The upcoming Chancellor's Budget on 3 March has the potential to be a bumper edition. Following a modest Budget last year, this will be the first major fiscal event after Brexit and since the initial onset of the coronavirus pandemic.
The economy is poised in a precarious position. While hope for a strong recovery has emerged through the development of Covid-19 vaccines, much of the economy remains paralysed by lockdown restrictions. The economic prospects for the year ahead depend on how fast the vaccine continues to roll out and how effectively that leads to lifting restrictions. With Q1 now expected to show a sharp contraction in activity, the economic outlook for 2021 is somewhat dampened. The Bank of England now expects growth of 5% in 2021, compared with 7.5% it was expecting in earlier assessments.
With so much of the economy unable to function, the Chancellor is faced with quite a list of options around the extent to which he keeps the Covid supports flowing, drives the economic recovery with targeted incentives or finds ways of raising revenue. Whichever direction he takes; it is set to be a momentous budget.
Even before the Chancellor takes his position on the floor of Parliament, there already a few key tax dates for businesses to be prepared for in 2021, including:
- Domestic reverse charge for the Construction industry begins on 1 March 2021;
- The broadening of IR35 rules to the private sector from 1 April 2021;
- The introduction of the VAT 'one-stop shop' in July 2021; and
- Full implementation of new border processes throughout the year.
As expected, this Budget will likely focus on recovery, with the following predictions widely speculated:
- Introduction of a ‘wealth tax’ which could materialise in the form of a 1% charge per annum, based on an individual’s assets;
- Introduction of the non-residents Stamp Duty Land Tax (‘SDLT’) from 1 April 2021, for which legislation has already been drafted a number of years ago;
- Introduce limits and increase scrutiny to prevent the abuse of Research and Development (R&D) tax relief for small and medium sized enterprises (SMEs). This is likely to include limits to the amount of payable R&D tax credit on SME’s claiming over £20,000 in contrast to it total PAYE and NICs liability for the period.
- Reduction of the Capital Gains Tax annual tax-free threshold from £12,300 per person to as little as £2,000 per person and more restrictions on pension relief for higher rate taxpayers - see more here; and
- The potential increase to the current 19% corporation tax rate which had previously been intended to be reduced to 17% and also bringing more online businesses into the Digital Services Tax regime, which only impacts large organisations with worldwide revenues of £500 million or UK revenues of £25 million.
There may also be some Covid-19 packages that could be extended or re-introduced:
- Extension of the reduced hospitality and tourism VAT rate of 5% which is due to end on 31 March 2021, to assist the sector post-lockdown;
- Potential re-introduction of the Eat Out to Help Out scheme for the Summer months;
- Allowing the SDLT Nil rate bands to continue until the end of this year, instead of reverting to the previous rates in April 2021; and
- Crucially, the extension of the Coronavirus Job Retention Scheme (‘CJRS’) to assist businesses to cope with the current lockdown restrictions to beyond 30 April 2021.