Budget 2021: The key tax headlines
Santhie Goundar reports on the chancellor’s main tax announcements.
Chancellor Rishi Sunak has delivered his 2021 budget, with support scheme extensions and tax freezes – plus a headline tax rate rise.
Mr Sunak noted “the damage coronavirus has done has been acute”, with more than 700,000 job losses and the economy shrinking by 10 per cent over the past year. With OBR forecasts showing borrowing this year as a record £355 billion, he warned that “without corrective action, borrowing would continue at very high levels, leaving underlying debt rising indefinitely”.
Mr Sunak’s biggest announcement, which he “recognised might not be popular”, was the corporation tax rate rise to 25 per cent for businesses making annual profits over £250,000 from April 2023 onwards. Businesses with profits under £50,000 will continue to be taxed at 19 per cent, with a taper for those in between. The Diverted Profits Tax rate also rises to 31 per cent from April 2023.
However, Mr Sunak also announced a new capital allowance ‘super-deduction’ beginning April 2021, cutting companies’ tax bills by 125p for every pound invested in new qualifying plant and machinery – so for the next two years companies can “reduce their taxable profits by 130 per cent of the cost”.
Businesses will also be able to carry back losses of up to £2 million for three years, instead of one year – an additional tax refund of up to £760,000.
The amount of SME-payable research and development (R&D) tax credit a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance liability.
Eligible retail, hospitality and leisure properties in England will continue to qualify for 100 per cent business rates relief until 30 June 2021. This will be followed by 66 per cent relief for the period from 1 July to 31 March 2022, capped at £2 million per business for properties that were forced to close on 5 January 2021, or £105,000 per business for other eligible properties. Business rates relief repayments made by certain businesses will be deductible for corporation tax and income tax purposes.
Sunak confirmed there will be no VAT rate rises, and that the reduced rate of 5 per cent for the hospitality and tourism industries would continue until 30 September 2021, followed by a reduced rate of 12.5 per cent until next April.
From April 2022, the VAT registration threshold for businesses will stay at £85,000 for two years.
The VAT penalty regime for late-submitted returns will be points-based, and “a new approach to interest charges and repayment interest” will be introduced to align VAT late payment with other tax regimes – both for periods starting on or after 1 April 2022.
There will be no rate rise for income tax and National Insurance. Personal tax allowance thresholds for the basic rate and higher rate will be frozen at £12,570 and £50,270 respectively till April 2026.
The inheritance tax thresholds, the pensions lifetime allowance, and annual exempt amount in capital gains tax will stay the same till April 2026.
Late income tax self-assessment returns will also be subjected to a new points-based regime, and “a new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is” for taxpayers with business or property income over £10,000 per year, from accounting periods beginning on or after 6 April 2023.
The stamp duty land tax holiday was extended until 30 June, and the nil rate band will drop from £500,000 to £250,000 till 30 September 2020.
Fuel and alcohol duties were frozen for a year, and eight new freeports (special economic zones with more generous tax regimes) were announced.
The furlough and self-employed income support schemes were extended, with the newly self-employed able to access the upcoming fourth and fifth SEISS grants “providing they filed a tax return by midnight last night”. Other tailored funding and loan schemes will also be available for businesses.