Budget 2021: Key Points

Chancellor Rishi Sunak delivered the Budget in the House of Commons on 3rd March 2021, announcing the government’s tax and spending plans for the year ahead, in a bid to help the UK’s economy recover from the COVID-19 crisis.

We have summarised the key points in this article, but you can also download our full budget summary by clicking here.


Key Points:

Measures to mitigate the impact of Coronavirus

  • Extension of the Coronavirus Job Support Scheme (‘furlough payments’) to September 2021 across the UK, with employer contributions to salary from July
     
  • Fourth Self Employment Income Support Scheme grant covering February to April 2021 to claim from late April, similar to first three grants – and newly self-employed people who filed 2019/20 tax returns by 2 March may be eligible to claim for the first time
     
  • Fifth Self Employment Income Support Scheme grant covering May to September to be claimed from late July, varying in amount according to the fall in turnover during the pandemic
     
  • No further support announced for people working as directors through their own personal companies
     
  • 6-month extension of the £20 per week Universal Credit uplift, with an equivalent £500 grant to eligible Working Tax Credit claimants
     
  • Range of ‘Restart’ grants for businesses reopening after lockdown
     
  • Recovery Loan Scheme from 6 April 2021: government to guarantee 80% of eligible loans from £25,000 to £10 million to give lenders confidence to support UK businesses, with some other loan schemes coming to an end on 31 March 2021
     
  • Business rates holiday for eligible retail, hospitality and leisure premises in England continues for first 3 months of 2020/21, followed by a 66% discount for the rest of the year. In Scotland, the 100% relief has been extended for retail, hospitality, leisure & aviation to 31 March 2022.
     
  • 5% reduced rate of VAT for hospitality and leisure industry extended from 1 April to 30 September 2021, followed by 12.5% intermediate rate to 31 March 2022

Reliefs extended

  • Nil rate of Stamp Duty Land Tax on property transactions up to £500,000 extended from 31 March to 30 June 2021, with £250,000 threshold up to 30 September 2021 (England only)
     
  • Duties on alcoholic drinks and fuel frozen for the second year running

Tax year 2021/22

  • Small increases in main Personal Allowance, Basic Rate Band and National Insurance thresholds confirmed, as already announced
     
  • Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band, Capital Gains Tax annual exempt amount, ISA subscription limits all frozen at 2020/21 levels
     
  • No increase in CGT rates announced, contrary to some speculation in advance
     
  • Corporation Tax rate remains 19% until 31 March 2023
     
  • New ‘super-deduction’ for investment by companies: 130% of qualifying expenditure on general plant for two years from 1 April 2021 can be deducted from taxable profit (50% for ‘special rate’ assets, and cars are excluded)
     
  • Trading losses (up to £2 million) for companies and self-employed businesses to be carried back up to 3 years instead of the usual 12 months, making it possible to set current losses against pre-pandemic profits to obtain a repayment
     
  • Cap on Research and Development claims: payable tax credit not to exceed £20,000 plus three times PAYE & NIC liability
     
  • No significant changes announced to ‘off-payroll working’ (IR35) rules, which will apply to large and medium-sized private sector employers from 6 April 2021, as previously announced

Tax measures coming into effect later

  • Personal allowances and income tax rate thresholds frozen at 2021/22 levels until the end of 2025/26
     
  • Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band and Capital Gains Tax annual exempt amount all frozen at their current levels until the end of 2025/26
     
  • VAT registration threshold fixed at current level of £85,000 until 31 March 2024
     
  • Corporation tax rate on profits over £250,000 to increase to 25% from 1 April 2023, with the current 19% rate applying to profits below £50,000 and a tapering calculation on profits between £50,000 and £250,000
     
  • Establishment of ‘Freeports’ enjoying significant tax breaks announced in 8 areas of England, with further areas to be discussed with devolved administrations

If you have any queries about any of the changes mentioned in the budget and how this may affect you, please speak with your usual MHA Henderson Loggie contact or email info@hlca.co.uk.

