On Wednesday 3rd March 2021 Chancellor Rishi Sunak delivered the first of what may be two Budgets and financial reviews in 2021 amidst the continuing health and financial crises.
With his Government’s intention to ‘continue doing what it takes to help’ he confirmed the already announced welcome news that the furlough scheme – which pays 80% of eligible employees’ wages - will be extended until the end of September. Employers will be expected to pitch in with contributions from July.
Help for the self-employed will also continue with a single instalment for the 3 months to April 2021 and a fifth instalment covering May to September. More eligible workers are likely to be included based on the income shown on their 2019/20 Tax Return.
The reduced VAT rate of 5% for the hospitality and tourism industry will continue until the end of September 2021 when it will rise to 12.5% until reverting back to 20% only in April 2022.
Good news too for house buyers with the intention to extend the £500,000 Stamp Duty nil rate band until 30 June 2021 then to reduce it only to £250,000 until the end of September before its return to £125,000 thereafter.
Part of the Chancellor’s explanation as to how he and the Government planned on ‘fixing the public finances’ included announcements about immediate tax changes. Here’s a summary of those which could affect contractors:
- The personal tax allowance rises to £12,570 for the next tax year but will then be frozen until April 2026
- The higher rate tax threshold rises to £50,270 for the next tax year but again will be frozen until April 2026
- Limited company contractors may be interested to hear that the VAT threshold will remain at £85,000 until 2024
- The anticipated change in Corporation Tax rates has come to pass but its impact will be delayed and mitigated for many companies – it rises from 19% to 25% from April 2023. However, even then a small companies rate of 19% will apply to profits under £50,000 with a taper in place ensuring that the highest, 25% rate will only be payable on profits over £250,000.
- Business losses can be carried back for up to 3 years instead of the current 1 year. This applies to both companies and unincorporated businesses.
Many taxpayers were probably relieved to hear that the Chancellor was not going to change Inheritance Tax or tinker with Capital Gains Tax. Neither does he plan to raise alcohol or fuel duty levels.
The third arm of the Chancellor’s Budget for Recovery, his ‘building the future economy’ included the incentive for business of a ‘Superdeduction’ form of tax allowance enabling a business to reduce its taxable profits by 130% of its investment.
He also announced that SMEs will be able to access management and digital training supported by Government funding together with help for investment grants of up to £5,000 to improve technological efficiency.
At the centre of the Government’s plans to rebuild the economy were the 8 Freeports around England. These new economic zones, which offer tax advantages and customs reliefs to businesses will, according to the Chancellor provide ‘an unprecedented economic boost across the UK’.
Taking the Budget as a whole, many commentators view it as being more focussed on delaying the pain than risking more damage by attempting to recoup the huge public finance outflow caused by the COVID-19 pandemic. In common with all Budgets though, it will depend upon your individual perspective.
To read our overall reaction to the budget visit our Budget reaction article here.
