The main contents of the Budget, like most ministerial announcements these days, were leaked well in advance of yesterday’s announcement by the Chancellor, Rishi Sunak. He continues with his well-publicised aim to keep to the government manifesto promises and set the UK back on track to reduce its indebtedness arising from the pandemic.
Below is a summary of the main points that we understand will impact you.
The Coronavirus Job Retention Scheme - Extended
The Furlough Scheme has been extended until 30 September 2021 and the level of grant available to employers under the scheme will remain the same until 30 June 2021.
From July 2021, the Government contribution will reduce to 70% dropping down to 60% in August 2021.
To be eligible for the grant employers must continue to pay their furloughed employees at least 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.
Income Tax Thresholds
The personal allowance will increase to £12,570 and remain frozen at this level through to the end of 2026. The basic rate tax threshold will increase to £37,700 and will also remain frozen at this level through to 2026.
Different rates and allowances apply to Scotland and can be found here
Lifetime Allowance - Pensions
The link to the consumer price index (CPI) has been removed effectively freezing the limit at £1,073,100 until the end of 2026. Much has been written in the medical press of this threshold above which your pension is taxed upon retirement. The impact of it is mitigated or extinguished by those of you with the various historical protections. Those of you with pensions values in excess of £1,073,100 as at 6 April 2016 should make enquiries as to your eligibility for Individual Protection 2016. The qualifying threshold is £1 million and it can protect the lower of the value of your pension at that date or £1.25 million.
If the link to CPI had not been removed and assuming CPI for all the intervening years at 3% then by the end of 2026 it would have had a value of £1,244,017. The lifetime allowance will therefore be £170,917 lower than it would have been had CPI not been removed. For members of the NHS Pension retiring after 2026 with a pension value equal to or greater than £1,244,017 this can equate to approximately £107 less pension in their pocket every month after tax has been paid compared to if CPI had not been removed.
Careful pension planning will still be needed particularly if both Annual Allowance and Lifetime Allowance tax charges arise. Despite this negative news, following the conclusion of the McCloud case, if you are moving back to the 1995 NHS Pension Scheme, this will for most people help to reduce their Lifetime Allowance tax as the notional value of the NHS Pension should in theory be lower but you should seek professional advice to understand your position in more detail.
Corporation tax remains at 19% from 1 April 2021 through to 31 March 2023. This is good news.
From 1 April 2023 the 19% will remain for companies with profits up to £50,000 and increase to 25% for profits over £250,000. Profits falling between the two thresholds will be tax at a marginal rate that is intended to increase the rate of tax from 19% to 25% in steps as follows:-
- First £50,000 - 19%
- Next £200,000 - 26.5%
- Over £250,000 - 25%
Many of you will have profits falling within the thresholds and as such will be subject to the marginal rate of tax.
As an example, the effective tax rate for profits of £150,000 would be 24%. This represents an increase in tax of £7,500 on profit of £150,000.
What needs to be taken into account now is associated companies. This is where one or more active companies are effectively controlled by you. These can reduce the above thresholds such that if you had four associated companies the £50,000 drops to £12,500 and the £250,000 drops to £62,500.
In addition, if you have or are considering an investment company then irrespective of the level of profits the corporation tax rate is 25%.
It may be the case that before 1 April 2023 certain company or group structures need to be reviewed to maximise your ‘take home pay’ and/or other methods are utilised such as electric cars or salaries and pension contributions become even more attractive and around this date, the timing of these expenses becomes more important.
For most, no action is required to review trading structures now and the big unknown variable is whether Income Tax will increase before then for the self-employed which will obviously affect the decision making process.
Capital Gains Tax & Inheritance Tax
There had been rumours and articles in the medical press of Business Asset Disposal Relief (Formerly known as Entrepreneurial Relief) for the winding up of companies being removed. Fortunately, there is no change and the main impact of any changes is the freezing of the Annual Exemption amount below which no capital gains tax is payable. This will remain at £12,300 until the end of 2026.
There are no changes to the rates or threshold and reliefs for inheritance tax up to and including the end of 2026.
Late Submission & Filing Penalties
For VAT and self-assessment these penalties can be harsh and disproportionate particularly for late submissions compared with other taxes. A new points based system will be imposed to penalise persistent offenders. These will start for VAT from April 2022 and self-assessment from April 2023.
Until then and in particular with submitting tax return information please ensure information is submitted as early as possible so that we can meet the submission deadlines.
Stamp Duty Land Tax
The nil rate band up to £500,000 has been extended from 31 March 2021 to 30 June 2021 and thereafter the nil rate band will drop to £250,000 until 30 September 2021. Thereafter, dropping to £125,000 again.
The additional rate of 3% is still payable on second homes.
In Scotland the Land & Buildings Transaction Tax had certain reliefs during COVID and details can be found here
Finally, the 5% VAT rate on certain goods and services for hospitality, hotels, holiday accommodation and certain attractions will remain past 31 March 2021 through to 30 September 2021 and thereafter increase to 12.5% until 31 March 2022 across all of the UK.
All the partners, associates and staff at Sandison Easson & Co would like to thank you for all your hard work during the pandemic and hopefully the success of the vaccinations will allow us once again to enjoy the company of family and friends unhindered by social distancing and protection.
Certainly, the Chancellor by keeping the VAT above at the reduced rate wants not only these businesses to have some stimulus but for us to enjoy what they have to offer and what was missed.