Personal Tax Newsletter – February 2021

Personal tax update and deadlines reminder

As we are fast approaching both Budget day on 3 March 2021 and the tax year-end on 5 April, you should have already received a copy of our Year-End Tax Planning Guide and hopefully had a chance to consider any tax planning. We have also included a further article below on some possible Budget predictions. 

Prior to the end of the tax year, you may wish to consider topping up ISAs, making pension contributions or gift aid donations, or looking into tax favoured investments.  In particular, for those who are higher or additional rate taxpayers and near any of the thresholds, there can be significant tax savings to be made. 

If there are any areas of tax planning that you would like to discuss or any questions, please get in touch.

The tax return deadline was 31 January 2021 but due to Covid, HMRC announced that there would be no penalties for tax returns submitted by 28 February.  The tax remained due by 31 January with interest running from this date.  In addition to the possible interest on unpaid tax, there is usually a surcharge applied to tax unpaid after 28 February.  HMRC announced on 19 February 2021 that this year the surcharge will only be applied to tax outstanding at 1 April 2021.   With these dates in mind, while we know that the vast majority of tax returns are submitted and the tax paid, if you do still need to complete either the tax return or the payment, this is your reminder. 

If you need more time to pay the tax, it can be possible to negotiate a time to pay arrangement with HMRC and this should be done by 31 March 2021.


Budget Predictions

The last budget took place on 11 March 2020 and since then the Chancellor has had to deal with challenges to the UK economy that have not been faced in 300 years. Covid’s impact has been immense and the pandemic has meant the Chancellor has had to embark upon a series of mini budgets to help businesses and individuals cope with the financial impact of the Covid pandemic. Because of this government borrowings are at their highest since the end of the Second World War.

The Conservative manifesto in December 2019 promised that there would be no increases in income tax, national insurance and VAT, although that was before the pandemic and the billions the Treasury has had to spend on supporting the economy.

With that in mind, the Chancellor has a choice of whether to raise taxes in order to start rebalancing the deficit or, or whether to defer tax rises and continue to support people and jobs until the economy is on a surer footing. 

COVID-19 support

There have been calls to extend the job support schemes, due to end 30 April, the business rates relief due to end 5 April and the reduced VAT rate for the hospitality sector due to end on 31 March. It is likely that the Chancellor may announce new measures either in a separate announcement prior to the budget or as part of his budget speech.

In view of the competing pressures the Chancellor is under, I would like to set out our thoughts on what might be contained within this landmark budget.

Firstly, dealing with business tax:

Corporation Tax

It has been widely rumoured that there will be an increase in the headline rate of corporation tax, from 19%.  At the last Budget, the Chancellor scrapped a planned further cut to 17% from 1 April 2020. We think that he may increase this rate by 1% which would still mean the UK has one of the lowest rates in the G20.

Following the recession caused by the financial crash in 2008 the government extended the corporation tax loss carryback from 12 months to 36 which made an enormous difference to the cash flows of viable businesses. The Chancellor may opt to reintroduce such a measure, alongside any increase in the headline rate of corporation tax.

Capital Allowances and R&D Incentives

Additionally, boosting business investment will be high on the Chancellor’s agenda so increases in capital allowances rates– particularly those that support the Government’s carbon reduction agenda such as low carbon vehicles and energy-efficient technology are quite possible.

The government had previously announced that the reduction in the Annual Investment Allowance, a 100% relief for qualifying expenditure on plant and machinery, from £1m to £200,000 would be delayed from 1 January 2021 to 1 January 2022. In order to boost further investment, it is possible a further deferral will be announced.

It is likely he will also look at R&D incentives as another way of boosting the economy. In the spring 2020 budget, the government announced it would consult on an expansion of the existing cost categories to include expenditure on data and cloud computing costs. This consultation closed in October 2020 and it is likely he will use the budget to confirm he will proceed with this proposal.

Similarly, while broadening the scope of qualifying expenditure it is likely the Chancellor will also limit relief on routine, indirect activities, i.e., items which do not contribute directly to technological uncertainty.

