The Chancellor, Rishi Sunak delivered his Budget for the 2021/22 tax year on Wednesday 3 March 2020.
We have put together a summary of all the things you need to know on how his changes will impact the agriculture industry and rural community.
Personal Taxation 2021/2022
Your individual 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)
The primary Threshold and Lower Earnings Limit remain at £9,568 and the Secondary Threshold remains at £8,840. Meaning you can earn up to this amount without paying National Insurance.
Capital Gains Tax (CGT)
Everyone has an annual exemption of £12,300 for Capital Gains Tax and this will remain fozen at this level until 2026.
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 (IHT)
Inheritance Tax Nil Rate Bands have been frozen and remain the same until 2026.
Stamp Duty Land Tax (SDLT)
The Government announced a temporary cut to Stamp Duty Land Tax last year. The 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.
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.
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
Off-payroll working rules that apply to the public sector will apply to the private sector large and medium-sized businesses from April 2021.
Top Ten Tax Tips for Farmers and Rural Businesses
So, what do these changes mean for the farming community? We have put together a list of the top ten tax tips for you to consider.
- 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 bought by companies. 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 Corporation Tax rate remains 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. There are other factors to consider when considering incorporation, notably whether or not profits would be retained in the company, or withdrawn by the shareholders or directors. We would be pleased to discuss incorporation with you, and regularly review the merits of a corporate structure for our existing clients.
- 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?