1. Super deduction for capital expenditure
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances. Under this measure a company will be allowed to claim:
- a super-deduction providing allowances of 130% on most new plant and machinery investments, effectively giving a tax saving of 24.7%. Without the relief expenditure would have been eligible for the Annual Investment Allowance (AIA), giving relief of 19%, but there is a cap on AIA claims which reduces from £1m to £200,000 on 1 January 2022. Therefore, this enhanced relief is both more valuable and larger in the scope of relief it provides for companies.
- Assets that are classified as ‘special rate’ assets for capital allowances, most commonly qualifying expenditure incurred as integral features within buildings, will be entitled to a 50% claim in the year of expenditure (giving tax relief of 9.5%), instead of the standard 6%.
This relief is not available for unincorporated businesses.
In the details there are rules for the treatment of sale proceeds for assets that have received enhanced relief, the eligible assets must be new and unused, and there are standard exclusions for items such as cars. However, under existing rules 100% relief can still be claimed for zero emission cars.
Companies should consider the timing of capital expenditure. In particular, bringing forward significant expenditure and projects which might have otherwise been incurred after March 2023. When making claims it will be important to optimise the use of Annual Investment Allowances for special rate assets and then utilise enhanced first year allowances for further eligible expenditure.
2. Increase to corporation tax rates
The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000 (or even lower if you have more than one company under common control).
The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Look ahead to assess your likely profitability in the current and future years. Do you have income and expenses which can be advanced/delayed to optimise your tax rate? If you are part of a group, you may want to consider the impact of your structure on the tax rates for each company in the group.
3. Enhanced loss carry back rules
Losses that have been incurred by a trading company or unincorporated business can ordinarily be carried back 12 months to the previous accounting period or tax year.
The trade loss carry back will be extended from the current one year entitlement to a period of three years. This means that trade losses can be carried back for three years, during company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses.
For companies, after carry back to the preceding year, a maximum of £2 million of unused losses will be available for carry back against profits of the same trade to the earlier two years. This £2 million limit applies separately to the unused losses of each 12 month period within the duration of the extension.
For individuals a separate £2 million cap will apply to the extended carry back of losses made in each of the tax years 2020/21 and 2021/22.
The £2 million limit applies separately to the unused losses of each tax year within the duration of the extension, but the existing ability to carry back losses one year remains unrestricted. Income Tax payers will not be subject to a partnership-level limit.
This measure will be extremely beneficial to businesses who have struggled through the pandemic. You should review whether losses can be carried back to generate tax refunds from the pre pandemic periods during the previous three years.
In July 2020, the government introduced a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions. In September 2020 the Chancellor extended the reduced rate to 31 March 2021.
The government has now announced an extension of the reduced rate until 30 September 2021. To help 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.
This extension is a very welcome measure for those in these sectors and operators should make sure they are prepared to take advantage of these rates.
5. Freezing of personal allowances
The personal allowance is currently £12,500. Budget 2018 announced that the allowance would remain at the same level until 2020/21 and the statutory provision to increase the allowance annually by CPI was to be overridden. The Chancellor has confirmed that the personal allowance will increase by CPI (0.5%) for 2021/22 to £12,570.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So for the current tax year there is no personal allowance where adjusted net income exceeds £125,000. For 2021/22 there will be no personal allowance where adjusted net income exceeds £125,140.
The Chancellor announced that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.
With the rates not increasing in line with inflation in the coming years, as an individual’s income grows, some will be pulled within the higher rate tax band, or into a tax band which previously they were not in.
Therefore, company owners should consider the impact on extracting profits from their business which, as well as the impact from the frozen personal allowances, may also be impacted by the change to Corporation Tax.
6. No changes to Inheritance tax or Capital gains tax
There were no changes to the capital gains tax rates, currently ranging from 10% to 28%. Furthermore, the capital gains tax annual exemption will remain at £12,300. Meanwhile, the inheritance tax allowance will remain at £325,000 and the additional main residence band of £175,000 will also remain the same.
Like the frozen personal allowance rates, the frozen inheritance tax and capital gains rates and bands for will result in some taxpayers incurring higher taxes than they would have done if the thresholds had increased in line with inflation.
It remains on the table that changes to capital gains tax could arise in the short to medium term following review by the Office of Tax Simplification. Entrepreneurs who are thinking about the sale of their business should consider whether to bring this forward to take advantage of current rates and reliefs which could be at risk of future change.
7. Consultation on R&D tax reliefs
It was promising to hear that a consultation will be launched with regards to R&D tax relief. This will cover whether the schemes should be amended to remain internationally competitive and if the current rates of relief are appropriate.
This includes the potential to widen the scope of what qualifies under the R&D relief, with some suggestions on whether cloud/data costs should now become allowable expenditure.
The enhanced 3 year loss carry back may also create additional opportunities for how companies can best utilise the R&D relief.
We urge businesses that have not yet claimed relief for R&D to consider whether this valuable relief might apply to them. Many activities qualify and we have assisted with claims across many industry sectors.
8. Coronavirus support schemes
In the Budget 2021 the Chancellor further extended the scheme to 30 September 2021. The level of grant available to employers under the scheme will stay the same until 30 June 2021. From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees’ wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough. The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:
- for July 2021 70% of furloughed wages up to a maximum of £2187.50 and
- for August and September 2021 60% of furloughed wages up to a maximum of £1,875.00.
Employers will need to continue to fund employer NICs and mandatory minimum automatic enrolment pension contributions.
The Budget 2021 confirmed details of a fourth grant. This will be 80% of three months’ average trading profits to be claimed from late April 2021. Payment will be in a single instalment capped at £7,500 in total and will cover the period February to April 2021. The scheme has been extended to those who have filed a 2019/20 self assessment tax return prior to 3 March 2021. This means that the newly self-employed from April 2019 now qualify subject to satisfying the other conditions.
A fifth and final grant was announced and can be claimed from late July 2021 to cover the period May to September 2021. This grant will be determined by a turnover test. Where the self-employed business turnover has fallen by 30% the grant will be worth 80% of three months’ average trading profits capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850.
Businesses and owners should consider what support measures are appropriate. Further details on support measures can be found on our COVID-19 information page.
9. Increased HMRC crackdown on fraud & avoidance
It was announced that up to 1,000 new HMRC officers will be put in place to target fraud by individuals and businesses claiming under the various COVID-19 support schemes.
Businesses that have made claims, or are considering making claims, under the COVID-19 support measures, should have steps in place or seek professional advice, to ensure they are eligible and fully compliant.
10. Residential stamp duty extension
The government will extend the temporary increase to the Stamp Duty Land Tax (SDLT) nil rate band for residential property in England and Northern Ireland to 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000. The nil rate band will return to the standard amount of £125,000 from 1 October 2021.
Any individual who is purchasing residential property should consider how these reduced rates will apply to them and accelerate completions where possible.
It should also be remembered that, while SDLT will continue to be reduced for domestic buyers, from the 1 April we will see the introduction of a 2% surcharge on rates for overseas buyers of UK residential property.
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