4th March 2021

Continuing support now, but tax rises to pay for this later

In a typically assured performance, Chancellor Rishi Sunak presented his second Budget on Wednesday 3 March 2021.

With the various impacts of Coronavirus uppermost in everyone’s minds, much of his speech was devoted to detailing various measures to continue support for individuals and businesses through the current lockdown, then to encourage and assist the subsequent recovery.

He also talked about the immense impact of all this on the public finances, both on the deficit in the current 2020/21 and following 2021/22 financial years, and on the accumulated national debt, which is expected to peak at around 110% of GDP in 2025. The Chancellor then announced a number of measures to start to address this, principally freezing many tax allowances for several years and a deferred increase in corporation tax. Whether this will be sufficient remains to be seen (more tax rises may well be required later – while no changes to CGT rates were announced, last year the Chancellor commissioned a report by the Office for Tax Simplification on Capital Gains Tax, which includes how this interacts with Inheritance Tax).

As usual, as well as changes announced yesterday, our summary includes measures previously announced, but only coming into effect from April 2021 or later. These include:

Personal Taxes

  • the personal allowance and basic rate band for Income Tax will both increase slightly for 2021/22 and then be frozen until 2025/26.

Business Tax

  • Corporation Tax (currently 19%) will increase to 25% for companies with profits over £250,000 (remaining at 19% Small Profits Rate for profits up to £50,000, with tapering between);
  • a temporary increase in the carry-back period for up to £2million of trading losses from 1 year to 3 years;
  • a new ‘super-deduction’ of 130% for companies investing in new plant and machinery between 1 April 2021 and 31 March 2023;
  • a number of Freeports were announced and the related incentives;
  • extension of the temporary 5% reduced rate of VAT for the hospitality sector.

Capital Taxes

  • Capital Gains Tax annual exemption and Inheritance Tax nil-rate band both frozen until April 2026;
  • extension of the period for the current temporary increase in the Stamp Duty Land Tax nil rate band for residential property in England and Wales (with some tapering).

Other measures

  • a new Recovery Loan Scheme (to replace existing loan schemes coming to an end);
  • a new mortgage guarantee scheme;
  • an extension to the Job Retention Scheme;
  • a Self-Employment Income Support Scheme fourth and fifth grant;
  • an extension to the business rates holiday in England.

Previously announced tax measures about to come into effect include:

  • a cap on the amount of R&D tax credit paid to a loss-making small or medium-sized enterprise;
  • new rules apply to off-payroll working payments made for services provided on or after 6 April 2021.

A full summary of the Budget 2021 is now available via the link below. We hope the summary provides a valuable guide to the significant announcements.

▶ Download our Budget 2021 Summary (PDF 1.78Mb)

If you have any questions regarding the information covered in this summary, or would like advice on a particular area, please get in touch with either your usual contact or any of the UNW Tax partners. Contact details can be found on the final page of this summary PDF.

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