Personal Allowance Frozen For 5 Years
The tax-free Personal Allowance (PA) and Basic Rate Band (BRB) increased from 6 April 2021 to £12,570 and £37,700 respectively. The Chancellor confirmed these figures will now be maintained at these 2021/22 levels until 5 April 2026.
This means that for tax years ended 5 April 2022 until 5 April 2026, an individual will be able to have an annual income of £12,570 before paying any tax, and will be taxed at the higher 40% rate (32.5% for dividends) once their income exceeds £50,270. The PA will continue to be reduced for those with incomes in excess of £100,000, and no change was announced to the 45% (38.1% for dividends) additional rate, which will continue to apply to annual incomes of more than £150,000.
Impact: While this policy decision will not reduce after-tax income, the Chancellor made clear that over the five year period this freeze will raise revenue by pushing more and more people into the higher rate tax brackets as their earnings and other income increase.
Opportunities For Environmental And Social Investors
The government announced the introduction of a new Green Savings Bond, which will be available through National Savings and Investments (NS&I). The product will give ordinary savers the opportunity to invest funds which will be earmarked for ‘green projects’ such as renewable energy. Further details of how the new product will operate, including rates, are expected to be announced over the coming months in advance of the product launch in summer 2021.
It was also announced that there will be an extension to Social Investment Tax Relief (SITR). SITR encourages taxpayers to invest in qualifying social enterprises, charities, and community business by offering 30% income tax relief on qualify share and debt investments.
Two capital gains tax (CGT) breaks are also given by allowing the deferment of gains where the proceeds are invested in the social enterprise, and by offering a CGT-free exit where SITR income tax relief has been claimed. One of the main conditions for the various tax reliefs to be available is that the investment is held for at least three years.
SITR was set to end on 5 April 2021, but has now been extended until 5 April 2023 for both the income tax and CGT reliefs – a welcome announcement for social enterprises and those looking to support them.
Self Employed Support Up To September 2021
In March 2020, the Chancellor first announced the introduction of the Self-Employed Income Support Scheme (SEISS) for self-employed individuals whose incomes were effected as a result of COVID-19. The scheme was broadly intended to mirror the support given to employees under the furlough scheme.
Since then, there have been two further extensions (grants) to the scheme, continuing to provide support to eligible self-employed individuals up until January 2021. A fourth grant up to April 2021 was also previously announced, and the Chancellor has now confirmed that the level of support for the fourth grant will be 80% of three months’ average trading profits, capped at £7,500. As for previous grants, the amount will be paid in a single instalment, and will be a taxable receipt of the self-employed business.
The main conditions for eligibility for the grant continue to be:
- Trading profits of no more than £50,000 (now based on 2019/20 figures) – but where not eligible for 2019/20, profits of tax years back to 2016/17 can be considered
- Individual must have traded in both 2019/20 and 2020/21
- The 2019/20 tax return must have been submitted to HMRC by 2 March 2021
- Reduced trading (or temporarily not trading) as a result of COVID-19
- A reasonable expectation that there will be a significant reduction in trading profits
- Intention to continue to trade.
HMRC will contact individuals eligible for the fourth grant in mid-April, and publish more guidance on making the claim in due course.
The Chancellor also announced a fifth and final grant, taking SEISS relief up to the end of September 2021. The calculation for the fifth grant will look at how much turnover has reduced in the year April 2020 to April 2021, and a payment will be made as follows:
- 80% of three months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more
- 30% of three months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%.
Eligible individuals will be able to submit claims for the fifth grant from late July 2021.
Corporate & Business Tax
Main Corporation Tax Rate To Rise To 25% From 1 April 2023
From 1 April 2023 the main corporation tax rate will be increased to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%.
Where a company’s profits fall between £50,000 and £250,000, the lower and upper limits, it will be able to claim an amount of marginal relief providing a gradual increase in the corporation tax rate. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.
Impact: All corporate businesses will need to consider how the increase in the main rate of corporation tax will impact upon their future business returns and projected cashflows.
A “super-deduction” will be introduced from 1 April 2021 until 31 March 2023 allowing companies to benefit from a 130% first-year allowance for capital expenditure on qualifying new plant and machinery assets. This deduction will allow companies to potentially reduce tax payable by 25p for every £1 invested in eligible plant and machinery.
