Your 2021 Budget Summary

On Wednesday (March 3^rd) the Chancellor, Rishi Sunak, delivered his 2021 Budget to the House of Commons. Ten days after the Prime Minister unveiled the country’s road map out of lockdown, Mr Sunak outlined his plans for jobs, businesses, taxation, and the UK’s economic recovery.

The Chancellor delivered his Budget – billed as the most significant in a generation – against the backdrop of a global pandemic, rising unemployment, uncertainty surrounding Brexit, and the biggest national debt in over half a century. We’ve taken a look at the 2021 Budget in more detail. Here’s a summary of what’s changing and how it could affect you.

Furlough Scheme Extended

As anticipated, the Government’s furlough scheme, or Job Retention Scheme (JRS), has been extended until the end of September 2021.

The scheme, which has now been running for 12 months, offers those eligible a cash grant worth up to 80% of their salary for hours not worked (capped at £2,500 per month). That cash grant’s paid by the government but employers are still responsible for paying Employer’s Pension and National Insurance contributions.

From July 2021, employers are also expected to contribute 10% of each employees’ salary. This increases to 20% in August and September. If you wish, you can also top-up employee wages from 80% to up to 100%, but you’re not legally bound to do so. Any employer with a UK bank account and UK PAYE schemes can make a claim.

If you’re a salaried Limited Company Director, or a salaried individual who’s a Director of your own PSC, you are eligible for furlough and therefore support through the JRS. Please note though, the 80% derives from your salary – it DOES NOT include any dividends you draw.

Business Rates

The 100% business rates holiday – which has been in place since last year – will be extended until June 2021. Thereafter, for the remaining nine months of the financial year, business rates will get discounted by up to 66.6%. This is up to a value of £2m for closed businesses. The cap will be lower for those businesses who’ve been able to remain open.

And, as we predicted in our Budget forecast last month, the 15% VAT reduction (to 5% for the tourism and hospitality sectors) will continue for six months until the end of September 2021. This will be followed by a brand new interim rate of 12.5% for the six months to March. The standard, 20% rate of VAT will therefore not return until April 2022 at the earliest. This is welcome for news for many businesses who, due to closures and a reduction in trade, have not have had too many opportunities to make use of the lower rates. Furthermore, the VAT registration threshold will remain at £85,000 until 2024.

Other Business Support

As initiatives such as the Bounce Back Loans scheme come to an end, a new ‘Recovery Loans Scheme’ is to be introduced from April. It ensures that businesses of any size can continue to access loans and other kinds of finance – from £25,000 to £10m – up to the end of 2021. If eligible, you’re entitled to use the money for any ‘legitimate business purpose’. What’s more, the government will be guaranteeing 80% of each loan. You can find out more about the new Recovery Loan Scheme, here.

In a boost to those businesses forced to close as a result of Coronavirus restrictions, ‘Restart Grants’ will be made available to businesses as they reopen later in the year. £6,000 per premises will go to non-essential retail businesses. Meanwhile, those in leisure and hospitality will get up to £18,000.

Elsewhere, there is a ‘doubling of apprenticeship incentive payments’ – to £3,000 – to encourage businesses to take on new apprentices. There’s also a new £520m ‘Help to Grow’ scheme to help small businesses boost their productivity.

Support for the Self-Employed

Further help for the self-employed was also announced. The fourth Self-Employed Income Support Scheme (SEISS) grant – available from February to April – is worth up to 80% of trading profits, averaged over three months (up to £7,500 in total). A new, fifth grant was also unveiled, covering the period between May and September 2021.

Claims can be made from next month for the fourth grant, with claims for the fifth SEISS grant opening in July. Crucially, those who completed tax returns for the 2019-20 financial year will qualify for these new payments, provided they filed a return by midnight on March 2^nd. This means that 600,000 more self-employed people – a lot of whom lost their jobs during the pandemic – will become eligible for government help. Previous claimants will also be able to apply.

To qualify, more than half of a claimant’s income needs to come from self-employment. Unfortunately though, self-employed people who pay themselves a combination of salary and dividends through their own limited company are still not covered by the scheme. Read more, here.

The government has also extended delays for tax payments through the self-assessment system. Payment plans can be set up. So, you’ll have more time to pay your full tax bill up to January next year.

