Charles Blondin, whose name is synonymous with tightrope walking, has a new rival in Rishi Sunak, whose budget on Wednesday was a masterclass in walking a fiscal tightrope.
The Chancellor was seeing government debt shooting up to near record levels, with the number of individuals on just one of his economic lifelines, The Furlough Scheme, rising to a gnat’s whisker under 5 million by the end of February. Rishi was uncomfortably aware that this rising mountain of debt would become unsustainable in the not-to-distant future.
Unfortunately for the Chancellor, he knew that the only tax rises would fundamentally solve the problem, but poor old Rishi was effectively hamstrung by Boris’s election promise to freeze the rates of the 3 biggest taxes: VAT, Income Tax and National Insurance, for the life of this parliament. So, what did Rishi do?
Budget 2021: The good news for individuals
- The Furlough Scheme will be extended until the end of September, however the Government will only be paying 80% of employees’ wages for hours they cannot work until June, with employers being asked to contribute 10% in July and 20% in August and September
- The £20 weekly uplift in Universal Credit is to be extended for another six months
- Working Tax Credit claimants will get a £500 one-off payment
- Minimum wage to increase to £8.91 an hour from April 2021
- The 20% & 40% tax thresholds are rising by a rather miserly £70 and £270 respectively from April
- Benefits-in-kind charges for employer-provided bicycles and Covid-19 tests are scrapped and electric vans will attract zero benefit charge and electric cars just 1% of list price
- The Stamp duty holiday on house purchases is extended to 30th June, with no tax charged on sales of less than £500,000. After this date, the starting rate of stamp duty will be £250,000 until the end of September, before returning to the usual level of £125,000
- Duties on spirits, wine, cider and beer, to be frozen for the second year running
- Fuel duty to be frozen for the eleventh consecutive year
Budget 2021: The bad news for individuals
- The Chancellor kept Boris’s promise not to raise the rates of Income Tax, but he effectively did so by freezing the basic rate tax-free allowance at £12,570 from April 2022 to 2026
- Also, the higher rate income tax threshold is to be frozen at £50,270 from 2022 to 2026
- The nil-rate band of £325,000 before Inheritance Tax is payable, will be frozen until 2026
- The Capital Gains Tax annual exemption of £12,300 will be frozen until 2026 and he hinted that the rates of CGT, currently 10% & 20%, which are half the Income Tax rates, will be raised in future
- The Pensions Lifetime Allowance has been frozen at its 2020/21 level of £1,073,100 until 2026
- Tobacco duties to rise by inflation plus 2%
Budget 2021: The good news for business
- The delayed fourth self-employed grant (SEISS-4) has been revealed to be set at 80% of the trader’s average trading profits, capped at £2,500 per month and will be paid in one lump sum for three months, as will SEISS-5 for the 3 months May, June & July, but with tighter eligibility rules
- 600,000 more self-employed people will be eligible for help as access to grants is widened by including recently submitted 2020/21 Tax Return data
- The business rates holiday has been extended until June, when a transitional 66% relief will come into effect until the end of March 2022, subject to a maximum claim of £2m
- The CT rate to be kept at 19% for about 1.5 million smaller companies with profits of under £50,000
- The impact of Covid-19 on affected industries such as hospitality, has been recognised with the temporary 5% VAT rate being kept until 30 September 2021, it will then rise to 12.5% until April 2022, when it reverts to the standard 20%
- A new Help-to-Grow scheme will provide £5,000 vouchers to help 100,000 businesses employing between 5 and 249 employees train up and invest in “productivity-enhancing software”
- A new loan scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10m and can be used for “any legitimate business purpose, including growth and investment” and will remain open until 31st December 2021
- Incentive payments to encourage businesses to hire new apprentices have been doubled to £3,000
- Tax breaks are being introduced to encourage investment, with firms being able to deduct all investment costs from tax bills, reducing taxable profits by an enhanced 130%
- £5bn in Restart grants for shops and other businesses in England forced to close. giving £6,000 per premises for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
- Business losses in each of 2020/21 and 2021/22 of up to £2 million can be carried back up to 3 years against earlier profits to claim a CT rebate of up to £760,000
Budget 2021:The bad news for business
- Corporation tax (CT) on company profits above £250,000 to rise from 19% to 25% in April 2023
- CT on company profits between £50,001 and £250,000 to rise on a sliding scale from 19% to 25% over the same period
Budget 2021: Tax Accountant’s Comment
This year’s budget announcements were a bit like the proverbial ‘curate’s egg’, with plenty of good news, but with the much smaller amount of bad news, really carrying a massive sting in the tail.
Apart from the Corporation Tax rate increase, most of the heavy lifting was down to the freezing of allowances and thresholds (known as ‘fiscal drag’). There was nothing from the Office for Tax Simplification review of Capital Gains Tax and the widely rumoured ‘wealth tax’ was nowhere to be seen. Also, there was nothing on “levelling the playing field” between employees and the self-employed.
But might we hear what he plans to do in future budgets, when the promised batch of consultation documents and fine details of this budget, are published on 23rd March? So watch this space!