There have been few budgets as hotly anticipated as Rishi Sunak’s second as Chancellor.
In the wake of what was arguably one of the toughest peacetime years, both personally and professionally for practically everyone, Sunak had a rather unenviable task.
Facing a budget deficit of £355 billion, rising unemployment, and an economy which shrank by nearly 10% in 2020, the Chancellor was faced with a number of incredibly tough decisions.
During his speech, he remarked that the budget “meets the moment with a three-part plan to protect the jobs and livelihoods of the British people”.
We’ve summarised the budget in detail, but in today’s blog, we’ll go over the main proposals made by Sunak.
The tax measures
We all knew, deep-down, that the result of the furlough scheme and numerous support grants handed out to businesses during the pandemic, were going to come back to bite us at some stage.
It’s therefore no surprise that there were some fairly big decisions made on this front, but there was some extra support offered too.
For instance, the temporary 5% reduced VAT rate for certain supplies (mainly in the hospitality industry) will remain in place until September, which is good news for restaurants, pubs, and takeaways.
There’s also a temporary increase in the carry-back period for business losses, which will offer some respite for the firms that have been hit particularly hard by COVID-19. The extension of the business rates holiday until the end of June will provide additional comfort.
If you’re planning on investing this year, you’ll be glad to hear of the ‘super-deduction’ for investments in new plant and machinery. This amounts to 130% and will allow some companies to cut their tax bill by up to £0.25 for every £1 they invest.
Add in a time extension for the temporary increase to the SDLT nil rate band, for residential property, and there are plenty of reasons for businesses to look at this as a pretty helpful budget.
That is of course, until you reach the subject of corporation tax, which will eventually increase to 25%. However, the new rate won’t come in until April 2023, and will only apply to businesses with profits above £50,000. Beyond that figure, the percentage will be tapered up to the full 25% rate for businesses with profits of £250,000. Sunak suggests this means that only 10% of UK companies will pay the new higher rate, but it’s still a blow for many businesses.
The 2021 budget’s impact on everyone else
When it comes to our personal finances, the 2021 budget confirmed an extension of the job retention scheme (or ‘furlough scheme’ as it is more commonly known).
Originally due to end by May, furlough will now be available until the end of September and therefore continue to pay 80% of workers’ wages.
If you’re self-employed, the budget revealed a fourth and fifth grant for the Self-Employment Income Support Scheme (SEISS), which covers up to 80% of three months’ trading profits, up to a total of £7,500. The current grant runs from February until April, and the fifth will run from May to September.
In a bid to kick-start the housing market, the stamp duty holiday will be extended until June 30th 2021, and a new mortgage guarantee scheme is also being launched. The latter is designed to help small deposit homebuyers get themselves onto the market with government backed 95% mortgages from some of the UK’s largest lenders.
Confirmation of previously announced measures
The Chancellor also used the 2021 budget to confirm a few measures which had been announced previously.
Most notably, this included confirmation of the cap on the amount of R&D tax credit paid to a loss-making small or medium-sized enterprise. This comes into effect after 1st April 2021 and will restrict payable tax credits to £20,000 plus three times the company’s relevant expenditure on workers.
The other change relates to ‘off payroll’ working in the private sector. The new rules apply where an individual provides their services through an intermediary company to another business. From April 2021, it will be the business to whom they supply their services who will need to define the worker’s status and make deductions for income tax and NICs.
There are exceptions to the rule – for instance, it only applies to people who supply their services to companies with turnovers of £10.2 million or more. But it will cause some concern for many long-held contracts where the worker only has one client (i.e. they could, technically, be directly employed, rather than contracted).
If any of the Chancellor’s announcements this week have concerned you or raised further questions, please do not hesitate to get in touch with the Trinity team.