Tax overview

Arguably, the tax announcements that made it into the Budget are of less interest than those that were left out. The frenzied speculation around increasing the rate of capital gains tax and the possible introduction of a wealth tax amounted to nothing. A number of key tax policy issues that have hit the headlines recently were also not mentioned, including online sales tax and the taxation of the gig economy and worker status. These issues may be addressed as part of the Tax Policies and Consultations Command Paper due to be published on 23 March 2021.

The Chancellor confirmed that there would be no increase to rates of income tax, national insurance contributions or VAT. However, a freeze on rates accompanied a freeze on certain thresholds and allowances, meaning that income tax bands and other relevant tax thresholds may not keep pace with inflation. The income tax personal allowance and higher rate threshold will be increased as planned in April 2021 to £12,570 and £50,270 respectively, but will then be maintained at these levels until April 2026. The inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount for capital gains tax will be maintained at their existing levels until April 2026.

Corporate and business tax

The headliner was an increase to the rate of corporation tax from 19% to 25% from April 2023 on profits over £250,000. The rate for profits under £50,000 will remain at 19% and a form of tapering will apply so that companies with profits between £50,000 and £250,000 will pay less than 25%.

On the plus side, to help companies that have generated tax losses during this exceptional year, the trading loss carry-back rule will be temporarily extended from the existing one year to three years, giving businesses the opportunity to access tax repayments from previous years. Relief will be available for up to £2 million of losses in each of 2020-21 and 2021-22, with additional rules applying to companies that are members of a group.

A further business tax benefit comes in the form of a 130% capital allowances super-deduction for investment in plant and machinery made between 1 April 2021 and 31 March 2023.

The temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector has been extended until 30 September 2021. To help these businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.

Alongside publishing a response to the consultation announced at the last Budget on expanding the scope of qualifying expenditure for R&D tax credits (notably to include data and cloud computing costs), a further review of R&D tax relief was announced. This review will consider all elements of the two R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for cutting edge research.

The Government also confirmed the 8 UK locations that will become Freeports, offering favourable tax regimes to businesses operating from those locations.

Employment

The Coronavirus Job Retention Scheme (CJRS) will be extended until the end of September 2021, with no changes to the terms for employees, meaning that employees will continue to receive 80% of their current salary for hours not worked (subject to the existing caps). However, from July onwards, in addition to having to fund the PAYE and NICs costs related to furlough payments, employers will need to contribute towards the cost of unworked hours. This contribution will be 10% in July, and 20% in August and September.  The Chancellor also announced two further payments under the self-employed equivalent of the CJRS, the Self Employed Income Support Scheme (SEISS): one to cover the period from February to April and the other to cover May to September.

Support for employers who hire new apprentices has been extended to 30 September 2021, and the amount of support has increased, meaning that employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire.

The Government has published a call for evidence on whether and how more UK companies should be able to offer tax efficient Enterprise Management Incentive (EMI) share options in order to assist in recruiting and retaining employees. The call for evidence requests information and views on a number of points, including  whether the EMI eligibility criteria should be expanded to include more companies.

Real estate tax

The temporary SDLT cut will be extended by three months to 30 June 2021. The increase in the residential SDLT nil rate band to £500,000 in England and Northern Ireland therefore remains. From 1 July 2021, the nil rate band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.

The 100 per cent business rates holiday for retail, hospitality and leisure businesses will be extended by three months to 30 June 2021. For the remaining nine months of the financial year, business rates will be discounted by two-thirds, up to a cap of £2m per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

Tackling tax avoidance and evasion

No Budget announcement would be complete without a promise to raise additional funds by tackling tax evasion and avoidance. This Budget was no exception and included a specific commitment to investing over £100 million in a Taxpayer Protection Taskforce of 1,265 HMRC staff whose remit would include combating fraud within COVID-19 support packages, such as Coronavirus Job Retention Scheme claims.