TAX BRIEFING BUDGET 2021.
CORPORATION TAX COMPLEXITY
The Chancellor announced that taxes would have to rise, but not
quite yet, as all tax rates except for VAT are frozen for 2021-22.
Large companies will then see their corporation
tax rate rise from 19% to 25% from 1 April 2023.
Companies making no more than
£50,000 per year in profits will still
pay tax at the current rate of 19%.
There will be a system of marginal
relief on corporate profits between
£50,000 and £250,000, above which
the tax rate will be set at 25%.
Complexity is added for groups and associated
companies as the profit thresholds of £50,000 and
£250,000 will have to be divided by the number of
associated companies. The companies counted as
being in a group or associated will be those which
are under the common control of
a person, a company or a group of
persons.
Family companies which are not
trading will also pay corporation tax
at 25% on all profits.
We can work with you to calculate the most tax
efficient way to structure your group and extract
profits from your company from April 2023.
Companies making no
more than £50,000
per year in profits
will still pay tax at the
current rate of 19%
SUPER DEDUCTION FOR CAPITAL EXPENDITURE
Larger companies may have opted to wait until April 2023 before
mak ing major investments in plant or machiner y to achieve tax relief
of 25% on those costs following the increase in the corporation tax rate.
However, the Government wants to encourage
those companies to invest sooner so is offering a
super deduction of 130% of capital expenditure on
new qualifying plant and machinery.
The contract to buy must be entered
into on or after 4 March 2021 and the
purchase must be made between 1
April 2021 and 31 March 2023.
This 130% deduction will only apply
to assets eligible for the main capital
allowances pool with writing down allowances
normally given at 18%. Cars do not qualify for this
super deduction unless they are specially adapted
for use in a driving school.
Expenditure on other new assets such as fixtures and
integral features in buildings will qualify for a 50%
deduction in the year of purchase if acquired before
1 April 2023. The remaining cost of
these assets will qualify for a writing
down allowance at 6% per year.
These enhanced deductions for the
cost of new assets apply alongside the
100% deduction available under the
annual investment allowance which
covers up to £1 million of expenditure per year until
31 December 2021. We can help you decide on the
most efficient timing of expenditure to maximise
the reliefs available.
The Government is
offering a super
deduction of 130% of
capital expenditure
on new qualifying
plant and machinery
POINTS MEAN PENALTIES
HMRC is changing the way taxpayers interac t with
them in a projec t called mak ing tax digital (MTD).
Most VAT registered businesses are already
submitting their VAT returns using MTD-compatible
software and unincorporated businesses will have
to use MTD software from April 2023. Income tax
reporting by unincorporated businesses will be
required at least quarterly rather than once a year as
is currently the case under self assessment.
HMRC has announced that they will use a new points
based system to encourage taxpayers to submit MTD
updates on time. The taxpayer will be given points
for every late VAT or income tax return and once a
defined number of points is reached an automatic
£200 penalty will be issued.
This new points and penalty system will commence
from 1 April 2022 for VAT and from 6 April 2023 for
taxpayers submitting MTD income tax updates.
Sanctions for late payment of tax will also be
harmonised across all taxes.
RELIEF FOR BUSINESS LOSSES
Many businesses have made losses during the Covid-19
pandemic. Normally trading losses can be carried back one
year to set against profits and generate a repayment of tax.
The Government have announced that they will
permit businesses to carry back losses for up to three
years.
Companies that make losses in
accounting periods ending between
1 April 2020 and 31 March 2022 will be
able to carry back up to £2 million of
extra losses for three years with the normal unlimited
carry back for one year followed by the additional £2
million to the two preceding years.
Unincorporated businesses will be able to carry back
losses made in the tax years 2020-21 and 2021-22
for three years, setting the loss against the profits
of the latest year first. For example, a
business which made a loss in 2020-
21 can carry that loss back against its
profits made in 2019-20, 2018-19 and
2017-18, setting off the loss against
the profits of 2019-20 first, before
setting the loss against the two earlier years.
Talk to us about your trading results from the
pandemic period. If you have made a loss, taking
action now could generate a useful tax repayment.
If you have made a
loss, taking action
now could generate a
useful tax repayment
FROZEN BANDS AND ALLOWANCES
Income tax and national insurance contribution rates have been frozen for
2021-22 and are likely to remain frozen until the end of this Parliament in 2024.
By freezing the personal
allowances and tax bands at their
2021-22 levels the Chancellor
is causing the value of those
allowances and bands to diminish
by inflation.
In real terms, if the taxpayer
increases their income or profits in
this period, more of their income
will be taxed at the higher rates.
As a result, the taxpayer pays
more tax despite the tax rates
being unchanged.
This 'freezing' approach has been
applied to inheritance tax since
2009, while the value of property
subject to that tax has
increased enormously, resulting in
more deceased estates becoming
liable to pay inheritance tax.
The capital gains tax exempt
amounts and rates have also
been frozen in 2021-22 with the
Chancellor confirming these will
also be fixed for the foreseeable
future.
As a result, the
taxpayer pays
more tax despite
the tax rates
being unchanged
TWO NEW SEISS GRANTS
As a self- employed individual you may have been able to
claim up to three grants under the self- employed income
support scheme (SEISS) since the start of the pandemic.