Freeports

It is likely we will hear an announcement on Freeports. Following the UK’s departure from the EU, the government sees the establishment of new Freeports as a means of boosting trade, jobs and investment across the UK. The bidding process closed on 5 February 2021 and over 50 applications have been submitted from sea, rail and airports across the UK. Businesses will be able to claim reliefs from key business taxes within a Freeport, for example, enhanced rates of Structures and Buildings Allowance and enhanced relief for companies investing in qualifying new plant and machinery assets. As well as these anticipated announcements on Freeports the Chancellor may seek to announce new Enterprise Zones, in areas hit hard by Covid. Current enterprise zones already benefit from some of the tax advantages being mooted for the freeports.  

Online sales tax
The UK’s digital services tax (DST) was introduced with effect from 1 April 2020 and generally operates as a 2 per cent tax on the turnover of groups of companies providing certain digital services. However, the relevant de minimis thresholds are set such that the tax only applies to the largest digital businesses, and only a narrow set of activities are in-scope.

Notwithstanding this, due to lockdown, some outlets are reporting a boom in online sales, in contrast to the traditional high street retailers who have faced a reduction in footfall and consequently profits as well as suffering business rates and other property taxes. It has been widely reported that the Chancellor is considering introducing a more wide-ranging surcharge on online sales. This would be intended to ‘level the playing field’, given that online retailers do not generally suffer significant business rates and other property charges. It would be a surprise if legislation to implement an online sales tax was introduced at Budget 2021, but a consultation on the potential design of such a regime is certainly a possibility.

VAT

There may be specific amendments to VAT rates on some items plus an extension of the reduction of the hospitality VAT rate of 5% beyond the current end date of 31 March 2021.  In line with the manifesto pledge, we see no further cause to increase the VAT rate and conversely, there have been calls to reduce the application of the 20% standard rate in an effort to stimulate consumer spending and access the reported £125bn of savings built up by better-off households through the pandemic.

Now, moving onto individuals:

Wealth Tax

The idea of a ‘one-off’ wealth tax as mooted by the ‘Wealth Tax Commission’ to bridge the gap in public finances after COVID has reportedly been ruled that out by the Chancellor, but possible changes to our existing wealth taxes, capital gains tax (CGT) and inheritance tax (IHT), are certainly attracting attention.

Capital Gains Tax

Following on from the much-publicised Office of Tax Simplification report there has been much speculation that the rate of CGT will rise. The report recommended equalising CGT rates with income tax rates. This would more than double rates for some business owners looking to sell and it would also be self-defeating as it may deter investment from entrepreneurs. You will recall Business Asset Disposal Relief (previously referred to as Entrepreneurs’ Relief) was severely restricted in the March 2020 budget to cover only the first £1m of lifetime gains. The OTS report suggested that the government should look at replacing BADR with a relief more focused on retirement. So, it is entirely possible that the Chancellor will announce a review of BADR and Investors Relief to a review to ensure the tax system incentivises entrepreneurship in the future.

Other suggestions in the OFT report include reducing the annual exempt amount, currently £12,300 and a review of share-based remuneration and the accumulation of retained earnings within owner-managed businesses. The report also mentioned the earlier OTS report on IHT which recommended that, where a relief or exemption from IHT applies, the Government should consider removing the capital gains uplift on death for assets transferred to beneficiaries. This would avoid assets falling out with the tax net and would encourage lifetime giving.

At this stage it is thought that CGT rates will go up, however possibly the Chancellor will wait until the economy is on a surer footing.

Tax relief on pension contributions for higher rate taxpayers

Cutting pensions tax relief has been discussed frequently in the run-up to prior budgets. On the basis the government has to address a huge deficit the Chancellor may opt to take advantage of cutting pensions relief. He could address this in a number of ways, including reducing the annual and lifetime allowances and limiting carry-forward of unused annual allowances, but the simplest would be to apply a single flat rate of relief, perhaps set at a level of 25%.

