Spring Budget 2021: Bulletin
Plotting a road to recovery through a new economic landscape

Following the success of the “Future Fund”, the Government has launched a new £375 million fund referred to as the “Future Fund: Breakthrough” initiative.

Unlike the original “Future Fund” (which was set up by the Government last year in a bid to save early-stage tech companies), this new fund is aimed at larger scale-ups which focus on highly innovative research and development and seek a minimum of £20 million in funding. Government investment will again be provided through the British Business Bank.

The Coronavirus Job Retention Scheme which started operating from 1 March 2020 has been extended until the end of September 2021. The scheme was originally due to end this coming April.

For periods up to 30 June 2021, employers can continue to claim 80% of an employee’s usual salary for hours not worked, up to a maximum of £2,500 per month, and there will be no employer contributions beyond National Insurance and pensions. From July 2021, the Government will introduce an employer contribution towards the cost of unworked hours (10% in July and 20% in August and September).

The Government has also extended its support for individuals who are self-employed by way of two additional grants under the Self-Employment Income Support Scheme. It is estimated that an additional 600,000 self-employed individuals will be able to access the scheme. The first additional grant will run from February until April (covering up to 80% of three months’ worth of trading profits, with the grant being capped at £7,500).

The second additional grant will run from May to September. Self-employed individuals whose turnover has reduced by 30% or more will again be able to befit from an 80% grant under the scheme (capped at £7,500). However, self-employed individuals whose turnover has reduced by less than 30%, will only be able to claim a 30% grant, capped at £2,850.

In order to provide a further boost to the property market, the temporary increase to £500,000 of the SDLT nil rate band for residential property in England and Northern Ireland will continue until 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000. From 1 October 2021 it will return to the previous standard amount of £125,000.

The temporary reduced rate of VAT of 5% for hospitality, holiday accommodation and certain attractions that are not already covered by the cultural exemption will be extended until 30 September 2021. A new reduced rate of 12.5% will then be introduced from 1 October 2021 until 31 March 2022 at which point the rate will revert to the standard rate of VAT (currently 20%).

The business rates holiday granted last year, which was aimed at lifting the burden on retailers and other high street businesses during the Covid-19 pandemic, has been extended for an additional three-month period (ending on 30 June 2021). Eligible business will continue to receive the 100% business rates relief until then. This will be followed by 66% business rates relief from 1 July 2021 until 31 March 2002, capped at £2 million per business for properties that were required to be closed on 5 January 2021 or £105,000 per business for other eligible properties.

So far the Government has underwritten £10 billion in rates concessions in an effort to support the affected sectors.

After a full year of mounting costs of the Covid-19 pandemic, with more to come, it was clear that the Chancellor had to face some hard choices and that some ‘nasties’ could not be avoided. However, if a previous commitment not to raise the rates of income tax, National Insurance or VAT was to be honoured, there was limited scope for action.

The rates of income tax will remain unchanged, and the personal allowance and basic rate limit will increase this year in line with the Consumer Price Index (same as in previous years). For the 2020/21 tax year, the personal allowance will increase from £12,500 to £12,570, the basic rate limit from £37,500 to £37,700, and (consequently) the higher rate threshold from £50,000 to £50,270.

Thereafter, these numbers will be frozen for the following four tax years up to (and including) 2025/26. While this measure is stated not to reduce “take home pay”, it will be a de facto increase in taxation, and its impact (once inflation is factored in) is likely to be significant.

The main rate of corporation tax will be increased from 19% to 25%, from April 2023.

The Government has described this policy as having the “objective to raise revenue whilst keeping the United Kingdom’s rate of Corporation Tax competitive relative to the other major comparable economies and excluding the least profitable businesses from the increased rate”.

The increased corporation tax main rate will not apply to companies with profits not exceeding £50,000, which will instead pay corporation tax at the “small profits rate” (remaining at 19%). Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25%, but will be able to claim marginal relief (providing a gradual increase in the effective corporation tax rate).

