On 3 March 2021, Chancellor Rishi Sunak unveiled his 2021 Budget (“Protecting the jobs and livelihood of British people”) setting out the government's tax and spending plans for the year ahead.

The Budget follows a year of extraordinary economic challenge as a result of the ongoing COVID-19 pandemic, which has led to an unprecedented fall in output and higher unemployment, and it has been presented as being a three-part plan to get the British people and businesses through the crisis, fix the public finances, and begin the work of building the future economy. 

Although the UK's rapid Covid-19 vaccine rollout is expected to help the economy get back to its pre-pandemic size six months sooner than previously expected, the Chancellor has warned that a spending spree to support workers and spur investment will be followed by tax rises as the economy recovers.

We set out below a summary of the main points.
 

Corporation tax rates

As widely anticipated the Chancellor announced an increase in the rate of corporation tax but not for another two years.

For 2021 and 2022, the main rate of corporation tax (for non-ring-fence profits) will remain at 19%. However, from 1 April 2023, this rate will increase to 25% for companies with profits over £250,000. Companies with profits of £50,000 or less will continue to be taxed at 19%. Where profits fall between £50,000 and £250,000, the tax rate will be 25% but companies will be able to claim marginal relief.

Temporary extension to carry back of trading losses

The period over which trading losses can be carried back is to be temporarily extended from 12 months to three years. This temporary extension applies for trading losses incurred by companies in accounting periods ending between 1 April 2020 and 31 March 2022 (tax years 2020/21 and 2021/22 for unincorporated businesses).

There is no limit on the amount of trading losses that can be carried back to the preceding 12 months. But after that, a maximum of £2m of unused losses are available for carry back against profits of the same trade for the earlier two years. This £2m limit applies to each accounting period falling within 1 April 2020 to 31 March 2022.

Capital allowances

For companies within the charge to corporation tax, increased allowances for expenditure on plant and machinery will apply temporarily. For qualifying expenditure incurred from 1 April 2021 up to and including 31 March 2023 companies will be able to claim:

• a super-deduction providing a first-year allowance of 130% on most new plant and machinery investments (that ordinarily qualify for 18% main rate writing down allowances);
• a first-year allowance of 50% on most new plant and machinery investments (that ordinarily qualify for 6% special rate writing down allowances).

There will be exclusions for used and second-hand assets. The rate of the super-deduction will require apportioning where super-deduction expenditure is incurred in an accounting period which straddles 1 April 2023.

Research and Development (R&D) tax relief

For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability, in order to deter abuse.

Interest or royalty payments to connected companies in the EU

From 1 June 2021, interest or royalty payments made from the UK to a connected EU company will no longer automatically be paid without deduction of withholding tax. Instead, the treatment of these payments will be governed solely by the reciprocal obligations under the relevant double tax agreements.

The Government intends to repeal the UK domestic legislation that gave effect to the EU Interest and Royalties Directive for payments made on or after 1 June 2021. This measure ensures that EU companies no longer receive any more favourable treatment than companies based elsewhere in the world.

Rates and allowances for 2021/22

The personal allowance will increase to £12,570 and the basic rate limit to £37,700 in 2021/22 but will then be frozen at these levels for all tax years up to and including 2025/26. The additional rate threshold remains at £150,000.

The capital gains tax annual exempt amount will remain at £12,300 up to and including 2025/26.

Inheritance tax thresholds and rates are unchanged and the nil-rate band will remain fixed until April 2026. 

As regards pensions tax, the link to the Consumer Price Index increase for the lifetime allowance has been removed for five years, so the allowance remains at £1,073,100 for 2021/22 to 2025/26.

National insurance Class 4 limits

The Class 4 upper profits limit will increase to £50,270 in 2021/22 and remain at this level up to and including 2025/26. The lower profit limit is increased to £9,568.

Individual savings accounts and Child trust funds

The ISA, Junior ISA and Child Trust Fund limits are unchanged for 2021/22.

EMPLOYMENT TAX

Coronavirus-related measures

Home office equipment expenses

Legislation was introduced in 2020 to provide that there is no charge to tax for an amount reimbursed to an employee before 6 April 2021 in respect of home office equipment expenses. 'Home office equipment expenses' are expenses incurred by the employee in respect of equipment obtained for the sole purpose of enabling the employee to work from home during the COVID-19 (coronavirus) pandemic. There must be no significant private use. The exemption applies equally to NIC. These exemptions will now be extended to cover the 2021/22 tax year.