It will be interesting to see how far the Chancellor moves to balance the books in terms of tax rises. Of interest was mention in the Times recently was the tax gap, i.e., the £34billion which eludes the Treasury due to mistakes, poor computer systems and avoidance and the fact that HMRC do not need to increase any tax rates to pull in more of these tax revenues! It should be noted that HMRC are already on the case with this with its Making Tax Digital initiative with VAT already in operation and Income Tax for self-employed individuals and rental income planned for 2023 and corporation tax planned to go live in 2026.

These processes will stop errors and ought to reap extra proceeds for the taxman. With the increasing digitalisation programme being contemplated by HMRC I am sure there will be a declaration in the budget of the governments intent to continue and perhaps develop further these processes so that tax is calculated as you go or in real-time! An excellent way to raise more in taxation without having to increase the rates! Anyway, we will just have to wait and see…


IR35 – Off-payroll rules

The new “off-payroll” (IR35) rules, which were due to come into force on 6 April 2020, were delayed by one year as part of the package of measures to help businesses deal with COVID-19.

The new rules, which are now due to come into force on 6 April 2021, will apply to many organisations contracting for the services of workers via a contract with an intermediary such as a company (often called a “Personal Service Company”), rather than by a direct contract with the worker concerned.

The intention of the “off-payroll” rules is to help clamp down on perceived tax avoidance. HMRC argue that by providing their services via an intermediary, both the worker him/herself and the client organisations engaging them, may be gaining an unfair tax advantage. If looking at all the facts taken together (and based on a number of “tests” of employment), the worker should really be regarded as an employee, the “off-payroll” tax rules aim to ensure that they will end up paying broadly the same amount of tax and NIC as a conventional employee. The system, which was to have come into force in less than a fortnight, is an extension of long-standing “IR35” rules: when introduced, the new regime will make many organisations (other than “small” private sector entities) responsible for assessing, on a case-by-case basis, whether their arrangements with contractors are “caught” by the “off-payroll” rules. If the assessment is that the arrangements are “caught”, the client organisations are potentially obliged to operate PAYE and account for employer’s NIC on payments under the contracts concerned. Organisations operating the new rules will need to have in place a fairly onerous administrative system to ensure compliance. Many organisations have been working hard in recent months to assess what the new rules mean for them, and to get ready for these changes.

It is important for organisations that fall within the new rules to ensure that they are ready to comply well in advance of 6 April 2021.

If you require any assistance in connection with the “off-payroll” rules, please get in touch.


Budget 3 March 2021 – Time for tax planning?

The budget has been announced for 3 March 2021.  Due to the effects of Covid and the deficit that has left combined with Brexit this year, we expect this to be a Budget full of changes.  While we do not yet know what will be in the Budget yet, there is much speculation and we know there is a deficit that will need to be looked at meaning that tax increases are possible. 

The majority of the initial speculation is around capital gains tax (CGT) and inheritance tax (IHT) which we have considered below.  To raise serious revenue, it is likely that the Chancellor will need to look to income tax, VAT or national insurance we will be keeping a close eye out for any announcements, reports or consultations and keep you updated. In the meantime, let’s look at CGT and IHT and what planning you may wish to consider.


Capital gains tax

The office of tax simplification (OTS) review of CGT contains many different options for changing the CGT rules.  All of them would see an increase from the current rates.  The most radical increase would be the suggestion of aligning CGT rates with income tax rates which in some cases would see CGT rates more than double from the current rates.  Other suggestions would be a change to the very favourable 10% rate of business asset disposal relief (BADR) which replaced entrepreneur’s relief last year. 

If you are considering selling or gifting assets or disposing of a business, you may want to ensure these transactions are completed prior to the Budget. This might make now the time to look at succession planning within your business or you may just want to look at triggering a CGT charge on your assets which, for an example, could be done on a transfer to a trust.

This is just speculation at this point so you need to be comfortable with your decisions but for those considering sales and gifts just now, some food for thought on the timing.


Inheritance tax

As well as proposed changes to CGT, there has also been talk about IHT or even a wealth tax.  A cross-party report was issued in January 2020 proposing radical changes to IHT, including a suggested reduction in the current 40% rate to 10%.  This is to be balanced by abolishing most reliefs, including business relief, agricultural property relief and potentially exempt transfers (PETS).  PETS are when assets can be gifted and there is no IHT due if the donor survives for seven years from the date of the gift.  

