Technical and Client Update
The Partners and staff at Humphrey & Co hope that all our clients and contacts are keeping well and staying safe. We would like to reassure you that Humphrey & Co continue to support you in this very unsettling time.
The March E-News focuses on the key measures outlined by the Chancellor in his recent budget including the latest increases in financial support for businesses. As the situation is fast moving, information is constantly changing.
The Chancellor Rishi Sunak presented his second Budget on Wednesday 3 March 2021. In his speech he stated his Budget ‘meets the moment with a three-part plan to protect the jobs and livelihoods of the British people’. The main budget proposals include:
NO CHANGES TO INCOME TAX RATES AND PERSONAL ALLOWANCE FROZEN
The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.
The personal allowance and higher rate threshold have been increased in line with inflation to £12,570 and £50,270 respectively for 2021/22. These thresholds will then be frozen until 2025/26 possibly yielding an extra £19 billion for the government.
There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.
NATIONAL INSURANCE RATES
The national insurance contribution (NIC) rates and bandings were announced 16 December 2020 to take effect from 6 April 2021.
Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,570 of earnings for 2021/22, an increase of £1 a week. The employee contribution rate continues to be 12% up to the Upper Earnings limit £50,270, with the self-employed paying 9% on their profits up to the same level. Note that employer contributions will apply to earnings over £170 per week, £8,840 per annum which is also a £1 a week increase.
CORPORATION TAX RATES TO INCREASE TO 25% BUT NOT FOR ALL COMPANIES
The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive.
That should have the effect of encouraging companies to remain in the UK and companies to set up here. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 1 April 2023 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000. Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses.
SUPER-DEDUCTION FOR INVESTMENT IN NEW EQUIPMENT
In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 1 April 2021, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.
THREE YEAR CARRY BACK OF TRADING LOSSES
Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment.
Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses.
The chancellor has announced that the carry back period will be temporarily increased to three years thereby enabling the business to obtain a tax refund. For companies this will apply to loss making accounting periods ending in the period 1 April 2020 to 31 March 2022. For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.
The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will then be available for carry back against profits of the same trade of the previous 2 years. There will be a similar £2,000,000 limit for unincorporated businesses.
VAT REGISTRATION LIMIT FROZEN AT £85,000 UNTIL 1 APRIL 2024
The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.
MAKING TAX DIGITAL EXTENDED TO ALL VAT REGISTERED BUSINESSES FROM 1 APRIL 2022
The government has confirmed that the requirement to maintain accounting records in a digital format and submit the data to HMRC electronically will be extended to all VAT registered businesses from 1 April 2022 regardless of the level of taxable supplies.
EIGHT NEW FREEPORTS ANNOUNCED
In eight locations around England there will be generous tax breaks to encourage businesses to locate there. These tax breaks include an exemption from SDLT, 100% first year allowances on plant and a 10% per annum structures and buildings allowance.
Further budget announcements relating to the various Coronavirus Schemes are detailed below.
CJRS Furlough scheme extended to 30 September
The current version of the furlough scheme that started on 1 November 2020 was scheduled to end on 30 April 2020. In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September.
This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours.
In addition to the 10% and 20% contributions employers will continue to be responsible for paying employers national insurance and pension contributions on the full amount being paid to employees.
CJRS eligibility from May
For periods from 1 May 2021 onwards, you will be able to claim for eligible employees who were employed by you and on your PAYE payroll on 2 March 2021. This means you must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 2 March 2021, notifying us of earnings for that employee.
You and your employees do not need to have benefitted from the scheme before to make a claim, as long as you meet the eligibility criteria.
For more information on the extension to the scheme and the support available please click here.
Contact us if you need assistance with your CJRS furlough claims.
Self-employed income support grants also extended
In line with the further extension of the CJRS furlough scheme for employees the chancellor has also set out further support for the self-employed. We had been waiting for the details of the calculation of the fourth SEISS grant covering the period to 30 April and we now know that the support will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.
The chancellor has also bowed to pressure to extend the scheme to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 2 March 2021. This is potentially a further 600,000 traders.
Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.
HM Revenue & Customs expect that taxpayers will receive a letter between 8 March to Mid-April 2021 informing them that they shall be contacted by phone within 10 working days and to ensure that their telephone contact details held with HMRC are up to date. Upon phoning the taxpayer, HM Revenue & Customs will request the taxpayer to confirm their email address and agree to a secure Dropbox link being sent. The link is to facilitate uploading relevant identity documents and bank statements to demonstrate business activity. Once received and HMRC have checked the information, HMRC will confirm eligibility and invite the taxpayer to claim ahead of the service opening later in April.
Taxpayers who receive the letter but do not provide information to complete the necessary checks will be unable to claim a grant under the scheme.
For more information on the extension to the scheme and the support available please click here.
5% VAT rate for food, attractions and accommodation extended
In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021.
The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK.
From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.
For more information on the extension to the reduced 5% rate of VAT please click here.
Loans & Grants
NEW GRANTS FOR HIGH STREET BUSINESSES AND HOSPITALITY SECTOR
Businesses forced to close due to the Coronavirus lockdown will be eligible to apply for grants of up to £18,000 depending upon the rateable value of their business premises. Pubs, restaurants, hotels, gyms and hairdressers will be eligible for a grant of up to £18,000 per premises whilst non-essential retail businesses will be eligible to apply for a grant up to a maximum of £6,000.
