The effect of the pandemic
The Chancellor said that the pandemic has “fundamentally altered” people’s lives. The Chancellor added that more than 700,000 people have lost their jobs, the economy shrank by almost 10% last year and borrowing is up. But the economy “will recover”, Sunak says, and that, once recovery begins, the government will begin fixing the public finances.
The economy is forecast to return to pre-pandemic levels by the middle of next year but will be 3% smaller in five years that it would have been. The OBR forecast is that the economy will grow this year by 4%, 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the last three years of the forecast.
- Furlough will continue until September. After July, businesses will have to contribute 10%, rising to 20% in August and September.
- Self-employed income support scheme will continue until September but eligibility criteria and calculations change
- Universal credit uplift of £20 a week will continue until September
- National Living Wage to rise to £8.91 from April
- SDLT (stamp duty) holiday to continue until 30 June
- New 95% mortgage guarantee scheme with a deposit of 5%
- New “re-start” grants for non-essential retail businesses and hospitality and leisure businesses
- 5% VAT rate will be extended for 6 months to 30 September followed by an interim rate of 12.5% for another 6 months, returning to the full standard rate in April 2021
- Business rates holiday extended to end of June, and then for remaining nine months, will be discounted by two thirds
No changes to rates of income tax, national insurance or VAT, but…
Personal taxes and allowances
- Freeze to personal tax allowance and HR threshold for 2021/22. BR threshold will rise to £12,570 for 2022/23 and HR threshold to £50,270. Rates will then remain the same until 2026.
- NICs – in 2021/22 NICs will rise with CPI.
- IHT threshold to be frozen until 2026
- CGT annual exemption to be frozen until 2026
- VAT registration threshold to remain at £85,000 until 2024
- Pensions lifetime allowance to be frozen at £1,073,100 until April 2026
- ISA annual level to remain at £20,000
- Savings income starting rate will remain at £5,000 for 2021/22.
This means that income tax and other personal tax rates are now set until 2026.
New main corporation tax rate to rise to 25% from April 2023 (still the lowest rate in the G7)
Small businesses with profits less than £50,000 will remain at 19% rate (Small Profits Rate), tapering up to full rate once reach £250,000 profits
Loss relief – to help otherwise viable businesses (companies and unincorporated) which have been pushed into a loss-making position, the trading loss carry back rule is extended from one to three years. There are detailed rules depending on whether the company is a member of a group or not.
For next two years, when companies invest in qualifying plant and machinery, there will be a “super-deduction” of 130% (ie first year allowance) of the cost. Long-life assets will attract a 50% first year allowance.
A new £375million “Future Fund: Breakthrough” will invest in highly innovative companies working in life sciences, quantum computing or clean tech, aiming to raise at least £20million of funding
A review of Research & Development tax reliefs to make sure the UK remains a competitive location for cutting-edge research
Alcohol and fuel duties
Previous announcements reversed and all will be frozen at current levels.
Consultations and calls for evidence
Enterprise management incentives (EMI)
Call for evidence: Alongside the Budget the government is publishing a call for evidence on whether and how more UK companies should be able to access EMI to help them recruit and retain the talent they need to scale up.
R&D tax reliefs
The government will carry out a review of R&D tax reliefs, with a consultation published alongside the Budget. This review will consider all elements of the two R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted. The government is also publishing the summary of responses of the recent consultation on the scope of qualifying expenditures for R&D tax credits across the UK. The government will consider bringing data and cloud computing costs into the scope of relief alongside a number of other policy options and priorities at the wider review.
Our initial view
We welcome a number of aspect of this Budget.
The increase in corporation tax is unwelcome, but unsurprising. At least the Chancellor has recognised small and early-stage businesses, and the main rate will only affect the largest 10% of companies in the UK. This unwelcome news is offset to some extent by the super-deduction for expenditure on plant and machinery, and the extended loss carry back provisions.
There is little immediate help to encourage entrepreneurship and innovation, but we will be submitting our response to the EMI call for evidence and the consultation on R&D.
At least there were no immediate changes to align more closely CGT and income tax rates, and Business Asset Disposal Relief remains unaffected.
In summary, it’s a case of “business as usual” for most companies, but with a cautious note of warning that there’s likely to be many further changes in the next year or two.
There was very little technical detail in the Budget papers released by the Treasury once the Chancellor finished speaking. We will have to wait for the draft Finance Bill to be published and no doubt more details will be released in the coming days and weeks. We will be analysing these as they appear and commenting on anything of importance.