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Key Budget announcements:

Coronavirus Job Retention Scheme (CJRS)

The CJRS has been one of the central means by which the government has supported companies during the Coronavirus pandemic. With the government’s roadmap out of lockdown having now been announced, the Chancellor has also announced that the CJRS will be extended for the intervening period.

The extension is for a further five months, with the scheme now running until the end of September. It will continue to provide employees with 80% of pay (for hours not worked).

There will also be a phased contribution introduced in respect of National Insurance. From July, employing companies will be required to contribute 10% of the cost, rising to 20% in August until the end of the scheme.

Self-Employment Income Support Scheme (SEISS)

In conjunction with the CJRS an extension to the self-employment equivalent, the SEISS, has been confirmed. This will be by way of an additional fourth and fifth grant.

The fourth grant will be worth 80% of average trading profits (capped at £7,500), paid in a single sum and covering the February to April period. As with previous grants, certain conditions will apply (in this case, the claimant having filed a self-assessment tax return for the 2019-20 tax year).

The fifth grant will cover the May to September period, with the value of the grant being referable to turnover – the self-employed who can demonstrate a fall in turnover of over 30% will receive a grant on the same basis as the fourth grant, and sub-30% falls in turnover will be capped at a 30% grant (up to a maximum of £2,850).

Recovery Loan Scheme (RLS) and Restart Grants

Newly-announced RLS and restart grants will replace the previous bounce-back loan scheme.

From 6 April, the RLS will provide lenders with a government guarantee of 80% on eligible loans, where the value is between £25,000 and £10,000,000.

The value of restart grants will depend on the type of business claiming the grant:

  • Non-essential retail businesses will be able to apply for a grant of up to £6,000 per premises;
  • Hospitality, accommodation, leisure, personal care and gym businesses will be able to claim grants of up to £18,000, in acknowledgement that they will be opening later under the government’s current Coronavirus roadmap.

Business Rates

Business rates relief will continue to apply to eligible retail, hospitality and leisure businesses, with the full 100% relief continuing until 30 June.

There will then be a 66% relief from June to the end of March 2022, with a maximum cap of:

  • £2,000,000 for businesses with properties which were required to be closed on 5 January 2021; or
  • £105,000 per business with other eligible properties.

VAT Deferral Payment Scheme

Another one of the key pillars of business tax support provided during the Coronavirus pandemic has been the ability for businesses to defer VAT on returns for the period from 20 March to June 2020.

The Chancellor has now announced that repayments of deferred VAT under this scheme can be paid in instalments (such instalment payments starting in March), rather than a single payment due on 31 March as was previously intended.

VAT on Hospitality

The temporary reduction of VAT for goods and services supplied by the tourism and hospitality sector has been extended until the end of September.

There is also a tapering transition, whereby the rate of VAT will rise to 12.5% from October until the end of March 2022, before returning to the full 20% rate from April 2022 onwards.

Stamp Duty Land Tax Holiday

The SDLT holiday (whereby the 0% rate of SDLT has been raised to £500,0000 from the normal £125,000 limit on residential property) has been one of the key focal points in the lead up to the Budget, and it was informally announced that it would be extended before the Chancellor stood up to deliver his statement.

It has now been confirmed that the holiday will be extended, so that the end date will now be 30 June rather than 31 March.

There was also a form of tapering announced, as (for the period from 1 July to 30 September) the 0% band will be set at £250,000, before reverting to the standard threshold from October onwards.

Mortgage Guarantee Scheme

As trailed before the Budget, April 2021 will see the government introduce a new mortgage guarantee scheme, whereby lenders will be guaranteed by the government when they offer mortgages with a 5% deposit requirement. Further details have now been published, as follows:

  • The scheme can apply in respect of houses with a value up to £600,000;
  • Buyers will be able to fix their initial mortgage rate for at least five years;
  • It will be available for new mortgages entered into up to 31 December 2022.

The Chancellor also announced as part of his statement that several of the major UK lenders, including Lloyds, Natwest and Santander, will be offering 5% deposit products under the scheme from next month.

Freezing of thresholds and allowances

The Chancellor confirmed that there will be no rises in income tax, national insurance or VAT, in line with the government’s previous “triple lock” commitment.