The Chancellor announced that the band of saving income that is subject to the 0% rate will not increase from its current level of £5,000 for the 2021/22 tax year. This applies to the whole of the UK.

For the next five tax years, the pension lifetime allowance will not be increased annually by reference to the Consumer Price Index (as has been done in previous years), but will be frozen at £1,073,100.

The current capital gains tax annual exempt amount will be maintained at its current level until the 2025/26 tax year (inclusive). This will come into effect from 6 April 2021.

The current annual exempt amount is £12,300 for individuals, personal representatives and some types of trusts for disabled people, and £6,150 for trustees of most settlements.

The Finance Bill 2021 will legislate for a temporary extension of the period over which incorporated and unincorporated businesses may carry-back trading losses.

The current period allowed for carrying back trading losses is one year, which will be extended to three years. This extension will apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 and to trading losses made by unincorporated businesses in tax years 2020/21 and 2021/22.

For companies, the amount of trading losses that can be carried back to the preceding year remains unlimited. 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 2 years. This £2 million limit applies separately to the unused losses of each 12-month period within the duration of the extension.

This means there will be a cap of £2 million on the extended carry back of losses incurred in accounting periods ending in the period 1 April 2020 to 31 March 2021 and a separate cap of £2 million on the extended carry-back of losses incurred in accounting periods ending in the period 1 April 2021 to 31 March 2022.

A group-level limit will also be put in place, which will require groups including companies that have the capacity to carry back losses in excess of £200,000 to apportion the £2 million cap between the group companies. The Government will publish further details as regards the group limit in due course.

For unincorporated businesses, the amount of trading losses that can be carried back to set against profits of the preceding year remains unlimited. The current restrictions to carry back losses from a trade against general income will remain.

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.

This £2 million limit applies separately to the unused losses of each tax year within the duration of the extension.

The Chancellor announced new first year capital allowances for investment in plant and machinery assets, where the qualifying expenditure is incurred between 1 April 2021 and 31 March 2023. This will be a temporary 130% super-deduction for main rate assets (instead of an 18% writing down allowance), and a temporary 50% first-year allowance for special rate assets (instead of a 6% writing down allowance).

According to the Government, the measure is “designed to stimulate business investment by increasing the incentive to invest in plant and machinery”.

In addition to the above-mentioned initiative, the temporary £1 million limit (increased from £200,000) for the annual investment allowance (AIA) will be extended by one year. Legislation will be introduced in Finance Bill 2021 to implement this. This change will have effect from 1 January 2021 to 31 December 2021.

The Chancellor announced a review of the R&D tax reliefs regime. A consultation on the subject matter has been published alongside the Budget.

The review will primarily consider the elements relating to the two R&D tax relief schemes in place today, which are:

• the research and development expenditure credit (RDEC): and ‘above-the-line’ credit equal to 13% of qualifying R&D costs; and
• research and development relief for small and medium-sized enterprises (SMEs): an additional deduction of £130% of qualifying costs from an SME’s profits on top of the normal 100% deduction and, if loss-making a tax credit worth 14.5% of the surrenderable element of the loss.

The aim of this review is to ensure that the United Kingdom remains a competitive location for cutting-edge research and that taxpayer funds are used effectively.

A cap will be put in place as regards the amount of payable R&D tax credit that can be claimed by an SME. The cap will be £20,000 plus 300% of its total PAYE and National Insurance contributions for the period.

A company can be exempt from the cap if:

• its employees create, prepare to create or manage intellectual property; and
• it does not spend more than 15% of its qualifying R&D expenditure with connected persons.

The aim of this measure, according to the Government, is to deter abuse as regards the amount of payable R&D tax credit that a business can receive in one year. The exemption from the cap outlined above is designed to exempt companies with low PAYE and National Insurance costs, but which are nevertheless themselves engaged in genuine, substantial R&D.

The Government will be publishing a call for evidence to explore whether and how to expand the EMI scheme to additional UK companies. The EMI scheme is a tax advantaged share option scheme that is popular with qualifying companies for its tax benefits and relative ease of information. This measure is part of an initiative to help UK companies to attract and retain talent.