Two more SEISS grants will soon
be made available, capped at
£7,500 each.
Each of these new grants will be
based on your average trading
profits as reported on your tax
returns for the four years to
2019-20. You will only be eligible
to claim these grants if you
submitted your 2019-20 tax return
by midnight on 2 March 2021 (it
was due by 31 January 2021).
The extension means that if you
started your business in 2019-20
you will be able to claim a SEISS
grant for the first time, as long as
you meet the other criteria and
thresholds, which are the same
as they were for the first three
grants. The online facility to claim
the fourth SEISS grant will open in
late April.
As part of the claims process
you must declare that you have
suffered a significant drop in
trading profits. HMRC does not
quantify what 'significant' means
but the reduction in earnings
need not be enough to put you
out of business as you must
still be trading, or be intending
to continue to trade once the
Covid-19 restrictions are lifted, in
order to be eligible for the SEISS
grants.
A fifth SEISS grant will be available
in late July 2021 but the eligibility
criteria will be tighter still.
If your turnover has fallen by at
least 30% you may be able get
the full grant, calculated at 80%
of your average trading profits,
capped at £7,500. Businesses
whose turnover has fallen by less
than 30% will receive a grant
based on 30% of average profits,
capped at £2,850.
All of the SEISS grants are taxable
income for your business and they
will have to be declared as income
on your tax returns for the tax
years in which they are received.
A fifth SEISS grant
will be available
in late July 2021 but
the eligibility criteria
will be tighter still
VAT BOOST FOR HOSPITALITY
Many hospitalit y venues have been closed for almost a year
and are still unable to open under the Covid-19 restrictions.
To help them survive this period, the Government has given them a 15% VAT reduction on most sales.
Where the business would normally collect 20% in VAT they currently only have to pay 5%.
This 5% VAT rate has applied in the hospitality and tourism sectors since 15 July 2020 and will continue to
apply until 30 September 2021. This will then gradually increase with sales made from 1 October 2021 to 31
March 2022 in these sectors adding 12.5% before returning to the usual 20%.
These reduced VAT rates broadly cover restaurant meals or hot take-away meals
(not sandwiches); hotel and similar accommodation; entrance fees for tourist
attractions and cultural venues. The lower rate does apply to soft drinks taken with
a restaurant or café meal eaten in-house.
The reduced VAT rates do not apply to tickets for sporting events nor admission to sporting facilities, so
bookings to use a tennis court or five-a-side football pitch are still subject to 20% VAT.
A special low rate applies to gross sales under the VAT flat rate scheme for small businesses, such as pubs,
hotels and catering services. The flat rate scheme rules will be revised to take account
of the 12.5% rate that applies until 31 March 2022.
This 5% VAT rate
will continue
to apply until 30
September 2021
STAMP DUTY HOLIDAY EXTENDED
Stamp duty land tax (SDLT ) must normally be paid by purchasers when they buy
residential property in England or Northern
This lower threshold was raised to £500,000 from 8 July 2020 to 31 March 2021 and will now remain at that
level until 30 June 2021. It will then be reduced to £250,000 from 1 July to 30 September 2021 and will revert
to £125,000 from 1 October 2021.
This means that if you are buying your main home and complete the deal on or before 30 June 2021 you will
pay no SDLT where the purchase price does not exceed £500,000. This could save you up to £15,000.
Landlords and companies who buy investment properties to let out will
benefit from the SDLT holiday but must pay a surcharge at 3% on the
entire value of the deal.
Purchasers of property in Wales must pay land transaction tax (LTT)
which normally applies to residential property deals above £180,000. A
similar LTT holiday has applied in Wales since 26 July 2020 when the
lower LTT threshold was raised to £250,000. This threshold will now stay at £250,000 until 30 June 2021.
However, investors, second home buyers and companies cannot benefit from the LTT holiday at all.
The Scottish Parliament also applied a land tax holiday on residential properties purchased between 15 July
2020 and 31 March 2021 where the purchase price does not exceed £250,000. However, that tax break will
not be extended.
Landlords and companies
who buy investment
properties to let out
will benefit from the
SDLT holiday but must
pay a surcharge at 3%
FURLOUGH SCHEME EXTENDED
Some potentially good news for employers is the Chancellor ’s decision
to extend the furlough scheme in its current form until 30 June 2021.
Employers can continue to claim 80% of each
furloughed employee's usual wages for periods the
employee is furloughed, up to £2,500
per employee per month.
The furlough scheme will continue
until 30 September 2021 but the
costs for employers will increase:
- for pay periods from 1 July 2021 the employer can
claim 70% of their employees' usual wages up to
£2,187.50 per employee per month; and
- for pay periods from 1 August 2021 the employer
can claim 60% of their employees' usual wages up to
£1,875 per employee per month.
In all cases the employer must continue to pay
furloughed staff 80% of their usual contracted
wages and pay all of the employer’s Class 1 NIC and
any employer's pension contributions due on those
furloughed wages.
Employees can be asked to work part
time and be furloughed for the rest of
their normal working hours.
Be aware that HMRC now publishes
the names of employers who use
the furlough scheme and an indication of the total
amount claimed each month.
Employees can also check their personal tax account
to see if a furlough claim has been made in respect
of their wages.
The furlough scheme
will continue until
30 September 2021
but the costs for
employers will increase
