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Articles Tax 4th Mar 2021

Budget 2021 – Key Points

Given the speculation around tax rises (most of which, save for an increase to the rate of corporation tax from April 2023 and stealth taxes in the form of a freeze to personal tax rates/bands, did not materialise), Budget 2021 was relatively light on tax policy announcements.

The main points coming out of Budget 2021 were —

  • There is an increase to the main rate of corporation tax from April 2023 and a freezing of most of the personal tax rates/bands until the end of tax year 25/26 (together expected to raise a whopping £65 billion to the end of tax year 25/26), see further below.
  • The focus was on COVID-19 support with many of the policies announced having been heavily trailed in advance of Budget 2021 (e.g. an extension of the furlough scheme, self-employed income support scheme, and uplift to universal credits, all to September 2021; further cash grants to businesses impacted by COVID-19; an extension to the business rates holiday; and an extension to the 5% rate of VAT for certain hospitality and tourism businesses). Given these had been widely trailed, they are not dealt with further here (but we have written about some of these changes here.)
  • The Chancellor repeated his party’s manifesto commitment not to increase rates of income tax, NICs and VAT.
  • As previously announced, a raft of consultation documents will be published on 23 March 2021 (which is being described as “Tax Day”). We expect these to tell us more about future tax policy, including perhaps possible changes to capital gains tax and inheritance tax.
  • Given the Chancellor also reported that total COVID-19 support from HM Treasury was expected to be in the order of £407 billion and emphasised his commitment to set out a plan for fixing public finances, it might be reasonable to expect further tax rises in the coming years. Given the increase to the rates of corporation tax, and the commitment not to increase rates of income tax, NICs and VAT, that might indicate that capital gains tax, inheritance tax and the various duties will be required to do the “heavy lifting”. Given the make-up of this Government, a wealth tax would seem unlikely but cannot be ruled out.
  • Helpfully, this does give individuals and businesses some time to plan for the changes (e.g. to accelerate capital expenditure – which the “super-deduction”, see further below, is no doubt designed to encourage – and/or realise income and gains).

Individuals

  • The income tax personal allowance and higher rate thresholds are to go up to £12,570 and £50,270 respectively for tax year 21/22 but thereafter are to be frozen through to the end of tax year 25/26 (and likewise for the NICs Upper Earning Limit and Upper Profits Limit). Similarly, the capital gains tax annual exempt amount, the pensions lifetime allowance and IHT nil rate bands will also remain frozen throughout this period. The VAT registration threshold will be frozen (at £85k) for 2 years until 31 March 2024. The resulting so called “fiscal drag” is expected to raise significant amounts of additional tax (just maintaining the income tax personal allowance and higher rate threshold is expected to raise some £17 billion to the end of tax year 25/26).
  • No increases to individual rates of capital gains tax were announced for now though many commentators are now predicting one in the future (companies will, of course, pay corporation tax on their chargeable gains at a rate of 25% from April 2023).
  • Despite some speculation, no changes were announced to Entrepreneurs’ Relief/Business Asset Disposal Relief. Nor were there any changes to the rates of self-employed NICs or inheritance tax and most duties were frozen.

Companies

  • Corporation Tax. Corporation Tax rates will go up to 25% (but not until April 2023) with a small profits rate (of 19%) for businesses with annual profits of less than £50k (with marginal relief for profits between £50k and £250k). There is a corresponding increase to the rate of Diverted Profits Tax (and a review of the 8% additional surcharge on banks to make sure they remain competitive). This change alone is expected to raise some £45 billion from business to the end of tax year 25/26.
  • “Super-deduction” on capital expenditure. Between 1 April 2021 and 31 March 2023 (i.e. before the new 25% rate takes effect!), companies will enjoy a “super deduction” against corporation tax equal to 130% of qualifying capital expenditure on plant and machinery. Investments in assets qualifying for “special rate relief” will instead benefit from a 50% first-year allowance. Clearly, this is intended to encourage companies to bring forward capital expenditure plans.
  • Temporary extension of loss carry back rules. There will be a temporary extension of the rules on carry back of trading losses. Companies will be allowed to carry back, against corporation tax, trading losses of up to £2m (on a group basis) generated in tax years 20/21 and 21/22 (up to 3 years).
  • EMI options. There was a commitment to maintaining the EMI scheme and the Chancellor has launched a consultation looking at how the EMI scheme can be expanded (which is good news given the November 2021 Office for Tax Simplification paper raised the spectre of the abolition of EMI) as well as changes to ensure the EMI working time requirements do not cease to be met as a result of COVID-19 absences, etc.
  • The Listing Review was published. The Review’s key recommendations include:
    • an annual report delivered to Parliament by the Chancellor on the State of the City;
    • changes to listing rules, including around dual class share structures, free float requirements and special purpose acquisition vehicles (so called “SPACs”);
    • the rebranding and repositioning of the standard listing segment;
    • a fundamental review of the prospectus regime;
    • considering how technology can increase the involvement of retail investors and the efficiency of capital raising;
    • reviewing the FCA’s statutory objectives as part of the Future Regulatory Framework Review to add a duty to take into account the UK’s attractiveness as a place to do business.
  • R&D tax credits. SME payable R&D tax credits will be capped at £20k plus 3 x the company’s total PAYE and NICs liability. There will also be a consultation around R&D tax reliefs generally to make sure the UK remains a competitive location of cutting edge research (but also so that “taxpayer money is effectively targeted”).
  • SITR. There is an extension of Social Investment Tax Relief (SITR)
  • IR35. Technical tweaks will be made to the off-payroll working rules (IR35)
  • Apprenticeships. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.
  • Recovery Loan Scheme. From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes
  • OECD reporting rules for digital platforms. The Government will consult on the implementation of OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and the seller themselves.
  • DAC 6/OECD Mandatory Disclosure Rules – The Government will consult on the implementation of OECD rules on mandatory disclosure.

Property/Infrastructure

  • SDLT nil-rate band extension. There will be an extension of the SDLT nil-rate band “holiday” for residential property to 30 June 2021 (with the nil-rate band reverting first to £250k, until 30 September 2021, and then the usual £125k amount from 1 October 2021).
  • Freeports. The Budget announces the location of 8 English Freeports (East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames). Various tax breaks will apply.
  • Mortgage guarantee scheme. The Government announced the introduction of a mortgage guarantee scheme for purchasers of homes worth up to £600k with small (5%) deposits.
  • LIBOR. As announced on 12 November 2020, Finance Bill 2021 will legislate for the withdrawal of LIBOR
  • Climate Change Levy (CCL). The Government will amend the main rates of CCL for 22/23 and 23/24, implementing the rates announced at Budget 2020. The Government will also amend, for 22/23 and 23/24, the reduced rates of CCL for qualifying businesses in the Climate Change Agreements (CCA) scheme (which was also announced at Budget 2020).
  • Plastic Packaging Tax. As announced at Budget 2018 and confirmed at Budget 2020, the government will introduce a new Plastic Packaging Tax from 1 April 2022, with primary legislation introduced in Finance Bill 2021. The tax will encourage the use of recycled plastic instead of new plastic within packaging.

Cross-border payments

  • The Government will repeal the UK implementing provisions relating to the Interest and Royalties Directive (IRD) meaning payments of interest and royalties from the UK to the EU will no longer enjoy the benefit of the IRD and the taxation of such payments will be determined by the relevant double tax treaties (this seems like a tit for tat measure as the UK/EU have not agreed to the reverse – we wrote about this recently here.)

Finance Bill 2021 implementing some of these measure will be published on 11 March 2021.

If you would like to discuss any of the above, please get in touch with the Freeths tax team.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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