Enterprise Management Incentives (EMI)

As previously announced, the Finance Bill 2021 will legislate to ensure that new EMI options issued to employees who have not met the working time requirement as a result of coronavirus will be qualifying EMI options. This will have effect throughout the period 19 March 2020 to 5 April 2022.

Cycle to Work scheme

Employees who joined a Cycle to Work scheme, and were provided with a cycle or cycling equipment, on or before 20 December 2020 will not now have to meet the qualifying journeys condition until after 5 April 2022. However, employees who join a scheme on or after 21 December 2020 still need to meet all the conditions for the exemption.

Coronavirus support scheme: working households receiving tax credits

A one-off support payment of £500 is being made under a Covid-19 support scheme to working households in receipt of tax credits. It will cover a six-month period from April to September 2021. Legislation to be included in the Finance Bill 2021 will exempt this payment from income tax.

Off-payroll working

The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the client). New tax rules will come into force with effect from 6 April 2021 and will require the intermediary’s client to make a determination of a worker’s (deemed employment) status and potentially make deductions for income tax and NICs and pay any employer NICs.

Car and van benefits

The amount to which the appropriate percentage is applied in determining the taxable benefit of company car fuel is £24,600 for 2021/22 (£24,500 for 2020/21). The cash equivalent of the  benefit of a company van for 2021/22 is £3,500 (£3,490 for 2020/21). The cash equivalent of the benefit of van fuel for 2021/22 is £669 (£666 for 2020/21).

As announced at Budget 2020 the Government will legislate in the Finance Bill 2021 to reduce the van benefit charge to zero for 2021/22 onwards for vans that produce zero carbon emissions.

VAT AND INDIRECT TAXES

VAT registration/deregistration thresholds

The current VAT thresholds for registration and deregistration (£85,000 and £83,000 respectively) will be maintained until 31 March 2024.

Reduced rate for the hospitality industry extended

The reduced rate of 5% which currently applies to certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions will be extended until 30 September 2021. A new reduced rate of 12.5% will then apply until 31 March 2022, after which the standard rate will apply.

New Payment Scheme in respect of deferred VAT

As a result of the coronavirus pandemic, businesses were allowed to defer VAT liabilities falling due between 20 March 2020 and 30 June 2020 until 31 March 2021. It was subsequently announced (on 24 September 2020) that businesses would be able to pay that deferred VAT in up to 11 monthly interest-free instalments. This measure will be legislated for in the Finance Act 2021.

Stamp Duty Land Tax (SDLT)

The temporary increase in the SDLT nil rate band for residential property in England and Northern Ireland that was due to end on 31 March 2021 will be extended. The nil rate band will continue to be £500,000 for the period 8 July 2020 to 30 June 2021. From 1 July 2021 until 30 September 2021 it will be £250,000 and it will return to the standard amount of £125,000 from 1 October 2021.

CORONAVIRUS-RELATED MEASURES

Coronavirus Job Retention Scheme (CJRS)

To support businesses and employees across the UK through the next stage of the pandemic, the government is extending the CJRS for a further five months from May until the end of September 2021. Employees will continue to receive 80% of their current salary for hours not worked. There will be no employer contributions beyond National Insurance contributions (NICs) and pensions required in April, May and June. From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.

Self-Employment Income Support Scheme (SEISS) payments

It was confirmed that eligibility for the fourth self-employment income support scheme (SEISS) grant will be based on the claimant’s submitted tax return for 2019/20 which must have been submitted by 2 March 2021. This grant will be 80% of three months’ average trading profits to be claimed from late April 2021. 

Business Rates

The Chancellor announced a continuation of rates relief for eligible retail, hospitality and leisure properties as follows

• 100% off your business rates bills for the 2020 to 2021 tax year (1 April 2020 to 31 March 2021)
• 100% off your business rates bills for the first 3 months of the 2021 to 2022 tax year (1 April 2021 to 30 June 2021)
• 66% off your business rates bills for the rest of the 2021 to 2022 tax year (1 July 2021 to 31 March 2022) - up to a total value of £2 million.

Budget 2021 announced a new loan scheme to be introduced to replace those coming to an end.

From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.

Restart Grants

In addition, Restart Grants will be provided in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.