When looking at the proposals, on the face of it a reduction in the rate of IHT would seem like a tax saving, in reality, with the removal of the reliefs many would pay more IHT in future not less.

IHT and CGT planning often go hand in hand so if you are thinking about these and your long term tax planning, come and talk to our tax team at MHA Henderson Loggie.


Personal Tax Newsletter | December 2020

In our final newsletter of 2020, we want to look forward to 2021. We expect it to be an interesting year bringing many tax changes to deal with the fallout of 2020 which include Brexit and the deficit from Covid. As we progress into 2021, our focus will be on proactive tax planning and preparing for these changes. Here we have some suggested planning you could consider and our initial thoughts on the possible changes coming.


Capital gains tax – will the rates be increased? 

Speculation is that CGT rates will be increased in the Budget expected in the early part of 2021. The OTS report on CGT was released earlier this year and the recommendations suggest that an increase to CGT is likely. An increase could even see the current rates double if they are to be brought in line with income tax, which is one of the proposals in the report. 

If you have assets with significant gains, now is the time to consider these and look at your tax planning options. Do you have a business you are considering selling? Are you thinking about passing assets to the next generation?

Are you thinking about passing assets to the next generation? If these are questions you are thinking about, now is the time to take some advice. 


Christmas gifting and tax 🎁

Christmas is a time for giving and for some might be the perfect time to combine this with a little annual IHT planning.

There is an annual tax-exempt allowance of £3,000. This means that you can gift up to £3,000 per year and it will immediately be out of your estate for IHT. If you would prefer not to do this for Christmas, you have up to 5 April 2021 to use the allowance in the 2020/21 tax year. Any unused allowance in a tax year can be carried forward one year so if you did not make any gifts last year, you could gift up to £6,000.


Tax return reminder

We couldn’t resist taking this opportunity to add a quick reminder about the tax return deadline! As the self-assessment deadline is fast approaching (31 January 2021), please send us your tax return information as soon as possible if you haven’t already done so.

The right tax planning ideas can produce significant savings to you and your family. Connect with Lucy Crow & Louise Mackie on LinkedIn, who will be taking you through a series of tax planning suggestions over the coming months to help you consider some planning ideas. We will also be keeping an eye out for possible changes coming in the Budget and will be ready to discuss these with you. 


Merry Christmas from our tax team! 🎄

We would like to wish you all a very Merry Christmas from the tax team at MHA Henderson Loggie. Here are some important areas of tax for you to consider and some of the changes that will be coming in 2021…

Winter Economy Plan: Key Points

On 24th September 2020, the Chancellor of the Exchequer, Rt Hon Rishi Sunak MP, unveiled the Government’s Winter Economy Plan. Central to the plan is the introduction of the Jobs Support Scheme, which is designed to focus on saving viable jobs across the UK.


The key aspects of the plan are as follows: 

  • Jobs Support Scheme – The Government will directly support the wages of people in work, in viable jobs. Employees must be working at least a third of their normal hours and be paid for that work, as normal, by their employer. The Government and the employer will each cover one-third of the pay an employee has lost by reducing their working hours.
    • Anyone who as of yesterday is employed is eligible.​
    • The Scheme will start in November and run for six months. 
    • All small and medium-sized businesses are eligible to apply. Larger businesses may be able to apply but only when their turnover has fallen.
    • All businesses are eligible, even if they have not previously utilised the furlough scheme. 
    • Employers who retain furloughed staff on shorter hours will be able to claim both the Jobs Support Scheme and the Jobs Retention Bonus.
  • The Self-Employment Support Scheme: The Government announced that it will be extending the Self Employment Income Support Scheme Grant (SEISS). An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The initial lump sum will cover three months’ worth of profits for the period from November to the end of January next year. This is worth 20% of average monthly profits, up to a total of £1,875.  
    • An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April. 
  • Coronavirus loan schemes: The application deadline for all coronavirus loan schemes, including the Future Fund, has been extended to 30 November 2020. The Government are currently working on a successor loan scheme, for introduction in January 2021. 
  • Pay as you Grow: The Government have introduced a ‘Pay as You Grow’ scheme for businesses which took out government-guaranteed loans during the crisis allowing. Loans taken out under the Bounce Back Loan Scheme or the Coronavirus Business Interruption Loan Scheme (CBILS) can be extended from six to ten years. Businesses who are struggling can choose to make interest-only payments and can apply to suspend repayments altogether for up to six months. 
  • VAT Deferral: Businesses who deferred their VAT will no longer have to pay a lump sum at the end of March 2021. They will now have the option of splitting it into smaller interest-free payments over the course of 11 months. Any self-assessed income taxpayers who need extra financial assistance can also extend their outstanding tax bill over 12 months from January. 
  • VAT for tourism and hospitality: The Government has extended the 15% VAT cut for the tourism and hospitality sectors to the end of March 2021. 

