In his second Budget, the Chancellor focused on three main areas – supporting business and people; fixing the public finances; and building the future economy. The total government support programme for the last fiscal year and this coming year, the detail of which was contained in the first part of the Budget speech, will have cost over £400 billon. The impact of this supercharged public expenditure on the national debt has been enormous and will continue to be so for decades to come. Unsurprisingly, the second part of Mr Sunak’s speech turned to the daunting task of what to do about this debt, which is soon going to peak at almost 100% of national income. Having discounted doing nothing, cutting public expenditure or raising income tax or VAT rates, the Chancellor announced that most tax reliefs and exemptions would be frozen until at least 2026 and that the corporation tax rate for large companies would rise to 25% in two years’ time. In the third and final part of his speech Mr Sunak announced incentives to encourage capital investment by businesses, continued short term stamp duty help for house buyers and a short term continuation of a reduced VAT rate for the hospitality industry. There was no mention of a further Budget later in the year but given the scale of the fiscal issues caused by the Covid 19 pandemic, it would not be surprising to see the Chancellor back on his feet with additional fiscal measures before Christmas.
Some of the key tax-related points are set out below:
- Capital Gains Tax (“CGT”) and Inheritance Tax (“IHT”) – there have been no changes to the headline rates or reliefs for either CGT or IHT. Business Asset Disposal Relief remains available for CGT purposes for total qualifying lifetime gains of up to £1m, while Business Property Relief for IHT is also unchanged. The IHT nil rate band will continue at £325,000 from 6 April 2021 until 5 April 2026.
- Income tax allowances and thresholds – the personal allowance, basic rate limit and higher rate threshold will all increase with effect from 6 April 2021 as previously announced, to £12,570, £37,700 and £50,270 respectively. Thereafter, these allowances and limits will be frozen (i.e. with no further CPI increase) until 5 April 2026.
- Increase in corporation tax rate – the main rate of corporation tax for will increase from 19% to 25% with effect from 1 April 2023.
- Corporation tax small profits rate – a small profits rate of corporation tax of 19% will be introduced from 1 April 2023 for companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will be taxed at 25% but will be able to claim marginal relief. These thresholds are proportionately reduced for the number of associated companies and for short accounting periods.
- Use of trading losses – companies and unincorporated businesses will be able to carry back trading losses of up to £2m per annum incurred in the years ended 31 March 2021 and 2022 for a period of three years rather than one year. This should facilitate tax refunds for formerly profitable businesses temporarily hit by the lockdown.
- Capital Allowances – the Annual Investment Allowance of £1m has been extended to 31 December 2021.
- Super deduction for qualifying plant and machinery – from 1 April 2021 to 31 March 2023, fixed asset investments qualifying for main rate capital allowances will be relieved by an enhanced temporary 130% first year allowance or “super deduction”. Investments in capital assets which qualify for special rate relief, will be eligible for a 50% first year allowance.
- Pension Lifetime Allowance – similarly, the standard Lifetime Allowance for pensions will be frozen at £1,073,100 from 6 April 2021 to 5 April 2026.
- Stamp Duty Land Tax nil rate band – the increase of the nil rate band for residential property in England and Northern Ireland to £500,000 will be extended from 31 March to 30 June 2021. It will then reduce to £250,000 from 1 July to 30 September 2021, and then to the standard amount of £125,000 from 1 October 2021.
- VAT for tourism and hospitality – the temporary reduced rate of VAT (i.e. 5%) for hospitality, holiday accommodation and attractions will also be extended for 6 months to 30 September 2021. It will then increase to 12.5% from 1 October 2021 to 31 March 2022, after which it will return to the standard rate of 20%.
- Research and Development (“R&D”) tax relief – for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D credit that a company can receive in any one year will be capped at £20,000 plus 3 times the company’s total PAYE and NIC contributions.
- Freeports – a number of ‘Freeport’ tax sites will be created at various locations around the UK, allowing businesses in these tax sites to benefit from a number of tax reliefs. Eight Freeport sites have been announced in England, and the Government will consult with the devolved administrations on its intention to create similar sites in Northern Ireland, Scotland and Wales.