Chancellor Sunak’s Budget for Recovery

There will have been many different expectations from yesterday’s much anticipated budget.

Business owners will have been hoping for continued support to help them rebuild their businesses and help them grow post Covid.

Employees will have hoped for measures to protect their jobs and incomes.

Those hoping to buy a home will have looked to measures to help them with a mortgage and to mitigate Stamp Duty Land Tax costs.

As ever, opinion is divided over the effectiveness of the measures outlined by the Chancellor. The packages of support for businesses, the restart grants, the loss relief carry back extension, the recovery loans and rates relief will certainly have been welcomed by business owners.

The 130% super deduction for companies investing in new plant and machinery should do much to encourage investment for those companies with access to funding. However, will it be enough to offset the announced 2023 rises in Corporation Tax rates?

It may come as a surprise that there were no increases to the rates of Capital Gains Tax in the budget – but watch this space in the next couple of years.

Freezing the level of the personal allowance will mean that more individuals will become taxpayers and freezing the level of the basic rate band will draw more into the higher rates of income tax. The delay in those freezes will be welcome and many will understand the need to repair the public finances after the massive Covid spending spree.

Overall, as a budget for recovery in the short term it fulfils the brief. The proposed tax increases for individuals and companies appear relatively modest, but what lies ahead? What does the future hold for capital taxes, in particular?

The Friend Partnership digest of the main budget provisions below will allow you to judge for yourself whether the Chancellor succeeded in producing a genuine plan for recovery in his second formal budget.

Coronavirus measures

The Coronavirus Job Retention Scheme (CJRS)

The CJRS has been extended and will now come to an end at the end of September 2021.

Until the end of June 2021 employees will continue to receive 80% of their pay for any hours not worked, subject to the existing caps. The employer will continue to only be required to pay National Insurance contributions and pension contributions.

From July onwards employers will also be required to make a contribution towards the 80% payment for unworked hours. For July, the government contribution will drop to 70% and the employer will be expected to pay 10%. For August and September, the government contribution will be 60% with the employer required to pay 20%.

The Self Employment Income Support Scheme (SEISS)

The Chancellor announced that the fourth grant covering February to April will be set at 80% of the three months average trading profits, subject to a cap of £7,500.

There will now be a fifth and final grant covering the period from May to September. This grant will be based on how much turnover has been reduced during between April 2020 and April 2021.

Where turnover has fallen by 30% or more the grant will be 80% of three months average trading profits, subject to the £7,500.

Where turnover has fallen by less than 30% the grant will be 30% of three months average trading profits, subject to a cap of £2,850.

Reduced VAT for the tourism and hospitality sector

The reduced rate of 5% relating to hospitality, hotel and holiday accommodation has been extended until 30 September 2021. From October 2021 until March 2022 a new reduced rate of 12.5% will apply. Thereafter the rate will revert to the standard rate of 20%.

Business Rates Relief

Businesses in the retail, leisure and hospitality sectors which are eligible will continue to receive 100% relief from business rates until 30 June 2021. After that, they will qualify for relief of 66% until March 2022 subject to an overall cap of £2 million for businesses which were forced to close on 5 January 2021. Businesses which were not forced to close on 5 January 2021 will have their relief capped at £105,000.

Restart Grants

Non-essential retail businesses which were forced to close due to the current lockdown will qualify for grants of up to £6,000 per premises. The actual level of grant will depend on the rateable value of the business premises.

Businesses in the hospitality, accommodation, leisure, personal care and gym sectors will receive grants of up to £18,000.

Recovery Loans

From 6 April 2021 the new recovery loan scheme will apply to businesses to help fund recovery and resumption of business after the end of lockdown. Businesses can borrow between £25,000 and £10 million and the government will underwrite those loans with an 80% guarantee.

Stamp Duty Land Tax (SDLT)

The temporary increase in the nil rate band for residential property in England and Northern Ireland to £500,000 has been extended to cover property acquisitions up to 30 June 2021. From 1 July to 30 September the nil rate band will reduce to £250,000. Thereafter it will revert to its normal level of £125,000.

Corporate Tax and Business Tax

Increased Corporation Tax rate

The rate of Corporation Tax will rise from the current 19% to 25% from 1 April 2023.

The full 25% rate will apply to business profits over £250,000.

Businesses with profits up to £50,000 will continue to pay Corporation Tax at 19%. Businesses whose profits are between £50,000 and £250,000 will be eligible for a tapering relief.

Extended loss carry back

Businesses which incurred trading losses during the tax years 2020/2021 and 2021/2022 will be able to carry those losses back for three years (as opposed to the one year currently allowed).

Unincorporated businesses and companies which are not part of a group will be able to obtain relief for up to £2 million worth of losses in each of 2020/2021 and 2021/2022.

Companies that are members of the group will be able to obtain relief for up to £200,000 of losses in each of 2020/2021 and 2021/2022 without any group limitations.

Companies that are members of a group will be able to obtain relief for up to £2 million worth of losses in each of 2020/2021 and 2021/2022 subject to a £2 million cap across the group as a whole.

Capital Allowance “super deduction”

Companies investing in qualifying plant and machinery during the period from 1 April 2021 until 31 March 2023 will be able to claim a 130% first-year allowance. This will apply to expenditure on plant and machinery that would ordinarily qualify for the 18% main pool rate of capital allowances.

Special rate assets will qualify for first-year allowances of 50%.

Personal tax

Personal allowances and rate bands

The increase in the personal allowance to £12,570 for the year to 5 April 2022 will go ahead. Thereafter the personal allowance will be frozen at £12,570 for all years up to and including 2025/2026.

The basic rate band will be increased to £37,700 for the year to 5 April 2022 and thereafter will be frozen at that level for years up to and including 2025/2026.

Capital Gains Tax

The £12,300 annual exempt amount for individuals has been frozen at that level for years up to and including 2025/2026.

No changes to the rates of Capital Gains Tax have been announced.

Inheritance Tax

The Inheritance Tax nil rate band has been frozen at its current level of £325,000 and the residence nil rate band of £175,000 have been frozen at their current levels for years up to and including 2025/2026.