HMRCs desire to stamp control on “atypical” working arrangements continues with the introduction, finally, of the off-payroll rules for private companies. As you will no doubt be aware, from 6 April 2021, there are tough new rules on suppliers providing services through personal service companies – essentially the risk will move to the end user from 6 April 2021 (unless the end user is “small”). The end user is almost certainly not going to want to take on that risk and so will usually require that the individuals are provided by an entity operating PAYE (themselves or through outsourced arrangements) or are taken on directly by the end user as employees.

This means that companies operating in the gig economy face more hurdles just after the Uber case in the Supreme Court which gave their drivers worker rights.

There are some Covid-19 related changes, e.g. to exclude employer financed Covid tests from employment income tax and to avoid tax penalties for employer provided cycles which are not being used to cycle to work at the moment! Also, until April 2022, employees who are furloughed or working reduced hours due to Covid may continue to meet the working time requirements for EMI schemes.

There will be no changes to the VAT registration and deregistration thresholds until April 2024, so that:

• the taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000; and
• the taxable turnover threshold, which determines whether a person may apply for deregistration, will remain at £83,000.

This is intended to provide businesses with continuing certainty and should still keep an estimated 3.6 million small businesses out of VAT.

The VAT deferral new payment scheme will allow businesses to make monthly payments of VAT deferred under previous Covid-19 relief measures from March 2021. Payments can be made in up to 11 interest-free instalments between 2021 to 2022. Businesses that do not choose this option must pay deferred VAT by 31 March 2021. Where the deferred VAT is not paid and there is no arrangement to pay, a penalty will arise.

An SDLT surcharge will be introduced for non-UK residents purchasing residential property (freehold and leasehold purchases) in England and Northern Ireland from 1 April 2021. Individuals will be treated as non-UK resident for that purposes if they spent fewer than 183 days in the UK in the 12 months ending with the date the transaction occurs.

The surcharge will be 2% points above the existing residential SDLT rates and apply on top of the relevant SDLT rates.

The Government will consult later this year on draft regulations to implement the OECD’s Mandatory Disclosure Rules, which facilitate global exchange of information on certain cross-border tax arrangements, in order to combat offshore tax evasion. This will replace DAC6 which following the conclusion of the EU-UK Trade and Cooperation Agreement no longer needs to be implemented in the UK to the extent obligations under DAC6 exceed obligations under the OECD’s Mandatory Disclosure Rules.

The Government will introduce a new power in the Finance Bill 2021 which will enable the implementation of OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and to the seller themselves.

This is intended to help taxpayers in the sharing and gig economy get their tax right, and also to help HMRC to detect and tackle tax evasion where it arises. A consultation will be carried out this summer.

This Spring Budget contains a host of other anti-avoidance provisions, which are meant to deter taxpayers and advisers alike from using, promoting and marketing tax avoidance schemes.

Such measures include a confirmation that the Government will legislate in the Finance Bill 2021 to take further action against advisers who promote and market tax avoidance schemes. Such action will (among other things) strengthen HMRC powers to tackle enablers of anti-avoidance schemes (including issuing penalties to such enablers), stop promoters from marketing and selling avoidance schemes and extend the remit of the General Anti-Abuse Rule (GAAR) to tackle avoidance using partnerships.

The Finance Bill 2021 will also include a change to penalties that may be charged to people receiving Follower Notices as a result of using avoidance schemes, where the rate of penalty will be reduced from 50% to 30% of the tax in dispute. The 20% difference will be charged if the tax tribunal determines that the recipient of a Follower Notice has continued their litigation against HMRC on an unreasonable basis. This new penalty structure is thus designed to encourage taxpayers not to pursue litigation concerning an avoidance scheme against HMRC.

HMRC’s civil information powers will also be expanded so that HMRC will be able, in certain circumstances, to issue a “Financial Institution Notice” requiring a financial institution to provide information to HMRC about a specific taxpayer, without the need for approval by the independent tax tribunal.

All those measures will take effect when the Finance Bill 2021 receives Royal Assent.