Rishi Sunak's Budget 2021: what do accountants need to know?
Chancellor Rishi Sunak has delivered his much anticipated 2021 Budget this afternoon, with numerous changes sparking the interest of accountants, including a rise in Corporation Tax and extensions for COVID-related support schemes such as furlough and self-employment grants.
What did Chancellor Rishi Sunak announce?
Let’s take a look at the key points.
Re-watch our live broadcast with reaction and carry on reading the blog below.
After a major U-turn on extending furlough in November, the scheme is set for an even longer run.
Furlough – or the Coronavirus Job Retention Scheme – which pays 80% of employees’ wages – will be extended until the end of September. For employees there will be no change in terms until it ends.
Nothing will change until July for employers but it will alter thereafter. They will be expected to pay for 10% of a furloughed worker’s wages in July, rising to 20% in August and September.
COVID self-employed grants (SEISS)
The grants that were introduced at the same time as furlough in the early months of the pandemic have also been extended further. This means:
- A fourth grant covering February to April – worth 80% of average trading profits, up to £7,500.
- A fifth grant covering May onwards will be available from July.
He revealed a “major improvement in access to the scheme” for the newly qualified self-employed who couldn’t claim previously. As the latest tax return deadline has passed, provided they filed before last night, 600,000 more people who became self-employed last year can claim the fourth and fifth grants.
Mr Sunak said more than £33bn support had been invested in total for the self-employed.
There was a caveat to this announcement about the level of support.
Mr Sunak said: “People whose turnover has fallen by 30% or more will continue to receive the full 80% grant. People whose turnover has fallen by less than 30% will therefore have less need of taxpayer support, and will receive a 30% grant.”
COVID Business support grants
A new re-start grant will be offered from April to help businesses. Up to £6,000 per premises. Leisure and hospitality firms, including gyms, who will open later, will get grants up to £18,000 – equating to £5bn in grants. Total cash support for businesses will reach £25bn overall, he said.
He announced a new recovery loan scheme – open to all sizes of businesses – ranging from £25,000 to £10m through to the end of this year. Government will provide a guarantee to lenders of 80%.
Furthermore, there will be money for apprenticeships – £3,000 for each new apprentice hired between the 1st April to 30th September 2021. That means an additional £126 million for traineeships in England, the Treasury said.
Prior to the Budget, it was suggested there would be a gradual rise from 19% to 23% over the course of this Parliament.
In 2023, the rate paid on company profits will increase to 25%. It won’t take effect until April 2023. Mr Sunak said this was still lower than all the G7 countries.
Only businesses with profits of £250k or greater will be taxed at the highest rate – that means 10% of companies will pay it, Mr Sunak announced.
Small businesses with profits of £50,000 or less will come under a new small profits category. They will pay the current rate of 19%. This means 1.4million business are unaffected, the Chancellor said.
Alongside the rise, the Chancellor revealed a ‘super deduction’ tax relief to help spur investment. Companies investing in their businesses over the next two years will be able to reduce their tax bills by 130 per cent of the cost. Mr Sunak said this was “the biggest business tax cut in modern British history”.
Treasury papers stated the deduction will only be applicable to “companies investing in qualifying new plant and machinery assets” rather than intangible assets.
The business rates holiday has been extended. The Treasury has also announced eligible retail, hospitality and leisure businesses pay no business rates for 3 months, with up to 66% relief for the rest of the year worth over £6 billion in 2021-22.
For the last nine months of the year, business rates will still be discounted by two thirds, up to a value of £2m for closed businesses, with a lower cap for those who have been able to stay open, Mr Sunak said.
The 5% reduced rate of VAT will be extended for six months to 30 September followed by interim rate of 12.5% for another six months. The standard rate will not return until April next year.
Income Tax, VAT, and National Insurance
There will be no change at all in these areas. However there is news on….
Income Tax thresholds
There had been speculation that the planned increases in the thresholds of income tax would be abandoned for the rest of this Parliament to, in effect, raise further money for the Treasury. The Chancellor announced that the thresholds will be frozen, rather than rising, from April 2021 to April 2026.
Mr Sunak said the plan for the basic allowance to increase up to £12,570 will go ahead. But then it will stay at that level until 2026. The higher rate threshold will also go up to £50,270. But then it will be frozen for the same period.
Capital Gains Tax & Inheritance Tax
Like income tax thresholds these will all be frozen until 2026 too. There had been much speculation about a CGT rise, but this proved to be inaccurate.
Pensions lifetime allowance
Rates frozen until 2026.
What did Rishi Sunak say about the economy?
Mr Sunak laid out the scale of the harm coronavirus crisis has done to the finances of the country and to businesses.
“Despite the unprecedented response the damage to our economy has been acute,” he said.
Among the relevant facts, he said, were that:
- over 700,000 people have lost their jobs
- The economy has shrunk by 10%
- Borrowing has reached wartime levels
- more than £280bn support has been offered so far
He added: “I said I would do whatever it takes. I have done and will do so. It will take this country and the whole world a long time to recover from this extraordinary situation. But we will recover.”
Do you have a question you want to ask Chancellor @RishiSunak about #Budget2021? Submit yours via https://t.co/8Tuj9neELE and it may get answered during today’s press conference. Tune in live from 5pm. pic.twitter.com/7fnltLh7jV— HM Treasury (@hmtreasury) March 3, 2021