Tax Freezes

One of the big surprises of this year’s Budget is the freezing of Capital Gains Tax, amongst a host of other tax thresholds. In their manifesto, the Conservatives pledged not to increase Income Tax, National Insurance, or VAT rates – a promise they have kept in the 2021 Budget. So, it was widely assumed that Capital Gains Tax could be about to rise as a result. Not so, though, as the Chancellor announced five-year threshold freezes on:

• Capital Gains Tax
• Inheritance Tax
• Pensions Lifetime Allowance

As above, the VAT registration threshold will remain at £85,000 until 2024. As for personal tax thresholds, while Income Tax rates remain the same, the tax-free allowance will increase this year:

• Lower rate: £12,570
• Higher rate: £50,270

They will then freeze until 2026 in line with those taxes listed above.

Corporation Tax Rises

Corporation Tax – the tax on company profits – will increase from 19% to 25% for the top 10% of businesses from April 2023. However, owing to the Chancellor’s ‘Small Profits Rate’ (more below), only those businesses with profits of £250,000 or more will get taxed at 25%.

The Small Profits Rate means that firms with profits of £50,000 or less – which accounts for around 70% of UK companies – will stay on the 19% rate. This aims to ensure that small businesses and those worst affected by the government’s restrictions will not suffer further as a result of the tax hike.

The rate for those businesses that make between £50,000 and £250,000 will be tapered accordingly.

‘Super-Deduction’ for Companies that Invest

In the two years from April 2021, there will be a brand new, ‘130% first-year capital allowance’ that will allow certain companies to reduce their tax bill by up to 25% for every £1 they invest in new equipment. Eligible businesses will be able to claim:

• 130% super-deduction in capital allowance on qualifying plant and machinery investments
• 50% first-year allowance for qualifying special rate assets

Talking of an ‘investment-led recovery’, Mr Sunak’s aim is to encourage businesses to invest in plant and machinery assets that will increase productivity, enhance growth, and offset some of the losses that may come as a result of the increase in Corporation Tax from 2023.

Housing

Mr Sunak also revealed that the current stamp duty holiday will finish at the end of June 2021. Stamp duty is the tax that’s paid on the sale of property or land in England and Northern Ireland. It was initially planned to end this month.

From July, the starting rate of stamp duty will be £250,000 until the end of September 2021. This is down from £500,000 as it is currently. Stamp duty will then return to the previous threshold of £125,000.

What’s more, first-time buyers will have access to 95% mortgages – guaranteed by the government. So, as a first-time buyer, you can get a mortgage assured by the government with a deposit of only 5%. Many big lenders are backing the scheme.

Other 2021 Budget Announcements

• In a boost to struggling households, Mr Sunak included in his statement a six-month extension to the ‘£20-per-week top-up’ of Universal Credit.
• The National Living Wage will rise to £8.91 from next month.
• Alcohol AND fuel duty will remain frozen, despite reports that they were to increase.
• Following consultations, the Chancellor also announced an increase to the limit for contactless payments for a second year in succession. This is rising from £45 to £100.
• Eight regions in England have been selected as new UK ‘freeports’. Thanks to reduced rates, tax breaks, and favourable tariffs, these ‘special economic trading zones’ will ‘create jobs’ and ‘make it easier to do business.’
• The Chancellor also announced a further £1.65bn toward the UK’s successful vaccination rollout.
• Over £400m has been made available for museums, theatres and galleries in England. And, a further £300m for the recovery of summer sport following the easing of restrictions.
• There’ll also be £150m for local communities to help them save pubs, theatres and sports clubs in danger of closing.
• And finally, the Chancellor also announced the government’s financial backing for a joint UK & Ireland bid to host the 2030 FIFA World Cup.

2021 Budget ‘helps road to recovery’

Here’s Danbro’s Executive Chairman, Damian Broughton MBE, with his reaction to the 2021 Budget:

“This was a budget aimed at securing business stability and economic recovery. Many of the grants, schemes and loans remain in place and have been extended. But it was disappointing to note there was still no help for Company Directors remunerated mainly via dividends.”

“The proposed IR35 changes were not mentioned and so will be going ahead on 6th April 2021. How all the pay-outs will be clawed back will be dealt with another time. We are on the road out of lockdown. The road to recovery. And, many of the announcements in the 2021 Budget will certainly help.”