The Chancellor, Rishi Sunak, delivered his Budget on Wednesday 3 March 2021 with COVID in mind to “protect jobs and livelihoods”. What did he announce in the Budget 2021 and what do the changes mean for you?
Will this Budget deliver the economic growth the UK urgently needs?
Personal Taxation – 2021/22
- Income Tax – personal allowance will increase from £12,500 to £12,570 and the higher rate band will increase from £50,000 to £50,270. These rates will remain frozen until 2026.
- National Insurance contributions (NICs) – Primary Threshold and Lower Earnings Limit remain at £9,568 and the Secondary Threshold remains at £8,840.
- Capital Gains Tax – annual exemption of £12,300 will remain at this level until 2026.
- Pensions –the annual allowance taper threshold of £200,000, the level against which adjusted income is tested of £240,000 and the minimum tapered pension contribution of £4,000 for an adjusted income level of £312,000 and above remain the same until 2026.
- Inheritance Tax – nil rate bands remain the same until 2026.
- Temporary Stamp Duty Land Tax (SDLT) cut – The SDLT nil rate band remains at £500,000 until 30 June 2021 and reduces to £250,000 until 30 September 2021 returning back to the original £125,000 from 1 October 2021.
Business Taxation – 2021/22
- Extended loss carry back – the trading loss carry-back rule is temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses. Relief of up to £2 million of losses in each of 2020-21 and 2021-22 could be available.
- Super Deduction – From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive. Investing companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.
- Corporation Tax – The rate of Corporation Tax remains at 19% until 2023. However, the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19% and there will be relief for businesses with profits under £250,000 so that they pay less than the main rate. In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 so that it remains an effective deterrent against diverting profits out of the UK.
- IR35 – Off-payroll working rules that apply to the public sector will apply to the private sector large and medium-sized businesses from April 2021.
- Tax sites in Freeports – The government will legislate for powers to create ‘tax sites’ in Freeports in Great Britain. Businesses in these tax sites will be able to benefit from a number of tax reliefs.
Ellacotts Top Ten Tax Tips
- Despite the rumours, capital gains tax rates remain the same and Business Asset Disposal Relief (“BADR”)(also known as Entrepreneurs’ Relief) remains and continues to reduce the rate to 10% for qualifying gains up to £1 million on trading asset disposals. Business owners should check carefully whether they qualify for BADR.
- Stamp Duty Land Tax (“SDLT”) holiday extended further. Consider accelerating that property purchase whilst rates remain low.
- Loss relief extended to three years increasing the opportunity to accelerate a tax refund. We recommend businesses revisit their tax computations to maximise loss relief early.
- Super deduction of 130% first year allowance on qualifying plant and machinery. Tax payback for capital-intensive businesses (e.g. farmers, hauliers & manufacturers). Timing of planned capital expenditure is crucial to ensure tax relief falls into the best tax year.
- The company Corporation Tax rate is remaining at 19% until 2023 and will remain at 19% for taxable profits of £50,000 or less. Some partnerships and sole traders could consider incorporating into a limited company to benefit from lower tax rates. However, beware of the new off payroll working rules that apply to the public sector!
- For owner-managed companies with profits in excess of £50,000, the dividend route may no longer be the most tax efficient route to extract profits from your company. Owner-managed companies should recalculate their remuneration strategy.
- With a personal allowance of £12,570 and the basic rate band of £37,700 the 40% tax rate applies to chargeable annual income exceeding £50,270. Family businesses should therefore consider how each member withdraws profits from the business to maximise the use of the tax allowances and lower rate bands.
- A 60% Income Tax rate applies to those whose income falls between £100,000 and £125,140 in 2020/21. Anyone who believes their personal income may exceed £100,000 per annum should consider whether they can claim tax relief (e.g. pension payments) or share income with other members of the family. We can advise you about your pension planning.
- The annual limit for individual savings accounts (ISAs) remains at £20,000. ISAs are very tax-efficient and make it easier to make investments that save Income Tax. Please ask for advice on this if relevant.
- The Inheritance Tax nil rate bands remain the same. Nil rate bands of £325,000 to £500,000 (for family homes) per individual (£1 million per couple) until 2026. This encourages longer-term planning to start at an earlier age and the use of family trusts or companies to protect assets for younger beneficiaries. So what’s your family succession strategy?