However, extra tax revenue will instead be collected by the announcement that certain thresholds and allowances will (after an increase next year in some cases) be frozen until 2026. This will include the following:

  • The income tax personal allowance and higher rate threshold;
  • The national insurance contribution thresholds;
  • The capital gains tax annual exempt amount;
  • The inheritance tax nil-rate band and residence nil-rate band;
  • The pensions lifetime allowance;
  • The starting rate for savings tax band; and
  • The ISA annual subscription limit.

In addition, the VAT registration and deregistration thresholds will be frozen until April 2024.

Corporation Tax Rates

With effect from April 2023, the rate of corporation tax will be increased from the current 19% rate to 25%. There will also be the reintroduction of a small companies’ rate (being the current 19%) in relation to profits under £50,000, and a tapering of the rate for profits between £50,000 and £250,000. This isn’t a new concept, as a small companies and tapered rate regime were in place up to 2014, before the rates were unified.

As mentioned by the Chancellor, this increased rate will mean that the United Kingdom still has the lowest corporation tax rate in the G7.

Not mentioned by the Chancellor in his statement (but set out in the Budget publications) is a rise in the rate of the Diverted Profits tax from 25% to 31%, effective from April 2023.

Carry Back of Losses

The impact of Coronavirus on many businesses has meant that they have been in a loss-making position, and the use of those losses is restricted by current legislation.

To help viable businesses that have been impacted in this way, the trading loss carry-back rules have been loosened, with a temporary extension. Legislation will be introduced in due course, but key information is as follows:

  • Allowance of carry back of losses will be extended from one year to three years;
  • This extension will be available to both incorporated and unincorporated businesses;
  • There will be a cap of £2,000,000 of losses (in each of the 2020-21 and 2021-22 tax years), with the limit being applied across corporate groups where applicable rather than on a company-by-company basis.

If carrying back the full £2,000,000 value for each of the two tax years and using the losses to the maximum extent, this would be an additional £760,000 benefit at the current corporation tax rate.

Bank Surcharge

In light of the rise of corporation tax to 25% as announced, it was recognised by the Chancellor that the bank surcharge (currently 8%), when levied in addition, may limit the competitiveness of the UK in the banking sector.

A review of the surcharge is to be undertaken in the Autumn to ensure that this competitiveness is retained.

Capital Allowances Super-deduction

Whilst some businesses have seen their profits suffer during the pandemic, some have been able to build up tax reserves.

In order to encourage investment by these businesses, a new capital allowances super-deduction was announced, worth 130% of the value on qualifying plant and machinery as a first-year allowance.

For qualifying special rate expenditure, the first-year allowance will be 50% instead of 130%.

These new super-deductions will be effective from 1 April 2021 to 31 March 2023.

Spirits, Wine, Cider, Beer and Fuel Duties

Previously announced increases in all these duties have been cancelled, with the duty rates being frozen for a year.

Infrastructure Bank

It was announced that a new infrastructure bank will be created, providing finance to both private sector and local authority infrastructure projects.

The initial capitalisation of the bank will be £12,000,000,000, and it will be able to offer a range of financial instruments, such as equity, guarantees and debt.

Research & Development

The government will carry out a review of the R&D tax relief regime and has published a separate consultation at the same time as the Budget announcements as a first step in the review process.

Enterprise Management Incentives

Widely acknowledged as one of the most tax-efficient means of incentivisation for UK companies, the EMI scheme is a government-approved scheme which can apply subject to a number of conditions and restrictions.

As part of the government’s plan to “level up” and encourage investment in recruiting and retaining skilled individuals, a “call for evidence” has been published, inviting comments as to how to make the scheme more effective (for example, by widening the eligibility criteria).

Introduction of Freeports

The Chancellor announced the introduction of special Freeport zones (intended to begin operations in each case from late 2021) – these are used elsewhere in the world but have not been set up in the United Kingdom to date.

The eight announced zones are based in England, with discussions ongoing with devolved administrations to set up freeports in Scotland and Wales.

Freeport areas will benefit from different customs rules and wider government support, and there will be several tax advantages as follows:

  • An enhanced rate of Structures & Buildings Allowances (10% instead of the standard 3%);
  • Enhanced capital allowances for investment in plant and machinery to be used in freeport sites (applicable to both main and special rate expenditure);
  • Full relief from stamp duty land tax;
  • Full business rates relief; and
  • Employer national insurance relief.

Dates of implementation for these different tax breaks differ, although most have a longstop of 30 September 2026.

Your key contact

Chris Connors email-alt

Partner

Manchester

Chris is a corporate tax specialist, and has a depth of experience advising all types of clients on how to optimise their tax position.

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