The super-deduction will apply to expenditure on new main pool plant and machinery that ordinarily qualifies for the 18% main pool rate of writing down allowances. A temporary first year allowances of 50% known as a “SR allowance” will also apply to companies investing in new plant and machinery qualifying for special rate pool plant and machinery. This will include qualifying expenditure on integral features in a building and long life assets that normally qualify for 6% writing down allowances.
The measures announced will not apply to qualifying expenditure on “second hand” or “used” plant and machinery and will not apply to expenditure incurred in respect of a contract entered into prior to 3 March 2021. Any companies that have already contracted for the provision of plant and machinery will only be able to claim capital allowances at the normal standard rates.
Certain general exclusions to first year allowances will also apply including, for example, expenditure on cars, plant or machinery for leasing etc. for which the super-deduction will not apply. Where an accounting period straddles 1 April 2023 the rate of the super-deduction will be apportioned accordingly.
A further consequence of the super-deduction is that there will be amendments to the disposal rules for plant and machinery that has qualified for the allowance. Disposal receipts will be treated as balancing charges rather than an adjustment to the plant and machinery pools. Adjustments will be required if only part of the expenditure has been claimed as part of the temporary allowance and to apply a factor to the disposal receipts depending on the chargeable period in which the disposal takes place. Similar provisions apply where an SR allowances has been claimed. As would be expected, anti-avoidance provisions apply.
The Finance Bill will also include provisions for the extension of the temporary increase in the rate of the Annual Investment Allowance (AIA) of £1 million for the period to 31 December 2021 that was announced on 12 November 2020. The AIA will still be available to all businesses and therefore companies will need to consider the allocation of AIA where any expenditure may not qualify for the super-deduction or SR allowance in its relevant chargeable period.
Impact: This measure will be welcomed by all companies looking to invest in plant and machinery during the periods outlined. However, it will be necessary to consider the detailed legislation to ensure the deductions will be available and that all the capital allowances now available are fully optimised in the relevant periods.
A Temporary Return Of Three-Year Loss Carry Back
Unincorporated businesses and companies will welcome the increased flexibility to carry back losses arising during the period of the pandemic an additional two years. The extended relief will allow for a three year carry back of losses arising in 2020-21 and 2021-22. Currently losses in an ongoing business can only be carried back twelve months.
Details are as follows:
- Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2m of losses in each of 2020-21 and 2021-22
- Companies that are members of a corporate group will be able to obtain relief for up to £200,000 of losses in each of 2020-21 and 2021-22 without any group limitations
- Companies that are members of a corporate group will be able to obtain relief for up to £2m of losses in each of 2020-21 and 2021-22, but subject to a £2m cap across the group as a whole.
Impact: This should mean that a company making losses in the year to 31 March 2021 would be able to set those losses against profits arising in the year ended 31 March 2018. This will provide some additional cash flow by accessing a repayment of previous tax payments.
Post-COVID-19 Recovery Support
Local Authorities in England will provide new ‘Restart Grants’ to businesses required to close because of the latest national lockdown. The grants of up to £6,000 per premises will be based on the rateable value of their business premises and be available to ‘non-essential retail businesses’. Hospitality, accommodation, leisure, personal care and gym businesses will be able to get more generous grants of up to £18,000 as they will reopen later with more restrictions.
Businesses that continued to trade, those that chose to close and those that are in administration or insolvent will not qualify.
As with previous grants schemes, the government is also providing all local authorities in England with additional discretionary business grant funding of £425m.
A new scheme, available from 6 April 2021, will help businesses of all sizes fund the resumption of business after lockdown ends.
Businesses can borrow between £25,000 and £10m. Any business (apart from banks and insurers) can apply before 31 December 2021, including those already borrowing under existing COVID-19 loan schemes. The Government will underwrite the new loans with an 80% guarantee.
The scheme will offer both overdrafts and invoice finance over a maximum of three years and term loans and asset finance over a maximum of six years. Personal guarantees will be required for loans over £250,000 and the business must be able to show it has been affected by the pandemic but remains viable and not insolvent.
Off-Payroll Working Rules From 6 April 2021
The introduction of the changes to the off-payroll working rules, commonly referred to as “IR35”, will proceed as announced and they will take effect in 35 days-time. Medium and large businesses in all sectors, and Charities, will potentially be impacted and need to demonstrate ‘reasonable care’.
Coronavirus Job Retention Scheme Extended To September 2021
CJRS, also known as the furlough scheme, will continue to operate in its current form until June 2021 which means:
- Employees will continue to receive 80% of pay for hours not worked (subject to the cap)
- Employers will pay national insurance and pension contributions.
