Budget 2021: Key Points for the Care Sector

 

Despite the speculation around tax rises, most did not materialise in the Budget 2021 announced yesterday (save for an increase to the rate of corporation tax from April 2023 and stealth taxes in the form of a freeze to tax rates/bands). We have summarised below the main points coming out of the Budget 2021 relevant to the Care Sector:

Summary

• Budget 2021 was relatively light on (tax) policy announcements – though there is an increase to the main rate of corporation tax from April 2023 and a freezing of most of the tax rates/bands until tax year 25/26 (together expected to raise a whopping £65 billion to 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 business rates; and an extension to the 5% rate of VAT for certain hospitality and tourism businesses). Given these have been widely trailed, I do not deal with these further below.

• 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.

Rates/Bands/Etc.

• The Chancellor repeated his manifesto commitment not to increase rates of income tax, National Insurance Contributions (“NICs”) and VAT

• 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 tax year 25/26 (and likewise for the NICs Upper Earning Limit and Upper Profits Limit). Similarly, the Capital Gains Tax (“CGT”) annual exempt amount, the pensions lifetime allowance and Inheritance Tax (“IHT”) nil rate bands will 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 tax year 25/26).

• There will be no increases to rates of CGT for now (though most commentators are now predicting one in the future).

• Corporation Tax rates will go up to 25% (but not until April 2023) with a small profits rate (of 19%) for businesses with <£50k of annual profits (and 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.

Corporate

• Loss carry back. 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).

• Entrepreneurs’ Relief/Business Asset Disposal Relief. No changes were announced.

• Technical tweaks 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

Property/Infrastructure

• Stamp Duty Land Tax (“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.

• Super-deduction on capital expenditure. Between 1 April 2021 and 31 March 2023, 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.

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 (this seems like a tit for tat measure as the UK/EU have not agreed to the reverse).

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

If you would like advice on any particular aspect of the above, please contact the Care team to discuss how we can help you.