Tax
No doubt you will have all heard some/all of the budget update yesterday afternoon and I appreciate many of you are eager to know how it will affect you and your business.
Whilst there were many rumours of increases to certain taxes; mainly corporation tax and capital gains tax, the changes are not as expected.
The main areas to summarise on, are below:
CJRS – the job retention scheme will be extended to 30 September 2021. The scheme currently in progress will extend to the end of June and then the claim will be reduced on a sliding scale from months July to September.
SEISS – Grants for the self-employed are to be awarded. The fourth grant, which was delayed, can be applied for from the end of April 2021. We do not have an exact date as yet. The fifth grant, which is new, can be applied for at the end of July 2021.
Eligibility remains the same as before, meaning that your profits must have decreased to be eligible, but the rule regarding the 2018/19 has changed. The government are now allowing those who filed a 2019/20 return by 2 March 2021 to apply!
Apart from the above eligibility, you must also be submitting a self-employment tax return for 2020/21.
The fourth grant will be based on 80% of trade profits (per the previous grant), but the fifth grant will differ. This will be dependent on how much your sales have decreased. If your sales have gone down by more than 80%, then you will get a grant for 80% of trade profits, but if you sales have decreased by less than 30%, then your grant will be for 30% of trade profits.
PA – the personal allowance of £12,500 in 2020/21 will be increased to £12,570 and frozen until 2026. The basic rate band will be increased from £37,500 to £37,700 in 2021/22, meaning that you can earn up to £50,270 before going into high rate tax of 40%.
Self-assessment tax returns – For those who took advantage of the deadline extension from HMRC, make sure you avoid the 5% late payment penalty. If you have paid your tax on time, there is no need to worry. Equally, if you have set up a payment plan with HMRC which is agreed by 1 April 2021, you will not be penalised.
As a reminder, anyone who cannot pay their bill in full can apply to spread the cost. Taxpayers can set up a payment plan, in up to 12 monthly instalments, via GOV.UK, provided that they meet the following requirements.
>They have no:
-outstanding tax returns
-other tax debts
-other HMRC payment plans set up
>The payment plan is set up no later than 60 days after the due date for payment but ideally as soon as possible – and certainly before 1 April to avoid a 5% late payment penalty.
Those who do not meet these requirements, or who need more than 12 months to pay off their bill, can apply for a payment plan by speaking to one of HMRC’s debt advisers.
Minimum wage – An increase will be applied from 1 April 2021. Please see the new rates below:
Age | 23 and over | 21-22 | 18-20 | Under 18 | Apprentice |
Rate from 01.04.2021 | £8.91 | £8.36 | £6.56 | £4.62 | £4.30 |
Corporation tax – This is to rise from April 2023 and the marginal rate relief is being re-introduced.
For those companies with profits under £50,000, the rate will remain at 19%
For those companies with profits over £250,000 the rate will be 25%
For those with profits between £50,000-£250,000, a marginal relief will be applied, meaning you will be taxed somewhere between the two.
R&D – Anti-abuse rules are coming into play from 1 April 2021 so those applying for R&D tax credits will be eligible up to a maximum of £20k in repayments per year plus three times the company’s total PAYE/NI liability.
Group companies – the 51% group rule is being replaced by an associated companies rule, so the corporation tax rate applied will be calculated based on the 51% related group company definition.
An associated company will be either a company that has control of another OR both companies are under control of the same person/group/persons.
Capital allowances – Annual Investment Allowance (AIA) of £1m has been extended until 1 January 2022. This means that you will get 100% tax relief on qualifying plant and machinery purchased by your business.
The new Super-Deduction Relief is being introduced from 1 April 2021 until 31 March 2023. This allows companies investing in qualifying new plant and machinery to benefit from 130% first year capital allowances. This allows companies to cut their tax bill by up to 25p for every £1 invested.
Certain expenditures will be excluded. The general exclusions at s46 will apply. In addition, there will be exclusions for used and second-hand assets and expenditures on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021. Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief. Further information will be available soon.
VAT – The temporary reduced 5% VAT rate within the hospitality sector will remain at this level until 30 September 2021. After this, the rate will increase to 12.5% until 31 March 2022, before returning to 20% from 1 April 2022.
Those who took advantage of the VAT deferral scheme for VAT returns between 20 March and 30 June 2020, can apply for the VAT deferral payment scheme where the VAT is paid over 11 months from March 2021. To take the advantage of VAT deferral, businesses will need to join the new payment scheme.
The online service is open between 23 February 2021 and 21 June 2021. The new scheme allows the payment of deferred VAT in equal instalments, interest free.
Businesses can join the scheme by clicking on this link. Before joining, you must:
- Create your own Government Gateway account (if you do not already have one)
- Submit any outstanding VAT returns from the last four years – otherwise you’ll not be able to join the scheme
- Correct errors on your VAT returns as soon as possible
- Make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid.
Capital Gains Tax – There has surprisingly been a freeze on the annual exemption of £12,300 until 2026. CGT rates of 10%/20% and 18%/28% on properties has also been frozen currently, but we could well see an increase in future budgets.
Entrepreneurs relief has also been frozen at 10% on the first £1m of gains when selling qualifying business assets.
EIS/SEIS/VCT – these regimes all remain unchanged
SDLT – The current stamp duty holiday will be extended from 31 March 2021 to 30 June 2021. This means that buyers will not pay stamp duty on properties up to £500,000 (3% stamp duty will be charged if a buy-to-let property). The property purchase must be completed before 30 June 2021 in order for the relief to be applied.
New 5% mortgages – The government has created a new mortgage scheme for home buyers, designed to help those with a 5% deposit. The following link will give further information around the latest government scheme https://www.moneysavingexpert.com/mortgages/new-mortgage-scheme-for-5-deposit/
Universal credit – An uplift of £20 per week will continue for a further six months for those claiming universal credit and working tax credit.
Restart Grant – These will be worth up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses. This will be administered by your local council, so we would advise going to their website to find out how to apply.