Despite having delivered countless announcements throughout 2020, due to the changing environment caused by the Coronavirus pandemic, today’s Budget marked only the second time that Rishi Sunak has brought the famous red box to Parliament. Set against the context of over £280bn of Government support and the largest deficit in peacetime history, the threat of tax increases loomed large.
After all the hype and trailed initiatives the wraps finally came off the UK Budget which the Chancellor used to re-confirm a ‘whatever it takes’ approach to support the economy through the coronavirus pandemic. This Budget aimed to steer between three core themes – protecting jobs and livelihoods, strengthening the public finances and building an investment-led recovery. There was no masking that the pandemic has wreaked havoc on the economy and while growth is forecast to return strongly this year and next, the OBR forecast now expect the economy to be 3% smaller in five years’ time than it would have been without the pandemic disruptions.
With the focus firmly shifting to how the economy emerges from the pandemic, a suite of measures were announced that seek to address the Chancellor’s desires to reduce government borrowing and to address long standing challenges that have dogged the UK’s competitiveness. It was encouraging to see that the ‘productivity puzzle’ hasn’t been forgotten and initiatives around capital investment and training announced to tackle the post Covid-19 scenario.
Key highlights include:
Northern Ireland
The Chancellor announced a £65 billion spending package to assist in recovery from the pandemic, the Northern Ireland Executive has received £410 million, based on the Barnett formula.
Extension of Covid-19 Measures
The furlough scheme has been extended to 30 September 2021 with Employer’s being required to contribute 10% in July, increasing to 20% in August and September.
There will also be an additional two Self-Employed Income Support Scheme grants made available, calculated based on 80% of three months’ average trading profits. There will be some restrictions where turnover has fallen by less than 30%, grants will be limited to 30%. In addition, a new Recovery Loan Scheme will be available until the end of the year, with businesses able to apply for loans between £25k - £10m and have government guarantees up to 80%.
Stamp Duty Land Tax
The Stamp Duty Land Tax ‘holiday’ for residential properties purchased under £500k has been extended to transactions completed on or before 30 June 2021. This £Nil threshold will then reduce to £250k for a further 3 months before reverting to the normal £125K again from 1 October 2021.
VAT
The reduced VAT rate of 5% for the hospitality and tourism sector has been extended to 30 September 2021, following which it will increase to 12.5% for a further 6 months before reverting to the standard rate from 1 April 2022.
Employees
The personal allowance and higher rate tax band will rise as planned to £12,570 and £50,270 respectively from April 2021, however will then be frozen at those levels until April 2026. In effect, a ‘stealth income tax rise’.
Duties
Duties have been frozen for wine, spirits, beer, cider and also fuel.
Corporation Tax
The rate of corporation tax from 1 April 2023 will increase to 25% for companies generating taxable profits of more than £250k. The current 19% tax will continue to apply to ‘small’ companies with profits less than £50k, with a ‘taper relief rate’ for those companies with profits between the new thresholds.
Capital Expenditure
The new super-deduction will allow companies investing in qualifying plant and machinery to claim a 130% capital allowance deduction when calculating profits chargeable to corporation tax. There will also be a 50% first-year allowance for qualifying special rate (including long life) assets for purchases from 1 April 2021 to 31 March 2023.
Business Loss Carry-Back
The loss carry-back rules will temporarily be extended for both incorporated and unincorporated businesses that have incurred losses between 1 April 2020 and 31 March 2022, such that losses up to £2m per annum will be available to be offset against the previous three years’ taxable profits, resulting in tax repayments from HMRC.
Withholding Tax
From 1 June 2021, payments of interest and royalties to connected companies resident in EU Member States will become liable to UK withholding tax at a rate of 20%, however may be reduced based on the rates outlined in the specific double tax treaty.
R&D
A new cap will be introduced from April 2021 to prevent the abuse of Research and Development (R&D) tax relief for small and medium sized enterprises (SMEs). This will limit the amount of payable R&D tax credit in any one year to £20,000 plus three times the company’s total PAYE and NICs liability for the period.
