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Budget 2021 “To keep your balance, you must keep moving.”

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Keeping the economy moving was clearly at the forefront of Rishi Sunak’s Budget, which was far more benign than some commentators feared.  

Predictions of doubling rates of capital gains tax or the introduction of a wealth tax have, at least for now, being shelved as the Chancellor sought to relaunch the UK economy without major changes to individual taxation.

Support for employees

For many, the extension of furlough and the top-ups to universal credit will be the most important announcements today. While there is some scepticism that extending furlough until September shows the Government has little confidence in its June reopening timetable, the security for both employers and employees of another 6 months of funding will be most welcome.

Implications for tax payers

Patti Smith once said that she, “always believed in having a sense of balance and stealth” and this appears to be the mantra of the Treasury.  While the triple-lock was preserved, a 5-year freeze on the basic and higher tax thresholds means income tax will, in real terms, rise for most.  As for the announcement that the inheritance tax nil-rate band would remain frozen, it’s only the more aged practitioners who can remember a time when it was last thawed.

What does the budget mean for home buyers?

For home buyers, the extension to the SDLT holiday and the Government backed 5% deposit mortgages had already been announced but are predicted to lead to a house price surge as people look to swap summer holidays for house moves this summer.  A note of caution though in that this does not prevent non-UK resident purchasers from being subject to the 2% SDLT surplus from 1 April.

Increases in tax for business

So, it was to businesses that Rishi Sunak turned when it came to starting to recoup the eye-watering level of borrowing the Government has had to take in the last year. The headline announcement is, of course, the 6% rise in corporation tax from April 2023 to 25%.  In an effort to keep the squeeze on multi-jurisdictional organisations, diverted profits tax will also rise 6% to 31%.  

Some tax opportunities 

Despite this substantial tax increase, there were many positives for companies with the reintroduction of the small profits rate for companies with profits of less than £50,000 meaning that 70% of British companies will continue to pay corporation tax at 19%. Tapering will then apply for companies with profits of between £50,000 and £250,000 with the Treasury estimating that only 10% of companies being subject to the 25% rate in April 2023. One point to bear in mind is that this small profits rate does not apply to closely held companies meaning that family investment companies will not be able to benefit from it.

Incentives to support investment

On a more technical level, for those clients with UK companies, there are some exciting opportunities with a £2,000,000 carry back allowance over 3 years and a ‘super deduction’ for investment over the next two years.  This super deduction, which sounds like something only Holmes could come up with, when utilised correctly can allow for a 130% tax rebate on the amount invested.

Incentives to support innovation

Continuing the corporate theme, the Government is keen for the UK to become a scientific “Superpower” (the Chancellor clearly being keen on fiscal matters being “super”). So a consultation was announced into the current incentives schemes for R&D tax relief, including looking at the case for widening qualifying expenditure.  Also, steps will be taken to soften the blow of the cap that is coming in from April which will limit the cash tax credit a company can receive based on the cost of its payroll.  Where a company has an accounting year that straddles 1 April 2021, instead of restricting all spend after that date, the cap will now only bite from the next full accounting period starting after then.

The UK is open for business

The Chancellor was at pains to stress this kept the UK as the lowest corporate tax regime in the G7; a clear indication that the Government’s message remains that Britain is open for business (well, technically at the moment it isn’t but they are obviously thinking ahead). This reflects the work that our International Investment Services team has seen throughout the pandemic that companies in other jurisdictions find the UK an attractive place to set up business.

A change to the governance regime

Points mean prizes but not all prizes are good.  HMRC is revamping its penalty regime so that, a bit like drivers, you will now accumulate points for each filing deadline missed.  The more points you get the bigger the penalty although all points expire after 2 years. However, you need at least 2 points to be subject to any penalty meaning those clients missing the occasional tax return date should no longer have to contend with the £100 statutory penalty.

Einstein may have been talking about a bicycle when he considered balance but it appears the same may hold true for global economies. With no knowing when the pandemic will end nor the magnitude of its economic shockwaves, the Chancellor is keeping plenty in reserve for future budgets. 

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