Chancellor Rishi Sunak announced the UK government’s budget for 2021/22. It seeks to balance fiscal responsibility with support for households, as it focuses on getting the economy back on track following its coronavirus collapse.

Although a tax rise is on the horizon for larger profitable companies, the government will continue to support businesses that find themselves in financial trouble by extending the furlough scheme and certain tax reliefs, and by temporarily increasing trading loss carry-back to three years.  In the hope of stimulating the economy and encouraging investment, a generous new super-deduction will be available on investment into qualifying plant and machinery assets and designated freeports will be created across the UK.

Business owners have for now been spared the pain of an in increase in the rate of capital gains tax and households will see an increase in the income tax personal allowance and higher rate threshold.

Here are some of the key takeaways for business and individuals.

Business

Corporation tax 

The rate of corporation tax will increase from April 2023 to 25% on profits over £250k. The rate for profits under £50k will remain at 19% and there will be taper relief for businesses with profits between the two.  The Diverted Profits Tax rate will rise to 31% from April 2023. The government considers that the combined effect of the Bank Surcharge of 8% and increased rate of corporation tax would be damaging.  It will therefore review the Bank Surcharge and set out in the autumn the changes that will be legislated for in the Finance Bill 2021-22.

Loss carry-back 

There will be a temporary extension of the trading loss carry-back rule, from the existing one year to three years. The amount of trading losses that can be carried back to the preceding year remains unlimited. 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 2021-2. The £2m cap will be subject to a group-level limit – companies that have capacity to carry back losses in excess of a de minimis of £200k will have to apportion the cap.

Capital allowances 

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.  Investing companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.

VAT

The temporary reduced rate of 5% VAT for the tourism and hospitality sector will be extended until 30 September 2021.  A transitional 12.5% rate will apply for the subsequent six months until 31 March 2022 when the standard 20% rate will apply. VAT registration and deregistration thresholds will remain at £85k for a further period of two years from 1 April 2022.

Furlough scheme

The furlough scheme has been extended until the end of September 2021. Employees will continuing to receive 80% of salary until the scheme ends.  From July employers will be required to make a 10% contribution and then a 20% contribution in August and September. Support for the self-employed will also continue until the end of September, with a fourth and fifth round of support. The scheme will be extended to those who were self employed by April last year provided they have met the extended self-assessment tax return filing deadline of midnight 2 March.

Off-payroll working

The off-payroll working legislation will apply as intended to the private sector from 6 April 2021.

Business rates

Eligible retail, hospitality and leisure properties in England will continue to benefit from 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 2/3 business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2m per business for properties that were required to be closed on 5 January 2021, or £105k per business for other eligible properties.

Freeport sites

Expected to be introduced across the UK (with eight sites confirmed in England so far), designated freeport tax sites will provide opportunity for businesses operating within them to benefit from a number tax reliefs, including an enhanced 10% allowance for construction or renovation of non-residential structures and buildings, enhanced 100% capital allowance on plant and machinery investment, full relief from business rates and SDLT, and (subject to Parliamentary approval) employer’s NICs.

Duties

Duty on fuel will be frozen, as will duty rates on beer, cider, wine and spirits will be frozen for another year in support of the hospitality industry and its suppliers.

Individuals

Income Tax/NICs

From April 2021, the income tax personal allowance will rise to £12,570 and, other than for Scotland, the income tax higher rate threshold will rise to £50,270 and both will remain at this level until April 2026. Across the UK, the NICs primary threshold/lower profits limit will increase to £9,568 and the upper earnings limit/upper profits limit to £50,270 (remaining aligned with the higher rate threshold at £50,270 until April 2026).

Capital Gains Tax

Although there are no planned increases to the rate of CGT, the CGT annual exempt amount will remain at the present level (£12,300 for individuals, personal representatives and certain trusts and £6,150 for most trusts) until April 2026.

Savings

The tax band for the 0% starting rate for savings will remain at its current level of £5,000 for 2021-22. The adult ISA, and the Junior ISAs and Child Trust Funds, annual subscription limits for 2021-22 will remain unchanged at £20,000 and £9,000 respectively.

Inheritance Tax

The inheritance tax nil-rate bands will remain at existing levels until April 2026.  The nil-rate band will continue at £325k, the residence nil-rate band will continue at £175k, and the residence nil-rate band taper will continue to start at £2m.

Pensions

The Pensions Lifetime Allowance will be maintained at its current level of £1,073,100 until April 2026.

SDLT

The Stamp Duty Land Tax £500k nil rate band will be extended to 30th June. A £250k nil rate bank will apply until the end of September, and it will return to £125k from 1 October.

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