2021 Budget Overview from WLB Members Moore Kingston Smith & Bright Grahame Murray

Moore Kingston Smith:

The Chancellor today delivered his second Budget. In the 12 months since his first Budget, 700,000 people have lost their jobs, the economy has shrunk by 10%, and borrowing has increased to record levels. He therefore needed to strike a fine balance between creating the conditions for economic recovery and collecting more tax to start balancing the country’s books.

In the couple of weeks leading up to the Budget, almost all of the significant announcements had been trailed in the press, in many cases leaving only the detail to be announced. We now know what the new rate of corporation tax will be and the timing for its introduction, the details relating to the phasing out of the stamp duty land tax holiday, and the final iterations of the furlough and self-employed income support schemes.

No mention was made of any increase in capital gains tax rates or reforms to the pensions regime, so these are areas that could be returned to in the future once the Chancellor is able to say confidently that the country is on the path to recovery.

Corporate & business tax
With record low corporation tax rates, it was always likely that the Chancellor would see this as an area for raising revenue, and this has proven to be the case. While the UK will still have the lowest corporate tax rate in the G7, it is more important to look at effective tax rates that take into account reliefs, allowances and other adjustments – in this respect there was also good news, with an innovative new ‘super-deduction’ for capital expenditure. In addition to these headline announcements, various other announcements will be relevant to businesses throughout the UK.

Private client tax
Before the Budget, it was not entirely clear how many revenue-raising measures would be announced. Capital taxes were thought to be at risk of change, due to the triple lock being in place on rates for income tax, national insurance and VAT. In the end, no significant changes were announced for personal taxes, although several consultations relating to the longer-term position are expected to be published on 23 March.

Employment tax
There were several employment tax measures in today’s Budget, with the most significant of these relating to the government’s continued support for businesses in light of the impact of Coronavirus.

As is often the case, the Budget contained various VAT-related measures that will be important to certain businesses and other organisations.

Real Estate & Construction tax
There were several measures and announcements which will have direct and immediate implications for the real estate and construction sector. These include those described below, as well as others – such as the change in corporation tax rate, the new capital allowances super deduction, and the extention of furlought – which are covered elsewhere in our Budget analysis.

Bright Grahame Murray

To the casual observer, the first Budget of 2021 appeared to have been fully revealed before the Chancellor even reached the despatch box. The relentless flow of pre-Budget rumours, kite-flying and red herrings makes it is all the more important to forget what was said before 12.30 on 3 March and concentrate on what Rishi Sunak did deliver in his speech.

The real – as opposed to rumoured – announcements included:

The main rate of corporation tax will be increased to 25% from April 2023 for companies with profits of at least £250,000. At the same time, a small profits rate of 19% will be introduced for companies with profits below £50,000.

For two years from April 2021, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance.

The coronavirus job retention scheme (CJRS) will be extended in full until the end of June 2021 and then phased out over the following three months.

The self-employed income support scheme will also be extended at its current level with a fourth grant covering the period February to April. A fifth grant will cover following three months, but this will be at a lower level for those who have seen less than a 30% drop in turnover. Eligibility for the SEISS will be extended to include those who became self-employed in 2019/20.

The personal allowance and higher rate threshold will rise to £12,570 and £50,270 for 2021/22 and will then be frozen for the next four years.

The capital gains tax annual exemption, the inheritance tax rate nil rate band and the lifetime allowance will all be frozen at their current levels until April 2026.

The business rates holiday for retail, hospitality and leisure businesses will be extended for three months and then reduced to a 66% relief until the end of March 2022.

The temporary 5% VAT rate for hospitality, hotel and holiday accommodation and admission to certain attractions will be extended to the end of September 2021 and then replaced by a 12.5% rate until 31 March 2022.

The exemption from stamp duty land tax on the first £500,000 of residential property value will be extended to 30 June and then replaced by a £250,000 exemption until 30 September 2021.

A new residential mortgage guarantee scheme will run from April 2021 to December 2022, aimed at increasing availability of 91%-95% loan-to-value mortgages. The maximum property value will be £600,000 and mortgages must be arranged on a repayment basis.

Fuel duty was frozen again this year, alongside alcohol duties which are frozen for the second year running.