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The March 2021 Budget took many people by surprise. Several pundits had expected a sweep of tax rises to help pay down the public debt caused by COVID-19 (e.g. rises in fuel duty and Capital Gains Tax). Yet the only clear tax rise concerns Corporation Tax, which we will examine in more detail below. Although it may appear that little has changed in this Budget, there are still important aspects to consider for your financial planning in 2021. We address some of the highlights below.
Personal “stealth taxes”
The Government has (technically) stayed true to its 2019 manifesto pledge to not raise taxes on income, VAT and National Insurance. However, the OBR (Office for Budget Responsibility) has estimated that 1.3m extra people will be paying Income Tax by 2025. This is due to the Personal Allowance rising to £12,570 in 2021-22 and then freezing for 3 years. Since inflation is expected to drive up the cost of living – with average wages rising in tandem – many people may find that they are in a higher tax band, perhaps without even noticing.
The Lifetime Allowance for pensions (£1,073,100) and Inheritance Tax (IHT) tax-free threshold (£325,000) have also been frozen, which could lead to some people paying more tax if they do not plan carefully. Speak to our team here at WMM if you believe you may be affected.
Financial support measures
Furlough was scheduled to end on the 30th April, but has been extended until September. If you are/have been furloughed, then the Government will cover up to 80% of your wages (capped at £2,500 per month) until July, when your employer is expected to cover 10%. Their contribution will then rise to 20% in August. The self-employed income support scheme (SEISS) also now has details about payments four and five. These will cover up to 80% of average monthly profits – up to £7,500 in total. The fifth grant will cover May to June, and here the amount you can claim will depend on your losses. If you can prove that this has fallen by at least 30%, then you can access a grant worth up to 80% of profits.
Other areas of note
Buyers will be relieved to hear that the Stamp Duty Holiday has been extended to September. The threshold will be tapered down in the months leading to the 1st October, when the original £125,000 rate returns. 95% mortgages will also be guaranteed by the Government – allowing lenders to open up a wider range of products to first-time buyers. Given the backlog in deals, therefore, it may be worth speaking to an adviser early on to help avoid missing the deadline.
The big tax rise announcement, however, was on Corporation Tax. This will rise in 2023 from 19% to 25% for certain companies. Only those with profits exceeding £50,000 will have to pay the new rate (with marginal relief for profits of up to £250,000), which the Chancellor anticipates will only affect 1/10 businesses. Most small to medium-sized businesses (SMEs) are unlikely to be impacted directly.
Struggling businesses can no longer access the government’s Bounce Back Loan (BBL) and Coronavirus Business Interruption Loan Scheme (CBILS). However, it may be possible to access a loan between £25,000 and £10m under a new recovery loan scheme which is mostly backed by the UK Government. Restaurants, pubs, personal care and gyms will also be able to apply for a one-off £18,000 cash grant to help restart after lockdown. Hospitality and tourism sectors will also continue to benefit from the lower 5% VAT rate until the 30th September.
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