The grants are intended to be a contribution towards the fixed costs of the business during the period that they have been unable to trade normally. Staff costs continue to be covered by the CJRS furlough scheme.
The government will also continue to provide eligible retail, hospitality and leisure properties in England with 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021.
Unfortunately, the “Eat out to Help Out” scheme will not be reintroduced this Summer.
NEW RECOVERY LOAN SCHEME
The government have already announced a longer repayment period for “Bounce-back” and CBIL loans. From 6 April 2021 a new Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.
The Recovery Loan Scheme ensures businesses of any size can continue to access loans and other kinds of finance up to £10 million per business once the existing COVID-19 loan schemes close, providing support as businesses recover and grow following the disruption of the pandemic and the end of the transition period.
Once received, the finance can be used for any legitimate business purpose, including growth and investment. The government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses.
The scheme launches on 6 April and is open until 31 December, subject to review. Loans will be available through a network of accredited lenders, whose names will be made public in due course.
What type of finance is available?
- Term loans and overdrafts will be available between £25,001 and £10 million per business.
- Invoice finance and asset finance will be available between £1,000 and £10 million per business.
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years. No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
You will be able to apply for a loan if your business:
- is trading in the UK
You will need to show that your business:
- is viable or would be viable were it not for the pandemic
- has been impacted by the coronavirus pandemic
- is not in collective insolvency proceedings - further details will be provided in due course
Businesses that have received support under the existing COVID-19 guaranteed loan schemes will still be eligible to access finance under this scheme if they meet all other eligibility criteria.
How to apply
The scheme will launch on 6 April 2021. Further details on how to apply and details of accredited lenders will be released in due course.
SDLT thresholds extended
Last March in order to stimulate the housing market the Chancellor announced a temporary cut in Stamp Duty Land Tax for home buyers across England and Northern Ireland which was scheduled to last until 31 March 2021.
This has now been further extended until 30 June 2021 so that transactions in progress will continue to benefit from the reduced rates.
As a transitional measure from 1 July 2021 the Nil Rate Band of Residential SDLT in England and Northern Ireland will then decrease to £250,000 for 3 months until 1 October 2021 when it will revert to £125,000 for purchases completed on or after that date. There has been no change to the SDLT rates above the Nil Rate Band. The 3% supplementary charge for second and subsequent homes in England and Northern Ireland will continue to apply.
Note that there are different rates of tax on property transactions in Scotland and Wales as such taxes have been devolved in those countries.
For more information on the extension please click here.
Apprenticeship schemes extended
The current apprenticeship scheme will be improved with payments of £3,000 to employers in England for each new apprentice they hire aged under 25 and continue to pay the employer £1,500 for each new apprentice they hire aged over 25. The schemes will now run until 30 September 2021.
Starting in January 2022 there will be a new “flexi-job” apprenticeship which will allow individuals to work for more than one company via an agency.
The “Kickstart” Scheme announced in the Summer 2020 Plan for Jobs will continue to be available for the 2021/22 academic year to create 6-month work placements aimed at those aged 16-24 who are on Universal Credit and at risk of long-term unemployment. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
Our summary of the Chancellor’s 2021 Budget is now available here.Budget Summary
VAT reverse charge for construction services
With regards to the VAT Domestic Reverse Charge ("DRC") that came into effect on 1 March 2021, please click here to download our information sheet which provides a useful summary of the new rules. The only changes made to the rules since they were first set to be implemented in October 2019 are for end users (see bottom right of page 3).
The technical guidance can be found as follows: www.gov.uk/guidance/vat-reverse-charge-technical-guide
HMRC encourages couples to take advantage of marriage allowance
HMRC has announced that it is encouraging married couples and people in civil partnerships to sign up for a tax break this year. Marriage allowance offers individuals the chance to transfer part of their personal allowance to their husband, wife or civil partner, which could reduce their tax by up to GBP250 a year. For some couples, this could mean a backdated payment of up to four years of claims. It is free to apply for marriage allowance and HMRC is encouraging customers to claim directly through its online portal to ensure they receive 100 per cent of the tax relief they are eligible for.
Continuation of the home office equipment expenses COVID-19 easement for the 2021-22 tax year
An Income Tax exemption and corresponding NICs disregard were introduced for the 2020-21 tax year. This allowed employers to reimburse employees for the cost of home office equipment deemed necessary to work from home as a result of the COVID-19 outbreak free from Income Tax and Class 1 NICs. The exemption was due to end on 5 April 2021 but will now be extended to have effect until 5 April 2022.
New one-off £500 payment for working households receiving tax credits
Find out more about the coronavirus (COVID-19) support scheme for working households receiving tax credits, your eligibility and how to tell HMRC if your contact or bank details have changed.
If you are part of a working household that receives tax credits, you may be eligible for a new one-off payment of £500. The new payment is being introduced to provide extra support when the temporary increase in Working Tax Credit ends as planned on 5 April 2021.
You do not need to apply for the new payment. HMRC will contact you by text message or letter in April to confirm you are eligible. You do not need to contact HMRC.
This includes those who, on 2 March 2021, receive:
- Working Tax Credit payments
- both Working Tax Credit and Child Tax Credit payments
- Child Tax Credit payments and are eligible for Working Tax Credit but do not get a payment because their income is too high
If you are eligible, you should receive your payment by 23 April 2021.