The Frozen Budget
The Chancellor set out his road map for the rebalancing of the books following the current pandemic and he was very keen to stress he was being honest with the UK population. He has kept to his manifesto promise of not raising the rates of income tax, national insurance or VAT but has as widely predicted frozen almost all tax bands from their April 2021 levels. This freeze will last until April 2026 and the income tax freeze alone will raise nearly £20billion in that period.
Details of other key tax measures are below.
Extension to SDLT holiday
The SDLT holiday reduces the SDLT on bands up to £500,000 to 0%. It is available to anyone purchasing residential property for any price, though companies and others (such as second home purchasers) will still pay the 3% surcharge below £500,000 and overseas purchasers will still pay the 2% surcharge below £500,000 from April 2021.
The SDLT holiday has been extended from 31 March 2021 to 30 June 2021, a three month extension. It will then be tapered off through a reduction in the nil rate band to £250,000 until 30 September 2021 followed by a reversion to pre-holiday levels (a £125,000 nil rate band) from 1 October 2021.
By way of example, anyone (first time buyers, companies, investors etc.) purchasing a residential property before 30 June 2021 for more than £500,000 will pay £15,000 less SDLT than they will pay from October (assuming no other SDLT reliefs apply to their purchase to reduce the liability).
Corporation tax rates
Corporation tax rates are set to increase for larger companies from 1 April 2023. For companies with profits at or below £50,000 per year the rate will remain at 19% unless that company is a close investment holding company – broadly a non-trading company that does not rent property to unconnected parties.
For those with profits above £250,000 per year (and any close investment holding company) the rate of corporation tax will increase to 25%. For companies with profits between £50,000 and £250,000 the rate of corporation tax will be tapered.
The “super-deduction”
An enhanced tax deduction for expenditure on qualifying plant and machinery will apply from 1 April 2021 until the end of March 2023. At present capital allowances allow an annual deduction of either 18% of expenditure (for “main pool” items) or 6% (for “special rate pool” items). The new “super-deduction” will replace most expenditure qualifying for the 18% rate with a one-off 130% rate in the first year of expenditure and most expenditure qualifying for the 6% rate with a one-off 50% rate in the first year of expenditure. It therefore accelerates and (in respect of main pool items) increases the tax relief available. The new rate will not apply to contracts entered into before 3 March 2021, even if payments are made after that date.
Changes to loss relief
Corporation tax or income tax payers (therefore including companies, partnerships, LLPs and sole traders) will be able to extend the period they can carry back losses for accounting periods ending between 1 April 2020 and 31 March 2022 (for companies) or tax years 2020/21 and 2021/22 (for individuals). At present the carry back is broadly 12 months; it is being extended to three years. There is a £2m cap on the carry back in each of the two years the enhanced relief is active (e.g. 2020/21 and 2021/22 for individuals).
VAT & the hospitality sector
A 5% reduced rate of VAT already applies to certain supplies that are made by businesses that provide hospitality, hotel or holiday accommodation. The government has now announced that the 5% temporary reduced rate will be extended until 30 September 2021. A follow-on reduced rate of 12.5% will then be introduced which will end on 31 March 2022. The scope of this rate and what it applies to will remain unchanged.
Freeports
The Chancellor has announced plans to set up eight freeports in England. Freeports are special trade zones that operate under a preferential tax regime thereby making it easier and cheaper to do business. Freeports are usually located around shipping ports, or airports. Goods that arrive into freeports from abroad are not subject to the tax charges, called tariffs, that are normally paid to the government. These taxes are only paid if the goods leave the freeport and are moved elsewhere in the UK. Otherwise, these good can be sent overseas without the charges being paid. These freeports will also contain “tax sites” which will be designated areas within which businesses will be able to benefit from a number of temporary tax breaks, mostly lasting five years.
- An enhanced 10% rate of Structural and Buildings Allowance for constructing or renovating non-residential structures and buildings which will mean that businesses can claim a tax deduction for the cost of their investments over ten years; elsewhere it takes roughly three times as long.
- An enhanced capital allowance rate of 100% for companies investing in plant and machinery. This will allow business to reduce their taxable profits by the full cost of the qualifying investment in the year it is made.
- Full relief from Stamp Duty Land Tax on the purchase of land or property which are purchased and used for a qualifying commercial purpose.
- Full Business Rates relief.
- From April 2022 it is intended that employers should be able to claim relief from paying the employer’s NIC in respect of eligible employees. This relief should be available until at least April 2026 with the intention to extend for up to a further five years to April 2031, subject to a review of the relief.
CGT / the Wealth Tax
Notwithstanding the misreporting in some parts of the press, the Office of Tax Simplification did not outright recommend the raising of the rates of CGT. The Chancellor made no mention of any change or indeed the wealth tax and we believe he must accept that raising or introducing either of these will actually result in a lower tax take (indeed the Treasury has been saying this for years with respect to CGT). The headline rate of CGT therefore remains at 20%; entrepreneur’s relief can reduce this to 10% but gains on residential premises and some hedge fund type gains are taxed at 28%.
Accidental impact of COVID
There have been a series of unintended tax consequences because of COVID which the Chancellor is seeking to address (which is welcome news).
Huge numbers of UK business benefited from receipt of furlough money and / or relief from business rates. For many of these, trading conditions were not as bad as initially feared and these businesses felt it was the right thing to do to hand this money back. The Treasury has announced that if receipt of these monies (in whatever form) was taxable, handing it back will be tax deductible making it tax neutral. A sensible approach; it would have been hard to imagine a tax inspector doing anything other than allowing tax neutrality but good to see it on the statute books and with retrospective effect.
Optionholders will not lose their EMI advantages just because they have had their hours reduced or were on furlough.
Many employees who ‘bought’ their bicycle through the bike to work scheme will have struggled to use this to cycle to work when they were working from home. So long as they were provided with the bicycle before 21 December 2020 they do not need to worry about using it for qualifying journeys (to work) until 6 April 2022.
With most of us working from home, if our employers reimbursed expenses to cover the cost of relevant home-office equipment rather than purchased direct by the employer, it may have been a shock to find this was taxable as a benefit. A specific exemption was introduced to cover this reimbursement which has been extended to 5 April 2022. Similarly the Treasury has extended the relief where an employee is provided with, or reimbursed for the cost of, a relevant coronavirus antigen test by their employer.
COVID also pushed back the introduction dates for the VAT reverse charge in the construction industry which started two days ago and the extension of the IR35 (personal service company) rules to the private sector. Notwithstanding HMRC’s recent loss record at the Upper Tier Tax Tribunal (Referees and TV Presenters) no real changes were announced and this will come into force in just 34 days’ time.
Consultations
A whole range of tax consultations will come out in a few weeks but of those announced today, two caught our eye relating to EMI and R&D. The EMI consultation gives a very clear direction that the Treasury wishes to extend the number of companies which can offer the tax advantageous EMI share options (an extension we strongly encourage). Taking all things holistically means the overall tax rate on EMI options from 2023 will be minus 15% (i.e. a pleasant refund).
According to Treasury figures households and businesses alike have been hoarding cash wherever possible over the last year; in addition to the corporation tax super deduction we mention above, the Treasury is consulting on how to further encourage spending by business on research and development.
