The Chancellor, Rishi Sunak, presented his 2021 Budget on 3rd March 2021. The extent to which the measures will affect you will depend on your personal circumstances. We’ve divided this report for your convenience into a total of three sections:

1. Impact on individuals
2. Impact on the self-employed
3. Impact on small company owners

Impact on individuals

Personal allowance and income tax thresholds frozen

The personal allowance has been increased in line with inflation to £12,570 for 2021/22. However, it will remain at this level for the next five years, until April 2026. The basic rate band will also stay at £37,700 for the next five years, freezing the starting point for paying a higher rate at £50,270 until April 2026. 

Suppose your income increases during this period. For example, your pay rises in line with inflation. In that case, you may find that you move into the higher rate band, paying tax on some of your income at 40% where previously you were a basic rate taxpayer.

The basic tax rate will remain at 20%, the higher rate at 40%, and the additional rate at 45%.

Covid support continues

The Coronavirus Job Retention Scheme has been extended until 30th September 2021. This means that if you have been furloughed or flexibly furloughed, you will continue to be paid 80% of your regular wages for your unworked hours, subject to the cap of £2,500 per month.

If your company has been affected by Coronavirus and you’re self-employed, you will be able to claim two further grants under the Self-Employment Income Support Scheme.

Pension lifetime allowance frozen

The pension lifetime allowance will not be increased in line with inflation over the next five years. Instead, it will remain at its current level of £1,073,100 for 2021/22 to 2025/26. This may affect you if you already have pension savings at or near this level. If this is the case, you should review your pension pot’s amount before making further tax-relieved contributions. Pension savings more than the lifetime allowance are taxed at 25% if the excess is taken as a pension and 55% if taken as a lump sum.

SDLT threshold to remain at £500,000 until 30th June 2021

The SDLT threshold has been increased to £500,000 temporarily and will remain in place until 30th June 2021. It will then fall to £250,000 until 30th September 2021, returning to the standard amount of £125,000 from 1st October 2021.

Martin Swann and Barry Scott of Try Financial in Ipswich said the following;

“We welcome very much the extension of the current holiday to 30th June. It gives a very good chance to deals already in the pipeline, along with some new ones, to receive the full benefit from the move made by the Chancellor. The increase of the nil rate band up to £250,000 until 30th September, while not expected perhaps, is also very welcome.

The news on tax is both good for residential purchasers and buy to let investors alike. It looks like it’s going to be a busy summer! Even the increase in Corporation Tax from April 2023 will not hit as many buy to let investors with limited companies, given that the threshold for the Small Profits Rate is set to stay the same at £50,000.

Do we think the market will be much quieter after the SDLT holiday ends? While we think there will be a period of adjustment with prices levelling off as activity may slow, the medium and long-term outlook has, for some considerable time, featured too many people chasing too few dwellings. The country has never hit its 250,000 new homes target, and until the laws of supply and demand say otherwise, prices will, along with the attractiveness of property in general, we think, continue to grow.”

If you are looking to move to a new house or buy an investment property, there is still time to benefit from the higher threshold. These comments refer to rates in England and Northern Ireland. The devolved administrations of Wales and Scotland may set alternative rates.

Try Financial Ltd. trading as Try Financial is an owner-managed business that offers independent mortgage and protection advice to consumers, property investors and business owners.  If you need help in assessing your next steps, please contact Try Financial today on 01473 462288, visit tryfinancial.co.uk or send an email to enquries@tryfinancial.co.uk

Inheritance tax nil rate band will stay at £325,000

The inheritance tax nil rate band will remain at its current level of £325,000 until April 2026. The residence nil rate band, available where your primary home is left to a direct descendant, also remains at its current level of £175,000 until April 2026. This should be considered when undertaking inheritance tax planning.

Impact on the self-employed

Two further grants available under the SEISS

If you are self-employed and you continue to be adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme (SEISS). The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500. It can be claimed from late April.

The fifth and final grant covers the period from May to September 2021. The total amount of the grant will depend on the impact that Covid-19 has had on your profits. If your turnover has fallen by 30% or more because of Covid-19, you will be able to claim a grant equal to 80% of your average profits for three months, capped at £7,500. However, if your turnover has dropped by less than 30%, you will be entitled to a reduced grant of 30% of three months’ average profits, capped at £2,880. The final grant can be claimed from late July. With this in mind make sure you file your accounts early, please let us have your paperwork after the 5th April 2021.

