Amy Healey, Senior Partner at Tonbridge-based accountancy firm Lindeyer Francis Ferguson, reviews the highlights and lowlights from the Chancellor’s budget
Chancellor Rishi Sunak delivered a straightforward and serious budget today, thumping the despatch box audibly as he went. Here are our first thoughts on the budget.
Sunak outlined the biggest economic shock since the last war, costed at £407 bn. With GDP down by 10% we are borrowing at record and unsustainable levels.
He divided his task into three:
- Continuing to do ‘whatever it takes’ to support business this year;
- As recovery gets under way, ‘fixing the finances’;
- Thereafter, ‘building the future economy’.
Measures to support business are dealt with in more detail below, including a further extension of the ‘furlough’ scheme; more grants for the self-employed; more payments for apprentices; restart grants for the most hard-hit business sectors; an extension of the business rates holiday and a discounted VAT rate for those businesses; and an extension of the reduced stamp duty rules. As anticipated, there is a new ‘mortgage guarantee scheme’ for first time buyers.
Fix the finances
There are just two main measures under the heading ‘fixing the finances’:
- Allowing the personal tax thresholds to rise in line with inflation as planned for 2021-22, but then freezing them until 2026
- Increasing the rate of Corporation Tax from 19% to 25% from 1 April 2023. But profits below £50,000 will still be taxed at 19%, and there will be tapering up to a threshold of £250,000
Businesses were given some presents in exchange: the ability (for a while) to carry losses back over a longer period; and a ‘super-deduction’ to boost Capital Allowances to encourage investment.
Then we all got some presents, with duties frozen on booze and fuel.
The Chancellor is investing in ‘green growth’ with a UK infrastructure bank to be based in Leeds and offshore wind investments focussing on Teesside and Humberside. There is to be an HM Treasury ‘economic campus’ in Darlington. There will also be grants for management and digital skills training for businesses. There will be more grants for local communities so that they can take over theatres and pubs that might otherwise close.
Every budget needs a nice goody at the end, and Sunak built up to a small climax, with a great measure to rebuild the economy about to be announced. Was it re-joining the EU? In your dreams! It turned out to be Freeports, with lighter planning regulations and lower taxes. There will be eight of them scattered round the UK. Our nearest freeport will be ‘Thames’. We think that’s a ‘watch this space’.
The leader of the opposition always has to respond on these occasions without a lot of time for preparation – and Sir Keir Starmer did well today. His little joke about finally confronting the real decision maker across the House might have gone down rather better in a house not rendered sparse by social distancing. Having got that out of his system, he made some effective points, and perhaps missed others.
He thought the budget (quite a long speech at 50 minutes) papered over the cracks rather than rebuilt the foundation. For instance, we heard nothing about a long-term plan to fix social care. He criticised Sunak – of all people! – for a lack of ambition. He noted that Council Taxes are still generally going up, even if other taxes are not doing so. He thought there were ‘not many silver linings’.
Starmer did not pick them up, but there were a few other things that the Chancellor did not address.
- Is there to be any structural reform of business rates, or is this too expensive even to think about?
- What about the consequences of Brexit?
- Is all the economic damage down to the coronavirus or is some of it self-inflicted?
We suspect that small businesses exporting to Europe have been hit disproportionately. It may be too early to address Brexit clearly, but this has to become a major pre-occupation once the pandemic recovery is assured.
No-one likes their own tax burden to go up – so this budget could have been a lot worse. It was an honest budget and, in stressing that this was so, perhaps the Chancellor had an eye to his future prospects. It was delivered at a time of continuing uncertainty, but it will tide us over the next phase of the economic crisis.
Tax rates and thresholds
Despite a lot of pre-Budget speculation, nothing was announced on the capital gains tax rates nor was there any change to, or removal of, Business Asset Disposal Relief.
The Chancellor’s main idea is that higher earners should pay more to fix the economy. Measures like freezing of the personal allowance and basic rate band, at £12,570 and £50,270 respectively from April 2022, will affect many people.
Other rates and allowances which were frozen (resulting in real-terms tax increases which many have described as “stealth tax”) were the inheritance tax nil band and residence nil band, the pensions lifetime allowance, the capital gains tax annual exemption and the VAT registration threshold.
Coronavirus support for business
With the pandemic ongoing, and the proposed way out of lockdown slower than many had hoped despite excellent progress on the vaccination programme, coronavirus had to be front and centre of today’s announcements.
For the employed, an extension of the Coronavirus Job Retention Scheme (or furlough scheme) has been announced, to 30 September 2021. This is well beyond 21 June, which is the earliest that all restrictions will be removed. This helps support business in getting back to normal, which will not happen overnight. After the end of September, we will be into ‘flu season again, so we receive news of this latest end date with some reservation.
The government intends to taper away support, as they did over summer 2020. Furloughed employees will still receive 80% of their wages (capped at £2,500) but the grant claims will reduce to 70% in July and 60% in August and September.
In further support for jobs, an extra £126m will be invested in the traineeship scheme for ages 16-24. Payments for new apprentices will also increase to £3,000 per new hire from 1 April 2021.
