Instead, we’re looking at a points-based system.
A taxpayer gets one point for every missed submission deadline.
Once the taxpayer reaches a certain threshold of points, a penalty of £200 will be charged.
Initial suggestions are that the points threshold for annual returns will be 2 points. For quarterly returns, it will be 4 points. For monthly submissions, it will be 5 points.
Points incurred will have a lifetime of 2 years.
Given that we are moving to quarterly submissions for Income Tax returns from 2023, this is welcome news. It means that a one-off failure to submit your return on time won’t necessarily result in a penalty. Repeat offenders will, however, be hit with sanctions.
Need help keeping on top of your HMRC submissions? Speak to us today.