Remember, the grant can only be claimed if you have been adversely affected by the pandemic. Grants received under the scheme are taxable and must be considered in working out your profits.

Help for the newly self-employed

Support under the SEISS was not available to traders who commenced self-employment in 2019/20 – to qualify, a tax return had to be filed for 2018/19. However, as the deadline for filing the 2019/20 tax return has now passed, you may be eligible for the additional grants if your 2019/20 tax return was filed by midnight on 2nd March 2021. To qualify, your business must be adversely affected by the pandemic, and your profits from self-employment must be at least 50% of your income and less than £50,000. 

The carry-back period for losses extended

The period for which losses may be carried back is temporarily extended from one year to three years. For unincorporated businesses, the extended carry-back will apply to losses made in 2020/21 and 2021/22. Losses must be set against a later period before an earlier period.

If you have suffered losses due to Covid-19, carrying back losses for up to three years may generate a most welcome tax repayment.

Impact on small companies

Tax-efficient extraction of profits

For 2021/22, the primary threshold for Class 1 National Insurance purposes increases to £9,568, the second threshold to £8,840, and the personal allowance to £12,570.

If you extract profits by taking a mix of salary and dividends, the optimal salary level for 2021/22 (assuming you have not used your allowance elsewhere) will be equal to the primary threshold of £9,568 (equivalent to £797 a month) if you are not entitled to the employment allowance. This will be the case if you are a personal company with only one employee who is also a director. At this level, you will have a little bit of employer’s National Insurance to pay. Still, the associated corporation tax deduction will outweigh this.

If you can claim the employment allowance, for example, if your company is a family company with at least two employees, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Any further profits can be extracted as dividends but remember you can only pay dividends if you have sufficient retained profits to pay them from. Dividend tax rates remain at 7.5%, 32.5% and 38.1% for 2021/22.

Three-year carry back for losses

Companies, like unincorporated businesses, can benefit from a measure allowing losses to be carried back for three years rather than for one year. For companies, this applies to losses incurred in accounting periods ending between 1st April 2020 and 31st March 2021 and to losses for accounting periods ending between 1st April 2021 and 30th March 2022. Losses carried back must be used against a later period before an earlier period.

This measure may provide you with earlier relief for losses suffered because of the Covid-19 pandemic and generate a useful tax repayment at a time where cash flow is tight. 

Super-deduction for investment expenditure

If your business invested in plant and machinery from 1st April 2021 to 31st March 2023 will benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. For every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%. Investments in assets qualifying for special rate capital allowances benefit from a 50% first-year allowance (although claiming the annual investment allowance instead where this is available will be more beneficial).

If you are looking to invest in plant and machinery, it can be advantageous to do so within this window to benefit from the super-deduction. However, it is not available where contracts were agreed before Budget day.

Future increases in corporation tax

To help meet some of the pandemic costs, companies with profits of £250,000 or more will now pay corporation tax at a 25% rate from 1st April 2023. A lower rate of 19% will apply to companies with profits of £50,000 or less. Companies with profits of between £50,000 and £250,000 will pay corporation tax at 25% but will be able to claim marginal relief. The thresholds will be proportionately reduced to take account of associated companies and short accounting periods.

Extension of the Coronavirus job Retention Scheme

If you have furloughed or flexibly furloughed employees, you will be able to continue to claim grant support under the Coronavirus Job Retention Scheme until the end of September. 

Until the end of June 2021, you’ll be able to claim 80% of your employee’s normal pay for their unworked hours, subject to the cap of £2,500. However, while your employees must continue to receive 80% of their normal pay for their furloughed hours, you can only claim 70% from the Government in July and 60% in August and September. You must pay the remaining 10% in July and the remaining 20% in August and September. As of now, you must meet the employer’s National Insurance and employer pension contributions on all payments to employees.

The scheme now ends on 30th September 2021.

If you need help or advice on any of the new announcements and want to discuss how best to move your business forward, call An Accounting Gem today on 01473 744 700, take a look at our website aag-accountants.co.uk or email contactus@accountinggem.co.uk. We’re to help every step of the way.