The 2021 Budget Summary
Although many expected significant tax increases or changes to reliefs and exemptions, the chancellor of the exchequer, Rishi Sunak, delivered a cautious and measured budget on 3 March 2021.
Further tax announcements will be made on 23 March 2021 which may offer more insight into the UK Government’s plans for tax policies.
TaxAntics are pleased to provide their summary of key points from the budget below. For anyone needing further analysis of how the budget effects them, please do contact us by using the contact form or emailing advice@TaxAntics.co.uk.
For the tax year commencing 6 April 2021, the personal allowance will increase from £12,500 to £12,570.
The basic rate band will increase to £37,700 so the point at which most people will pay the higher rate of income tax will increase to £50,270.
The personal allowance and the higher rate thresholds will be frozen until April 2026.
The National Insurance contribution upper earning limit and the self-employed profit limit will align with the higher rate income tax threshold and also remain frozen until April 2026.
The self-employed and members of partnerships will be able to carry back any losses incurred during the pandemic back for up to three years (previously only one year was avaialble unless a cessation of busienss occurred), allowing the repayment of income tax already paid.
The £1,073,100 pension savings lifetime allowance will also be frozen until April 2026.
The £325,000 inheritance tax nil rate band (IHT NRB) and £175,000 inheritance tax residential nil rate band (IHT RNRB) will be frozen until 2026.
CAPITAL GAINS TAX
Despite the annual prediction ever since Gordon Brown introduced the 18% CGT rate and entrepreneur’s relief (now business asset disposal relief), there will be no significant changes to the operation or rates of capital gains tax rates. The pundits might be right one day!
Marginal rates of corporation tax make a return! Incorporated businesses with profits of less than £50,000 will be unaffected.
For businesses with taxable profits above £250,000 the main rate of corporation tax will increase from 19% to 25% from 1 April 2023.
Where profits are between £50,000 and £250,000 the main rate (25%) will be payable although reduced by marginal relief.
This will also mean the return of the “associated companies” rules to prevent business owners trying to keep profits below the £250k threshold by separating activities.
For example, if two connected companies are under common control, the £250k threshold becomes £125,000 for each company.
Close investment companies (those controlled by five or fewer participators which only undertake investment activity), will also pay the 25% rate of corporation tax on their profits. Property letting companies should not be affected although some family investment companies are likely to be caught.
There will be a temporary extension to corporate loss carry back rules for years ending between 1 April 2020 and 31 March 2022. Instead of just one year, losses can be carried back three years allowing businesses to use losses accumulated during the pandemic to be offset against trading profits of earlier years.
A 130% deduction on the purchase of most new plant and machinery that would previously have qualified for the 18% writing down allowance will be available to companies on expenditure incurred between 1 April 2021 and 31 March 2023.
The allowance will enable a tax deduction exceeding the cost of the asset although disposal proceeds of an asset previously subject to a ‘super deduction’ will be enhanced to 130% to enable a proportionate claw back of the tax benefit recived.
A 50% allowance will be available on plant & machinery that previously qualified for the 6% rate.
Large multinational businesses who enter in to contrived arrangements to shift profits from the UK to lower tax jurisdictions will face a 31% corporation tax rate on diverted profits.
Stamp Duty Land Tax
In response to the sheer number of property transactions stalled as buyers, sellers, solicitors, and lenders get accustomed to the "new normal", the stamp duty holiday on purchases of residential property up to a value of £500,000 is extended from 31 March 2021 to 30 June 2021.
From 1 July 2021 to 30 September 2021 the nil rate band will be reduced to £250,000. From 1 October, the nil rate band will return to £125,000.
These are very welcome extensions which may help keep the UK property market buoyant.
Value Added Tax
The VAT registration threshold of £85,000 will remain in place until 31 March 2024.
The 5% reduced rate of VAT for the hospitality sector including holiday accommodation and similar businesses introduced last year that was due to end on 31 March will remain until 30 September.
The rate will increase to 12.5% from 1 October 2021 until 31 March 2022, when it will then return to the standard rate of VAT.
LATE FILING AND PAYMENT PENALTIES
From April 2022, it is proposed that automatic late filing penalties will be replaced with a points system that seeks to penalise persistent offenders more seriously than the current regime does. A taxpayer will be notified when they incur a penalty point.
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Published: 4th March 2021