Between July and September 2021 the employer will still be responsible for paying national insurance and pension contributions, but in addition will also start to contribute to the 80% of employer pay on a tapered basis:
CJRS Eligibility From May
For periods from 1 May 2021 onwards, you will be able to claim for eligible employees who were employed by you and on your PAYE payroll on 2 March 2021. This means you must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying HMRC of earnings for that employee.
Employers and employees do not need to have benefitted from the scheme before to make a claim, as long as you meet the eligibility criteria.
Supporting Trainees, Apprentices And Job Seekers
Additional funding of £1,000 per English work placement for 16-24 year olds during 2021/22 and £3,000 per new apprentice hired between 1 April 2021 and 30 September 2021.
It represents an increase of £1,500 compared to the previous scheme (or £2,000 for those aged 24 and under) and is in addition to the existing £1,000 payment for employers engaging new 16-18 year old apprentices (or those with an Education, Health and Care Plan aged under 25).
From July 2021 funds will be available for English employers to set-up and expand portable apprenticeships which straddle multiple employers/projects. This will open up apprenticeships to more employers, including those in the creative sector.
Both of these provisions will deliver savings and so we would encourage employers to take advantage of this funding where possible. In addition, the Government stated its intention to invest in and pilot new technologies during 2021/22-2022/23 to support jobseekers to find work best suited to their skills and experience.
COVID-19 Statutory Sick Pay Reclaims
The temporary COVID-19 measures permitting small and medium sized employers to reclaim up to two week eligible Statutory Sick Pay (SSP) costs per employee will continue. As with other business support schemes, the Government will set out steps for closing this scheme in due course but for now this remains valuable to many employers during periods of high sickness absences.
National Minimum Wage (NMW) And National Living Wage (NLW) Increased From 1 April 2021 As Follows:
Reduced VAT For Hospitality Sector Extended
The existing reduced rate of 5% VAT applied to certain supplies relating to hospitality, hotel and holiday accommodation, and admission to certain attractions has been extended to 30 September 2021.
Impact: It is critical that businesses ensure their systems are able to deal with the changes in VAT as they relate to the ‘time of supply’
The Chancellor announced that the VAT registration threshold will remain at £85,000 until at least 31 March 2024. The deregistration threshold will remain at £83,000 for the same period.
Impact: There is potential for a different, possibly lower, threshold to apply from 2024. Therefore, smaller businesses should keep in constant review. For some businesses, there may also be overall VAT benefits from being VAT registered if trading below the threshold, and all businesses should undertake a cost/benefit analysis. We can assist with this, if required.
Deferred VAT Due To COVID-19 And New Penalty Charge
HMRC has announced legislation on the VAT Deferral New Payment Scheme; a penalty of 5% of the amount of deferred VAT outstanding will apply if businesses have not paid in full, opted into the New Payment Scheme, or made an alternative arrangement to pay by 30 June 2021.
This will impact businesses that took up the offer to defer VAT return payments due between 20 March 2020 and 30 June 2020, and who will not pay this bill in full by 31 March 2021.
HMRC has said that the normal Default Surcharge approach will not apply to deferred VAT.
Businesses will be able to:
- Settle the bill in full
- Opt for the New Payment Scheme and pay the bill over a period to 31 March 2022
- Seek a ‘time to pay agreement’
Impact: HMRC is introducing a fixed penalty regime to encourage taxpayers to make arrangements. We recommend that all businesses review their options. We can assist with this, if required
New Points-Based System For VAT Penalties And Interest
HMRC announced that from 1 April 2022, a new points-based penalty regime will be introduced to harmonise penalties and interest for taxpayers who fail to submit their VAT returns on time and pay the VAT due to HMRC.
The current default surcharge system will cease to apply from that date. Taxpayers will receive a point each time they miss a submission deadline for VAT and Income Tax Self-Assessment. A £200 penalty will be charged once a certain points threshold is reached. The threshold will depend on the taxpayer’s return submission frequency.
There would be no penalty for late payments within 15 days of the due date. Penalties will begin to be charged periodically thereafter based on the amount of tax outstanding. A 2% penalty will apply for late payments between 16 and 30 days, and 4% thereafter, on a daily basis. The penalty will stop accruing from the date a Time To Pay arrangement is agreed.
