On 3 March Chancellor Rishi Sunak delivered his second Budget. Chris George, Tax Advisory Manager at Scrutton Bland runs through the key announcements.
Given that the easing of lockdown is only just beginning, and our lives are not expected to get back to anything like normal until the middle of June at the earliest, a number of COVID-19 reliefs have been extended:
Firstly, the furlough scheme has been extended until the end of September. Workers who are furloughed will continue to receive the same 80% of their usual wages, however from July employers will be required to start contributing to the payments made by the government. This starts with a 10% contribution in July, moving to 20% in August and September.
Alongside the furlough increase, payments for individuals who are self-employed have also been prolonged. The fourth round of SEISS payments will be at the same 80%, however the fifth round will be restricted to only 30% if your business has seen only a modest reduction due to COVID. There is also great news for the newly self-employed, as these support payments are now available for those who became self-employed during the 2019/20 tax year.
To assist businesses who are now beginning to reopen, restart grants were announced. For non-essential retail businesses who were forced to close during lockdown, a grant of £6,000 per premises can be applied for. Businesses in the hospitality and leisure industries who have been particularly badly affected by the lockdowns can apply for a grant of £18,000 per premises.
To further assist the hospitality sector, the reduced 5% rate of VAT has been extended until 30 September. It will then increase to 12.5% until 31 March 2022 before it is expected to return to the normal 20% rate.
Since the cut to Stamp Duty Land Tax was announced in July 2020, the housing market has been able to keep moving during the various lockdowns and there has been a boom in housing prices. Given the increase in house sales, there is currently a backlog of transactions waiting to complete. This has therefore been extended until 30 June 2021, with a subsequent reduced level of tax until 30 September.
Freeports and Towns Fund
The area around Felixstowe and Harwich is to be designated one of 8 new freeport areas across the country. These freeports will offer significant tax breaks for businesses setting up in the area to boost investment and jobs. There will also be new expenditure on infrastructure, and tariffs and import duties for goods which are imported, manufactured, and then exported within the freeport will be relaxed.
As well as the freeport area at Felixstowe and Harwich, there was also an additional £148 million of funds announced for towns in the East of England, including Ipswich, Colchester and Lowestoft. This Towns Fund grant will be used by local councils to help regenerate and ‘level up’ these areas, as well as helping to aid high street recovery from the COVID pandemic.
Although there was no increase to the headline rates of Income Tax or National Insurance, it was announced that both the Personal Allowance and Higher Rate tax bands would be frozen until 2026. Due to the ‘fiscal drag’ effect of inflation, this policy is predicted to bring an additional 1.3 million individuals into paying tax on their income, and an additional 1 million people into the higher 40% rate of Income Tax by 2026.
Several other rates, such as the Capital Gains Tax Annual Exemption, Inheritance Tax Nil Rate Band and Pensions Lifetime Allowance have also been frozen.
The headline rate of Corporation Tax will increase from 19% to 25% with effect from 1 April 2023. Companies with profits below £50,000 will retain the 19% rate and those with profits between £50,000 and £250,000 will pay a marginal rate of tax of between 19% and 25%.
A ‘super-deduction’ of 130% will be available to businesses who invest in certain capital assets for 2 years starting from 1 April. This is to encourage businesses to increase their capital expenditure and help boost the economy.
While there were some much needed extensions to government support and some welcome investment in our region through the Towns Fund and freeports, it does feel like this Budget is the ‘beginning for the end’ for the significant government giveaways. The time to start paying back the enormous debt mountain has begun and it is going to take some considerable time to achieve.