Get in touch

If you have any questions, please email your usual MHA Henderson Loggie contact, or email info@hlca.co.uk.

Alan Davis

Alan is Chairman of Henderson Loggie, he is also Head of Tax for the Firm and leads our award winning VAT team. He covers all four offices providing specialist advice on technical VAT compliance and advisory, training and development.

Having spent 16 years with HM Revenue & Customs carrying out VAT assurance visits for a wide range of businesses – from small retailers to local authorities, Alan has gained considerable experience of HM Revenue & Customs inspections. He can help with planning opportunities for VAT efficiency, and can advise our clients on retrospective reclaim opportunities, securing significant VAT repayments.

Alan can also advise on other indirect taxes e.g. landfill tax, aggregates levy, climate change levy, and also offers in-house technical updates to the legal profession.

In addition to his tax specialism, Alan leads our Education Sector Group, ensuring that that team meets all the needs of the sector – from audit, to advisory and across all the services the firm provides.

Barbara McQuillan

Barbara has worked in taxation and specialised in the owner-managed business sector for over 30 years. During that time she has dealt with a wide range of clients in a variety of sectors ranging from the initial establishment of new businesses, through the growth years and then to retirement or sale. Throughout the life cycle of any business, a great variety of tax challenges arise and Barbara has provided pro-active and practical tax advice at every stage.

Barbara is a member of the firm’s Life Sciences Sector Group and with the team provide a wide range of skills and experience to service an important and substantial sector in the Scottish economy. Barbara is involved in running Corporate and Tax Clinics for one of our major Universities, assisting early-stage companies.

Barbara was for a number of years a Director of MHA Henderson Loggie Financial Planning.

Lucy Crow

Lucy is Chartered Tax Advisor qualified and has worked in tax for over 12 years specialising in personal tax.  She works with a wide range of personal tax clients from small sole traders to high net worth individuals and partnerships. She advises clients on all aspects of their personal tax affairs from the preparations of their tax returns to advice on tax planning and capital gains tax.

Lucy is also an affiliate member of STEP (Society of Trust and Estate Practitioners) and works closely with clients and their families on Inheritance tax planning. This ranges from a simple review to look at the potential inheritance tax through to tax planning and retirement planning as well as Trusts and Estate planning and administration.

She works with many clients in the Agricultural and Rural sector ranging from small farms to large estates. In this area Lucy has experience with all taxation issues that can arise from the day to day income tax on farms and estates to the inheritance tax and succession planning

Avril Craig

Avril Craig is manager of the Payroll Department in Dundee, covering payroll and automatic enrolment processes for our payroll bureau clients, and payroll support for clients who handle their own payroll. She oversees the timely delivery of weekly, fortnightly and monthly payroll and automatic enrolment pension processing, RTI submissions and net salary payments for a large variety of clients ranging from two employees to several hundred.

Having spent the vast majority of her career working in accountancy practice, she has specialised in payroll for the last twelve years, and in more recent times, automatic enrolment pensions.

Avril has experience in a large variety of industries and particular enjoys supporting employers in complying with the requirements of HMRC and The Pension Regulator.