2021 Budget

This is the third in our series of seven blogs regarding the 2021 Budget delivered by the Chancellor, Rishi Sunak on 3 March 2021 and covers:-

1. Corporation Tax 

2. Super-deduction and Special Rate Allowance 

3. Extended Loss Carry Back for Businesses 

4. New Recovery Loan Scheme 

5. Preventing abuse of Research and Development (R&D) 

6. Reform of Self-Assessment Penalties and Interest 

1. Corporation tax 

• The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000

• The rate for small profits of under £50,000 will remain at 19%

• There will be relief for businesses with profits under £250,000 so that they pay less than the main rate. There are no details about this relief as yet.

• In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 so that it remains an effective deterrent against diverting profits out of the UK.

2. Super-deduction and Special Rate Allowance for Companies

From 1 April 2021 until 31 March 2023:-

• Companies investing in qualifying new plant and machinery assets will benefit from 130% first-year capital allowances.

This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest

• Companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets

Qualifying special rate expenditure includes expenditure on long-life assets, thermal insulation and integral features but excludes cars

To qualify for the super-deduction or Special Rate Allowance, the plant and machinery must be new and unused.

If qualifying expenditure is a result of a purchase contract entered into before 3 March 2021, the expenditure will not qualify for the new enhanced allowances. Companies planning on purchasing plant and machinery may wish to consider deferring the purchase until after 1 April 2021 in order to benefit from the enhanced Allowances.

3. Extended loss carry back for businesses

This measure will be available for both incorporated and unincorporated businesses.

Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses.

To help otherwise-viable UK businesses which have been pushed into a loss-making position by the Coronavirus pandemic, the trading loss carry-back rule will be temporarily extended from the existing one year to three years.

• Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses

• For companies this will apply to loss making accounting periods ending in the period 1 April 2020 to 31 March 2022. For unincorporated businesses , the extended loss relief will apply to losses incurred in 2020/2021 and 2021/2022.

4. New Recovery Loan Scheme

 The UK Government has already announced a longer repayment period for “Bounce-back” and CBILS loans.

https://jsca.co.uk/bounce-bank-loans-update/

From 6 April 2021 a new Recovery Loan Scheme will provide lenders with a guarantee from the UK Government that it will cover 80% of the value of 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.

https://jsca.co.uk/recovery-loan-scheme/

5. Preventing abuse of Research and Development (R&D)

Relief for small and medium-sized enterprises (SMEs)

For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability, in order to deter abuse.

6. Reform of Self-Assessment Penalties and Interest 

• The UK Government plans to reform the penalty regime for Self-Assessment to “make it fairer and more consistent”

• The new late submission regime will be points-based, and a financial penalty of £200 for each missed submission will only be issued when the relevant threshold is reached

• The new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is.

There will be no penalty at all if the tax is paid within 15 days of the due date.

The first penalty will be 2% of the outstanding amount if the tax is paid between 16 days and 30 days after the due date plus 4% of the outstanding amount if there is tax unpaid 30 days after the due date.

A second late payment penalty will be charged at a rate of 4% per annum, calculated on a daily basis on the total unpaid tax incurred from day 31.

This could lead to higher penalties for those who are persistently non-compliant but should reduce costs for those who are simply experiencing short term cash flow issues.

To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a Time to Pay Arrangement.

• These reforms will come into effect for taxpayers in Self-Assessment with business or property income over £10,000 per year, from accounting periods beginning on or after 6 April 2023 and for all other taxpayers in Self-Assessment with effect from 6 April 2024

Links to other 6 Budget Blogs

https://jsca.co.uk/budget-2021/

Income Tax and National Insurance

https://jsca.co.uk/budget-2021-2/

Capital Gains, Inheritance Tax, Pensions, ISAs, 95% Mortgage Guarantee and Wealth Tax

https://jsca.co.uk/budget-2021-4/

VAT and Duties

https://jsca.co.uk/budget-2021-5/

SDLT and LBTT, Licensing in Scotland, Freeports, Levelling Up Fund Prospectus Launch, Green Initiatives, Investment in HMRC and Funding for Scotland

https://jsca.co.uk/budget-2021-6/

Self Employed Income Support Scheme (SEISS)

https://jsca.co.uk/budget-2021-7/

Coronavirus Job Retention Scheme (CJRS)

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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