Impact: This is a substantial change to the existing regime and aligns the penalty and interest regime for VAT and Income Tax. We recommend that all businesses review their processes around compliance to avoid expensive penalties and interest charges.
Extension Of Making Tax Digital For VAT
The existing Making Tax Digital (MTD) regime remains. However, from VAT periods starting on or after 1 April 2022, all remaining VAT registered businesses, including the self-employed and landlords, will be required to keep their VAT records digitally and provide their VAT return information to HMRC through MTD compatible software.
Business Rates Relief Extended
Businesses in the retail, leisure and hospitality sectors in England and Wales will continue to receive relief from business rates – at an effective rate of 75% across 2021/22 as a whole.
Retail, Leisure And Hospitality
Qualifying businesses in the retail, leisure and hospitality sectors are already benefiting from 100% relief from business rates, and this relief will be extended from 1 April 2021 to 30 June 2021.
Thereafter, qualifying businesses will benefit from a business rates reduction of 66% for the period from 1 July 2021 through to 31 March 2022. However, this relief will be capped at a value of £2m per business for properties that were forced to close due to Covid 19 on 5 January 2021.
For qualifying businesses where the properties were not forced to close on 5 January 2021, the relief will be capped at a value of £105,000 per business. Subject to the application of the caps, therefore, this represents a discount of 75% of business rates when measured across the whole financial year to March 2022.
Reimbursement of business rates relief
Some businesses have declined to take advantage of business rates relief, and have made payments to local authorities (notwithstanding entitlement to relief). The government is to legislate to put beyond doubt that such payments will be deductible for income tax and corporation tax purposes, so that businesses are no worse off than if they had paid an actual business rates liability.
HMRC To Gather More Data For Tax Investigations
New legislation in the Finance Bill will, when enacted, change HMRC’s existing information powers, to streamline third party information notices issued to financial institutions such as banks.
The introduction of the new ‘Financial Institution Notices’ will enable HMRC to obtain information about taxpayers’ accounts without first needing to obtain the taxpayer’s or the Tribunal’s permission. While this change was prompted by a desire to speed up HMRC’s ability to satisfy information requests by overseas tax authorities, the change will also apply to data requests to UK banks for UK tax issues. The draft legislation will also make other changes, such as empowering HMRC to issue information notices for the purpose of collecting tax debts, and increasing daily default penalties.
The government also trailed forthcoming consultations which will, if legislation is subsequently enacted:
- Require digital platforms to send information about the income of their sellers to both HMRC and the seller. The intention is to help taxpayers in the sharing and gig economy to submit correct tax returns. It will also help HMRC to detect and tackle non-compliance.
- Implement cross-border information-sharing, based on OECD proposals, on Common Reporting Standard (CRS) Avoidance Arrangements and Opaque Offshore Structures, in order to tackle international tax evasion.
- Give HMRC new information powers allowing its investigators to identify developers and suppliers involved in Electronic Sales Suppression (ESS) supply chains, and access developers’ source code. This is part of a package of measures enabling HMRC to tackle tax evasion by businesses using software and hardware to hide or reduce the value of transactions and the corresponding tax liability. The legislation will also make the possession, manufacture, distribution and promotion of ESS software and hardware an offence.
Stamp Duty Land Tax Changes
The current SDLT nil rate band of £500,000 for residential property acquisitions in England and Northern Ireland will be extended from 31 March to 30 June 2021, with a reduced nil rate band of £250,000 for acquisitions between 1 July and 30 September, after which it will revert to £125,000.
The additional 3% SDLT charge will continue for purchases by companies and for purchases of second properties in England and Northern Ireland by individuals who are not replacing their private residence. A separate additional 2% SDLT charge will apply from 1 April 2021 to non-UK resident purchasers of residential property in England and Northern Ireland, for whom the top rate of SDLT could, therefore, rise to as much as 17%.
New reliefs will be introduced from the 15% rate of SDLT and the Annual Tax on Enveloped Dwellings (ATED) for certain qualifying housing co-operatives. For SDLT, the relief can be claimed for land transactions where the effective date of the transaction is on or after 3 March 2021. For ATED, the relief will apply to chargeable periods beginning on or after 1 April 2020, allowing eligible housing co-operatives who have already paid ATED for that period to claim a refund.
Azam Baccus, Tax Manager, KAISER & ASSOCIATES Accountants, Business Advisors & Tax Specialists.