2020/21 has been an unprecedented year of turbulence, between the pandemic and Brexit there have been lots of ups and, more so, downs.
In the wake of the government’s roadmap out of lockdown and restrictions last week, this week the 2021 Budget has been released.
The Budget always comes with lots of information, and tax rate changes. We’ve got a separate document for you specifically for tax rate changes.
Here, however, is what you need to know about the various elements of the Budget, and what they mean for businesses, those with rental properties and taxpayers in general.
The personal allowance limit rises from £12,500 to £12,570 as of 6th April, and with that the Basic Rate Tax band from £50,000 to £50,270.
Dividend allowances and rates remain unchanged; £2,000 allowance and 7.5%, 32.5% and 38.1% tax rates.
The National Insurance limit rises again from 6th April to £9,568, with the Employer’s National Insurance limit increasing to £8,840. Class 2 National Insurance limit also increases to £6,515, from £6,475.
What Does It Mean?
For the next tax year, that begins 6th April, you can earn £70 more before you’re taxed. The amount you then earn at 20% tax rate is also increasing, to £50,270, meaning you can earn £50,271 before you hit the 40% tax bracket.
There’s no change to how dividends are going to be taxed in the next tax year, £2,000 is still tax free then the tax rates remain the same.
National Insurance is often one people forget, but it’s still quite the charge as it’s 12% on relevant earnings for employees, 9% for the self employed and 13.8% for employers. From next tax year the amount you can earn before you’re subject to paying National Insurance is increasing:
- Employees can earn £9,568, then they pay 12% National Insurance on earnings over that
- Self employed people can earn £9,568, then they’ll pay 9% on earnings over that
- Self employed people with profits more than £6,515 will have to pay mandatory Class 2 National Insurance, which is £3.05 per week of the tax year they’re self employed
- Employer’s will pay 13.8% on employees salaries over £8,840
The government are freezing the income tax bands from next tax year until 2025/26, which means the personal allowance isn’t going to increase again over the next 5 years.
This is something to be aware of as profits and/or salaries increase over the next few years – that’s going to mean more tax is paid.
We can only assume this is a response to the amount of money the government has pumped into the economy, businesses and the COVID efforts over the last year.
Remember when we didn’t know what ‘furlough’ meant?
The Furlough Scheme is extending once again…this time to the end of September 2021.
Here’s a handy little table highlighting the key attributes of the extension:
|Gov Contribution Wages for hours not worked||80% > £2,500||80% > £2,500||70% > £2,187.50||60% > £1,875||60% > £1,875|
|Employer Pays NI & Pension Contributions||Yes||Yes||Yes||Yes||Yes|
|Employer Contribution: For hours not worked||No||No||10% > £312.50||20% > £625||20% > £625|
|Employee receives: For hours not worked||80% > £2,500||80% > £2,500||80% > £2,500||80% > £2,500||80% > £2,500|
What Does It Mean?
The amount the employee receives for hours not worked doesn’t change, but the amount the employer has to contribute increases until the end of the scheme.
This is to support businesses as lockdown eases and restrictions lift, particularly those that are still heavily effected, such as the retail, hospitality and events industries.
The hospitality, retail and leisure sectors received a business rates holiday for the tax year 2020/21, that we’re currently in.
In England, the 2021 Budget provides for 100% business rate relief to continue from April to June 2021. Then from July to March 2022 qualifying businesses will receive 66% relief.
What Does It Mean?
Qualifying businesses are shops, restaurants, cafes, bars, pubs, cinemas, music venues, leisure places, hotel and guest houses (this isn’t the exhaustive list).
Businesses in these types of qualifying areas will continue to receive business rate relief to March 2022, albeit 66% from July 2021, not 100% as it has been.
Small Business Rate Relief; less than £12,000 rateable value is exempt, then £12,000 to £15,000 the rate is tapered.
Rural Rate Relief; the only village shop or post office in an eligible area with a rateable value less than £8,500, or pub or petrol station less than £12,500 are exempt.
Charitable Rate Relief; charities and community amateur sports clubs can apply for relief up to 80%.
Hardship Relief; ratepayers experiencing financial difficulties can apply to their local authority for hardship relief – they may receive a discount or exemption.
Again, this a response to the impact of the pandemic restrictions on businesses occupying these sorts of properties. These measures are to help support getting things back on track.
The stamp duty holiday is being extended, and remains in place to 30 June.
The government are introducing 95% loan to value mortgages, to support first time buyers, that will be backed by them.
What Does It Mean?
For stamp duty, there will be 0% stamp duty charge on the first £500,000 of the property cost until 30 June. From July to September 2021 there will be 0% charge on the first £250,000 if the property.
