Yesterday, Chancellor Rishi Sunak presented his Budget, which as expected focussed a lot on continuing short-term measures to help support both individuals and businesses through the next few months, but also included some longer-term plans in the government’s attempt to try and reduce the national borrowing.
Here is a summary of some of the key budget announcements:
As had already been announced in the last few days, the furlough scheme has been extended until September 2021. Under the scheme employees will continue to receive 80% of their wages for the hours they cannot work, but employers are being asked to contribute 10% in July and 20% in August and September as the scheme gets phased out.
Self-Employment Income Support Scheme:
This scheme which was designed to help the self-employed has been extended. From next month, a fourth grant can be claimed to cover February to April 2021, worth 80% of average trading profits up to £7,500.
Further good news is that this is now available to more people, as the newly self-employed, who previously did not qualify, can now claim provided a tax return for 2019/20 has been filed by 2 March 2021. This should benefit an additional 600,000 people.
A fifth grant will then follow later in the year, covering May to July 2021 and will be based on a turnover test to award a proportional sum.
The good news is that there is no increase in the rates of income tax or national insurance for the year.
What was announced is that the income tax thresholds will be increasing in April 2021, but will then be frozen for five years.
Currently you start to pay 20% income tax when you earn £12,500 a year. This will increase to £12,570 in April. Once you earn over £50,000 you pay the higher 40% tax. This will increase to £50,270.
The freeze in the tax thresholds will mean that many people receiving a pay rise could find themselves in a new tax bracket and having to pay more tax.
Bad news for larger businesses is that corporation tax will be rising from 19% to 25% in 2023. This is only for companies making profits of more than £250,000 per year which the government is estimating to be about 10% of companies.
The good news for small businesses with profits of £50,000 or lower is that there will be a new small profits rate which maintains the current rate of 19%.
There will also be a taper introduced for companies whose profits fall between £50,000 and £250,000, so that only businesses with profits greater than £250,000 are taxed at the full 25% rate.
To encourage investment by companies, a new ‘super-deduction’ has been announced. From 1 April 2021 to 31 March 2023, companies which invest in qualifying new plant and machinery assets will be able to claim a 130% super-deduction capital allowance.
This will allow companies to cut their corporation tax bill by up to 25p for every £1 they invest.
This can be seen as a great opportunity for companies to reduce their corporation tax liabilities by investing now.
Support for businesses:
The current business rates holiday is to be continued to the end of June 2021, and then a two-thirds discount for the final nine months of the financial year.
The reduced rate of VAT to 5% for the hospitality and tourism sectors is extended to the end of September 2021. This will be followed by an interim rate of 12.5% for a further six months after that.
A fund of £5 billion has been pledged for new grants for businesses forced to close due to the COVID restrictions.
As was rumoured, the stamp duty holiday which was due to finish at the end of March has been extended. This means no stamp duty is paid on the first £500,000 of a property purchase until 30 June 2021.
This relief will reduce to the first £250,000 of a purchase until the end of September, before returning to its original, pre Covid levels from the start of October 2021.
If you have any questions about the budget, or how it will impact you or your business, please contact us on 0116 242 3400.