Grants for the self-employed will continue, with the fourth grant for the period February to April paid at a rate of 80% of profits up to a maximum of £7,500. The fifth and final grant, for May to September, will only be at 80% (capped at £7,500) where profits have fallen by 30% or more; otherwise the payment rate is slashed to 30% (capped at £2,850). The final grant may be claimed from late July and we await further details in due course.
There’s good news for those newly self-employed last year; they were previously excluded from support but are now potentially eligible for the grants based on their tax return data for 2019/20. The filing of a 2019/20 return is an eligibility requirement for the fourth and fifth grants.
The temporary reduced rate of 5% for the tourism and hospitality sector will be extended until 30 September 2021, and a 12.5% rate will then apply until 31 March 2022, following which the 20% standard rate is reinstated.
A new recovery loan scheme was announced, available from 6 April 2021. Any business can apply for loans of between £25k to £10m, with an 80% government guarantee.
High street business may be eligible for a new restart grant scheme, designed to help with the costs of re-opening after lockdown – these will be distributed by Local Authorities. These will be worth up to £6,000 per premises for non-essential retail and up to £18,000 per premises for hospitality, leisure and personal care.
The business rates holiday for eligible businesses will continue to the end of June, and rates will then be discounted by two-thirds for the remaining nine months of the financial year.
Both unincorporated business and companies which make trading losses in 20/21 and 21/22 will be able to carry the losses back for up to three years (up to £2m).
You can check what coronavirus support your business may be eligible. Check on the Government website.
Fraud and error
The government is investing in a new Taskforce comprising over a thousand HMRC staff to tackle fraud and error within the coronavirus support packages, including the furlough and self-employed schemes. Over time we expect to see enquiries being opened on a risk-based approach.
Stamp Duty Land Tax (SDLT)
The temporary increase of the nil band to £500,000 will continue until 30 June 2021. The nil band will then reduce to £250,000, before returning to its normal level of £125,000 on 1 October 2021.
Support for the arts sector
The Culture Recovery Fund has provided essential support for many arts organisations; it is welcome news that a further £300m will be injected, and a further £90m for museums and cultural bodies to see them through to re-opening.
Remember taper relief? Have you been missing it? It’s back!
Companies will be playing the main role in repairing the battered public purse. From April 2023, the main rate of Corporation tax increases from 19% to 25%. The 19% rate will remain for the smallest companies, with profits below £50,000, and there will be a return to the days of marginal rates of tax for companies with profits between £50,000 and £250,000. The effective marginal tax rate for the first £200,000 of profits in excess of £50,000 will be 26.5%.
Starmer quoted to good effect some of the many snippets that the Chancellor has fed to newspapers over the past year, including one or two that suggested that taxes might rise now and fall before an election. Does he have a point? Given that 25% is a somewhat higher rate of Corporation Tax than many had been expecting, what are the odds on that rate dropping down to 23% in 2023? We’re not gamblers but, if it does happen, please remember that this is where you first heard about it.
From 1 April 2021 to 31 March 2023, companies investing in qualifying plant and machinery will benefit from a 130% capital allowances “super deduction”. This means expenditure of £100 attracts tax relief of £24.70 instead of £19. The rate will be 50% for special rate assets.
National Living Wage
This will increase to £8.91 per hour from April 2021.
Making Tax Digital (MTD)
Many taxpayers will already be familiar with MTD for VAT, which has been going relatively painlessly for a while now. However, HMRC have not lost sight of their ambition to extend real-time reporting to income tax and, eventually, corporation tax.
Last summer, the government issued its latest roadmap which included the following targets:
- April 2022 – compulsory MTD for VAT for all VAT registered business (currently, voluntarily registered businesses are excluded)
- April 2023 – MTD for income tax for unincorporated business and landlords with total gross income above £10,000 – quarterly summary of income and expenditure to be reported digitally
- April 2026 – MTD for corporation tax will be implemented (there is the opportunity to join a pilot scheme from April 2024 for those who are so inclined).
Complying with MTD means keeping your records in compatible software. We expect at this stage that spreadsheets will be allowed, with a suitable bridging software. However, affected taxpayers may like to start considering whether now is a good time to move to a cloud bookkeeping system – we recommend Xero and we can help with all aspects of the implementation.
HMRC says that more frequent reporting of income and expenditure will enable them to provide regular tax estimates. The cynics among us will be forgiven for expecting this to naturally progress into more frequent payment of tax – but apparently this is not on the radar … yet.
Over the next few issues Kent Bylines will be looking at some of the issues raised by the Chancellor’s Budget Statement and at the background to some aspects of these.
This summary of today’s Budget has been prepared by Lindeyer Francis Ferguson from the Chancellor’s speech to Parliament and from press releases from HMRC.
It is provided for information purposes and represents a summary of the main points. No action should be taken on the basis of the information contained in this article without taking advice in relation to your specific circumstances. Lindeyer Francis Ferguson Limited cannot accept liability for loss occasioned to any person acting, or refraining from acting, solely as a result of the information in this article.