Spring Budget 2021
The UK economy has suffered acute damage in the last 12 months resulting in the largest peacetime shrinking of the economy (10%) - with more than 700,000 people losing their jobs. A welcome relief, then, that the Chancellor, Rishi Sunak, introduced the Spring budget with the promise that he would continue to do “whatever it takes” to protect the people from the ongoing economic impact of COVID.
The Chancellor reported that unemployment is expected to peak at 6.5%, less than the 11.9% originally forecast and equating to 1.8million fewer people expected to be out of work.
- In line with predictions the furlough scheme will be extended until the end of September with employees continuing to receive 80% of their wages.
- Employers will be asked to contribute 10% in July and 20% in August and September as the scheme is phased out.
- A fourth self-employment income support scheme grant payment (worth 80% of average trading profits up to £7,500) will be made to cover the period February to April.
The initial support packages of the bounce back loan (BBL) and coronavirus business interruption loan scheme (CBILS) will soon be coming to an end. The Chancellor confirmed that direct cash support to businesses during the pandemic has now reached £25billion.
- A new loan scheme, offering support of between £25,000 and £10m will replace the ending BBL and CBILS schemes and run until the end of the year.
- Hospitality and leisure businesses will continue to pay no business rates for three months. Rates will then be discounted by two-thirds for the remaining nine months of the year.
- The 5% reduced rate of VAT currently available to hospitality and leisure businesses (including pubs, coffee shops, staycations and tourist attractions) will be extended until the end of September before being gradually increased to 12.5% for six months. Standard rate of 20% will be reinstated from April 2022.
Support for buying a home
Much had already been discussed with regard to the Stamp Duty Holiday, originally due to finish at the end of March, and a potential scheme to enable more first-time buyers to get on the housing ladder.
- The Chancellor announced that the stamp duty holiday on properties up to £500,000 would be extended until the end of June. After June, the nil rate band will be reduced to £250,00 and then £125,000 from October the first.
- A ‘Mortgage Guarantee Scheme’ was also officially confirmed. Backed by the Government and mortgage lenders first time buyers will be able to access mortgages with just a 5% deposit.
The Chancellor chose not to recoup the spending deficit from the public and instead promised a ‘fair’ approach to ‘fixing the public finances’.
- Personal tax thresholds – National insurance, income tax and VAT will be frozen and not raised.
- The personal tax allowance will remain at £12,750 until 2026. The higher rate will increase to £50,270 in 2022 and then remain at that level.
- The pensions lifetime allowance, annual exempt allowance from capital gains tax, inheritance tax threshold and VAT exemption threshold will all be frozen.
Despite announcing an increase to the rate of corporation tax, Sunak was quick to confirm this as the lowest in the G7. He was also keen to clarify that changes would not apply until April 2023 and “businesses will only be impacted if they are making profits; the change will only come in once the OBR forecasts the economy will be recovering”.
The Government aims to offset this by allowing a 130% super-deduction on tax for investments made by companies. This means firms can cut their taxes by up to 25p for every pound they invest.
- In April 2023, the rate of corporation tax will increase to 25%.
- In April 2023 the corporation tax rate will be assessed on profits. Businesses with profits of more than £250,000 will be taxed at the full 25% rate (this equates to only 10% of companies paying the full higher rate). Companies with profits of less than £50,000 will remain at 19%.
- Furlough scheme extended until the end of September
- Self-employment income scheme to make two further payments
- New loan scheme for businesses to replace current schemes
- Hospitality and Leisure businesses to retain zero business rates status for three months
- The 5% reduced rate of VAT for hospitality and leisure will be extended until the end of September
- Stamp Duty holiday to be extended until June and then tapered
- ‘Mortgage Guarantee Scheme’ launched requiring 5% deposit
- Personal tax thresholds (NI, income tax and VAT) frozen
- Personal tax allowance frozen
- Pensions lifetime allowance, capital gains exemption, inheritance tax threshold, VAT exemption threshold all frozen
- Corporation tax increase to 25% from 2023 with thresholds