From October 2021 stamp duty reverts to normal, which is:
- 0% – up to £125,000
- 2% – £125,000 to £250,000
- 5% – £250,000 to £925,000
- 10% – £925,000 to £1.5m
- 12% – above £1.5m
95% government backed mortgages will see homebuyers taking a mortgage that the government backs to the lender. Meaning the government will pay the lender if the homebuyer defaults. This will be available on homes with a value up to £600,000.
Homebuyers wanting to use the scheme will be subject to affordability checks though – it’s not just for anyone with 5% deposit.
There have been concerns regarding the property market, and it potentially collapsing, if the stamp duty holiday ceases while lockdown measures are still in place. The aim is to avoid that happening with these meansures.
Before we get to the meatier bits, here are a few other things:
- The Pension Lifetime Allowance will remain frozen at £1,073,100 until April 2026; this is the total amount of pension you can save until it’s subject to tax at the point of saving
- Cash incentives of £3,000 will be available for employers taking on apprentices of any age – this is something that was previously age dependent on the apprentice
- The planned increase in alcohol duties have been scrapped, and there’s no extra tax on spirits, wine, cider or beer
Self Employed Income Support Scheme (SEISS)
The government are providing a 3rd and 4th grant to the self employed under the SEISS; one covering February to April 2021 and one covering May to September 2021.
For those that filed their self assessments by midnight 2 March 2021, your 2019/20 self assessment will now be taken into consideration when arriving at how much you’ll receive in a grant.
This 4th grant will be available for 600,000 newly self employed people during 2019/20 that previously weren’t eligible for support. So, if you began trading in 2019/20 tax year – you will be able to claim the 4th grant, if you’re eligible based on profits.
To be eligible for the 4th grant your trading profits in 2019/20 tax year much be no more than £50,000, and at least equal to your non-trading income (if you have any).
If you’re not eligible based on 2019/20 tax year, HMRC will look at 2016/17, 2017/18, 2018/19 as well as 2019/20.
You must have traded in 2019/20 tax year and 2020/21, and be currently trading but impacted by demand due to coronavirus or have been training but are temporarily unable to do so because of coronavirus.
You must also intend to continue to trade and reasonably believe there will be a significant reduction in your trading profits because of reduced activity, capacity, demand or inability to trade because of coronavirus.
The 4th grant will cover February, March and April 2021 and will be the same as the 3rd grant in value; 80% of 3 months average trading profits, capped at £7,500.
It’s important to note that the 4th grant won’t be available to claim until late April, to allow time for HMRC to process 2019/20 self assessments.
The previous grant was available in the second month of the period it covered, whereas this is the end of the period it covers, so if you had this in your cash projections for March, change those projections now!
5th and Final Grant
It was announced in the Budget that a 5th and final grant covering May to September 2021 would be available for those eligible to claim.
The grant will be available from late July, and the amount will be determined by how much your turnover had been reduced in the year April 2020 to April 2021. It will be:
- 30% or more reduction in turnover: 80% of 3 months average trading profits, capped at £7,500
- 30% or less reduction in turnover: 30% of 3 months average trading profits, capped at £2,850
There’s a big gap here between these two support figures – the difference between 29% and 31% could prove to be huge here!
VAT in the Hospitality Sector
To support businesses in the tourism and hospitality sectors the 5% temporary VAT rate will remain in place until 30 September 2021.
Then, rather than an immediate increase back to the standard VAT rate, the rate will increase to 12.5% from October 2021 to March 2022.
This means, for the businesses involved, standard VAT won’t apply until 2022/23 tax year.
The VAT reduction applies to food and non-alcoholic drink sales.
This is the big one; we’ve already seen it reported as ‘tax on company profits to rise to 25%’, and all sorts. So, before panic kicks in, let’s evaluate the facts and what this actually means.
What Does It Mean?
There’s no increase to the corporation tax rate for 2021/22 and 2022/23 tax years – it remains at 19% on limited company taxable profits.
From April 2023 for companies with taxable profit of more than £250,000 they will be subject to a corporation tax rate of 25%.
For companies with taxable profit of £50,000 to £250,000 there will be taper relief, meaning they will pay corporation tax between 19% and 25%, depending on how much that profit is.
For companies with taxable profit of less than £50,000, they will continue to pay corporation tax at 19% – so there’s no change!
The Chancellor stated that those falling into the latter bracket, £50,000 or less, made up 70% of companies – 1.4 million businesses.
Companies with £250,000 or more of profits make up around 10% of the companies within the UK.
This change is a result of the COVID support that has been given out, and the government’s need to replenish the funds spent.
If you want to see the tax rates in more detail, you can access them here – Elite Accounting Tax Rate Guide.