Budget 2021 – details

The Chancellor of the Exchequer Rishi Sunak has announced that the bill for addressing the coronavirus pandemic is currently £407bn, which is equivalent to 10x HS2 projects or 20 Crossrail’s.
 
Tax thresholds

The key financial changes announced in the budget are as follows: 
The basic rate income tax threshold has been slightly increased from April 2021 to £12,570 from £12,500 and the high rate threshold to £50,270 from £50,000. The thresholds will then stay at these levels for the following 5 years.
 
The inheritance tax nil-rate band will remain at the existing level of £325,000 and also the residence nil-rate band of £175,000 until at least 2026. The residence nil-rate band taper will continue to start at £2 million.
 
The capital gains annual exempt amount has also been frozen at £12,300 until 2026.
 
Dividends also escaped. The tax-free dividend allowance has been kept at £2,000.
 
Pensions
 
The pension lifetime allowance has also been frozen at £1,073,100 until 2026.
 
The state pension will however rise by 2.5% next tax year and the triple lock will remain in place.
 
Property
 
The 0% stamp duty land tax holiday on the first £500,000 has been extended until 30 June 2021. The threshold will then be reduced down to £250,000 for a further 3 months and then return back to £125,000 from October.
 
Lenders have been withdrawing from providing low-deposit mortgages. Therefore to help first time buyers the government is guaranteeing 95% loan-to-value mortgages up to £600,000.
 
Companies
 
From April 2023 corporation tax will increase for companies with profits above £50,000. Tapering from 19% up to 25% above £250,000. This will affect the UK companies, but as it is progressive and can be offset by ‘super deduction’ on business investment as companies investing can benefit from a 130% first-year capital allowance.
 
IR35 changes delayed from last year will go ahead in April 2021. Companies must now collect income tax and NIC from the contractor’s fee and pay it over to HMRC.
 
The furlough scheme will be extended until October 2021. However, employers will be asked to contribute 10% in July and increased to 20% in August.
 
The trading loss carry-back rule has also been extended from the existing one year to three years.
 
The VAT reduction for the UK’s tourism and hospitality sector has been extended until October 2021 and reduced rate of 12.5% will then be applied until April 2022.
 
Business rate reliefs have also been extended to July 2021 and then a reduced rate of 66% until April 2022.

Chancellor’s summer economic update – details

Chancellor, Rishi Sunak, has announced a range of measures to try and kick-start the economy.

The big story is a cut in VAT for the hospitality sector from 20% to 5% and this will apply to eat-in or hot takeaway food from restaurants, cafes and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, attractions like cinemas, theme parks and zoos. 

He also announced a temporary stamp duty holiday until January 2021 to stimulate the property market. This would exempt the first £500,000 of all property sales from the tax. 

The government will pay businesses a £1,000 bonus for every staff member that is kept on for three months when the furlough scheme ends in October. To qualify, the employee must be paid at least £520 on average, in each month from November to the end of January.

New schemes were announced to boost employment and training opportunities for 16 – 24 year olds.  This includes a ‘Kick Start’ scheme to assist those at risk of long term unemployment by funding six-month work placements to those on universal credit. Further support will be provided to young people in England: funding of £1,000 for each new work experience place; for apprenticeships – funding of £2,000 for each new apprentice aged under 25, and £1,500 for each new apprentice aged 25 and over, from 1st August 2020 to 31st January 2021. The apprenticeship payments will be in addition to the existing £1,000 funding that is provided for young apprentices.

There was also a scheme announced that will be launched in August to give 50% off to people dining out.  The scheme will mean 50% off meals eaten at any registered business between Monday to Wednesday in August, up to a maximum discount of £10 per head (including children).

Chancellor splashes another £30b

UK Chancellor of the Exchequer Rishi Sunak pledged an additional GBP 30 billion to support employment, on top of the GBP 133 billion in coronavirus measures he has already unveiled. The money includes over GBP 5 billion in accelerated infrastructure spending, about GBP 9 billion for employers to retain workers through the end of January, funds for home insulation, and help for homebuyers and for hospitality firms.

COVID-19 – Help for the self-employed

If you have at least one year’s self-assessment history and have filed your 2018-19 tax return, you are eligible as long as you have trading profits of under £50,000 per annum.

You will receive a taxable grant of 80% of your average profits. You do not need to apply, you should receive details in the post and the grant in June.

COVID-19 – Employee homeworking expenses

In general, the reimbursement by an employer of employee expenses is treated for tax purposes as earnings from the employment for the tax year in which they are paid (ITEPA 2003 ss 70 and 72) and will be taxed in the normal way. There is, however, an exemption for ‘homeworking arrangements’ which covers payments made by an employer to an employee in respect of reasonable additional household expenses incurred in carrying out duties of their employment at home (ITEPA s 316A). This is currently up to £4 a week (or £18 a month) but, as announced in the Budget, will be increased to £6 a week from 6 April 2020. An exempt homeworking payment under s 316A can be made to employees who work at home under a voluntary homeworking scheme (which is a crucial difference to other expenses claimed by employees outside of these arrangements).

Costs that may be covered by such homeworking payments include additional costs of heating and lighting the work area or the metered cost of increased water use, provided that the additional household costs are reasonable and incurred in carrying out the employee’s duties. There might also be increased charges for internet access, home contents insurance, business telephone calls or the additional cost incurred as a result of business rates liability (EIM01474). Broadband costs will only be tax exempt if the employee is not already paying for a broadband connection (EIM01475). Payments for costs that would be incurred whether or not the employee worked at home – for example, mortgage interest, rent, council tax or water rates – will not be tax exempt.

COVID-19 Self-employed July payments deferred

The chancellor has announced that payments under income tax self-assessment, normally due on 31 July 2020, will be deferred until 31 January 2021.

During this period, individuals will not be charged any penalties or interest for late payment.

The deferral will apply automatically to all. Taxpayers who believe that their 2019/20 income will be lower than their 2018/19 income can make a claim to reduce their payments on account.  

COVID-19 VAT deferment

Deferment of VAT payments is effective immediately. Businesses should cancel their VAT direct debits to HMRC now; otherwise payments will still be taken automatically. 

These VAT direct debits should be restarted after 30 June 2020. The deferment applies to VAT payments due to be made to HMRC between 20 March 2020 and 30 June 2020.  HMRC says that interest will not be applied to the deferred VAT payments.

However, VAT returns must still be submitted on time: it is only the payment which is deferred. 

Budget 2020

We have summarised Mr Sunak the new Chancellor’s 2020 budget for you.

  • National Insurance (NI) threshold raised to £9,500 up from £8,632
  • Pension taper increased to £200,000 from £110,000 – this helps pension funding restrictions
  • Junior ISA annual limits increased to £9,000 from £4,368. Adult limit remains at £20,000.
  • In the UK the income tax rates and allowances remain at £12,500 for the personal allowance and £50,000 the higher rate threshold
  • The Capital Gains Tax (CGT) allowance has increased to £12,300 for individuals
  • The Inheritance Tax (IHT)  residence nil rate band increases to £175,000 taking the overall IHT allowance up to potentially £500,000 per person
  • Entrepreneurs Relief lifetime allowance reduced to £1million
  • Off-payroll working rules (IR35) reform still scheduled for April 2020
  • Corporation tax rate to remain at 19%

Autumn 2018 Budget

As the government is busy at the moment the Chancellor did not introduce many initiatives. The key changes were:

  • There is a new capital allowance for new non-residential structures and buildings.
  • The apprenticeship levy would be halved to 5% from 10%
  • Don’t forget making tax digital for VAT returns comes into force on the 1st April 2019.