Our Head of VAT, David McGeachy, reveals some surprising intel and rules around VAT which may very well be the ...
Rishi's revitaliser plan
3 March 2021
Much of the pre-Budget speculation consisted of whether it would be a ‘Budget for growth’ or a ‘Budget to repair’ the black hole in Government finances. The latter point perhaps failing to appreciate the finances of all Governments have been badly hit, but in the case of the UK, more specifically;
- Debt as a proportion of GDP was somewhat lower than other advanced economies in the EU and G7,
- Interest rates were at a historic low.
Speculation aside, in today’s Budget statement, the Chancellor set out his key objectives as follows;
- Support people and businesses,
- Fix public finances,
- Begin to build for the future.
Given this, we’ll deal with the points that specifically support people and business first…
Supporting people and businesses
JOb Retention Scheme (Furlough)
The Chancellor, Rishi Sunak, announced the furlough scheme will be extended to 30th September 2021.
In doing so, it’ll continue to pay 80% of employees’ wages for the hours they’re unable to work due to COVID restrictions. However, from July, employers will need to contribute 10% of the cost of the scheme, which will subsequently increase to 20% for August and September.
Extending this to 30th September allows for a gradual easing of business reliance on the scheme, and rather than having a ‘hard stop’ date in June, enables businesses just reopening, to phase their teams back gradually. The extension of the scheme provides additional security for employees up to 30th September 2021. The question still remains – what will happen to businesses and their employees, as we move into the Autumn and more importantly, whether the jobs will still be viable at that time.
Self Employed income support scheme (SEIss)
The SEISS has also been extended to 30th September 2021, which will give ‘eligible individuals’ access to a 4th and 5th grant.
The definition of eligible individuals will be extended to cover those who started as self-employed in 2019/20 and who were previously excluded from making claims, meaning an additional 600,000 individuals will be now eligible.
This extension to newly self-employed people will deal with some of the ‘excluded group’ who’ve had no support until now, but for all self-employed, the issue will arise post September as to what will happen once all support’s withdrawn.
Stamp Duty Land Tax (SDLT)
The temporary nil rate band of £500,000 for stamp duty’s had the effect of generating the largest number of new housing completions since 1983, and has helped the construction industry during an economically very challenging time.
This relief was due to end on 31st March 2021 and as such, could have led to a vast number of non-completions of existing transactions due to significant changes in Stamp Duty due. In order to avoid this economic damage, the nil rate band will be extended until 30th June 2021, in the hope that open transactions as of today, will still be able to complete on the basis agreed. Following this, in the 3 months to 30th September 2021 the nil rate band will be reduced to £250,000 before reverting to £125,000 on 1st October 2021.
This provides support to the housing and construction sectors and gives a bit of breathing space to complete existing transactions.
A temporary reduced rate of VAT of 5% had been applied to taxable supplies relating to hospitality, hotel and holiday accommodation for the period 15th July 2020 to 31st March 2021.
This will however, be extended to 30th September 2021 in the hope that this will coincide with a reopening of these sectors of the economy.
A new reduced VAT of 12.5% will then be introduced until 31st March 2022, with the aim of protecting some of the businesses who’ve suffered most in lockdown.
The VAT threshold for registration of £85,000 will also remain in force until 31st March 2024. This will therefore keep an estimated 3.6 million businesses out of the VAT regime.
Recovery Loan Scheme
Launching on 6th April 2021 and ending on 31st December 2021, the Recovery Loan Scheme gives access to additional funding from £25,000 to £10,000,000.
This can take the form of overdrafts, loans, or invoice finance facilities, and the government will guarantee 80% of the debt, with no personal guarantees being sought on any facility under £250,000.
The purpose of the finance is to help businesses recover from COVID-19 interruptions, but it’s important this finance isn’t seen as another way to ‘kick the can down the road’ and delay the inevitable decision that the company may simply no longer be viable.
restart business grants
Non-essential shops reopening in April 2021, will receive a restart grant of up to £6,000, depending on rateable value of their premises and for those premises still unable to reopen until June 2021, the grant will be increased to up to £18,000 – again the size of the grant’s linked to the rateable value of the premises.
fixing the finances
The ways the Chancellor’s proposing to begin fixing the public finances include…
To grow the economy, investors need to make a return on their investments and companies need to grow. The reduction in UK Corporation Tax rates from 28% in 2010 to 19% in 2021, led to an increase in the amounts of Corporation Tax raised and encouraged investment.
From 1st April 2023, companies with Corporation Tax profits below £50,000 will continue to pay a rate of 19%. Companies with taxable profits exceeding £250,000 will pay corporation tax at 25%. Taxable profits between £50,000 and £250,000 will be tapered accordingly, however these will be reduced by the number of companies under common control.
The proposal to raise the Corporation Tax rates from 19% to 25% from 1st April 2023, mirrors President of the United States, Joe Biden’s proposal to increase US corporate tax rates from 21% to 28%, and thus the UK retains an element of international competitiveness.
It’s forecasted that these changes won’t affect the vast majority of SMEs in the UK, with c.10% of companies expected to pay the 25% tax rate.
For accounting periods ending in the period 1st April 2020 to 31st March 2022, a 3-year loss carry back of up to £2,000,000’s been announced. This limit will also apply across groups.
This loss relief’s a welcome boost for SMEs whose businesses may have been adversely affected by the global pandemic and suffered significant trading losses as a result. They’re now able to carry these back, against earlier tax periods and obtain refunds of previously paid tax.
Tax rates and allowances
Personal tax allowances will be fixed for 4 years after 2021/22, with the personal allowance at £12,570, and the higher rate band at £50,270. The additional rate will continue at £150,000.
Although the Chancellor said this was progressive taxation, as it affects those who earn more the most, it could be argued that the freezing of rates is effectively a stealth tax, as inflation will mean more tax could be paid.
Personal tax and NIC rates remain at the same level as for 2021/22.
Nothing was said on Capital Gains Tax and the much anticipated increase in rates, although with the Capital Gains Tax consultation due for the Autumn, this may not be the last speculation on capital taxes.
building for the future
To encourage further investment and innovation in the economy, the Chancellor announced the following measures…
In the period 1st April 2021 to 31st March 2023 there will be;
- A 130% ‘super deduction’ on plant and machinery capital allowances,
- A 50% allowance on special rate assets.
Special rate assets are primarily integral features in a building, such as lighting, air conditioning and heating systems.
The taxable benefit’s up to 25 pence in the pound on qualifying asset investment and will encourage business owners to invest in the business and innovation to make it more competitive and sustainable in the future, as they’re getting a little more ‘bang for their buck’ from a tax perspective.
There were two main subsidies announced today and these covered ‘Help to grow – management training’, whereby the government will contribute 90% of training costs with a number of providers.
The second was the ‘Help to grow- digital training’, whereby training was available at no cost and a 50% discount was provided by the government on software to enable businesses to alter their trading platforms.
Both are a demonstration of the Government’s commitment to build a strong and flexible economy for the future.
This budget gave a sharp focus to assisting businesses and individuals who are still faced with uncertain times and trading conditions. However, there were a number of changes announced for future years which will bring additional tax burdens for businesses once the recovery’s gathered pace. There were a number of changes forecast that didn’t come through on this budget, such as Capital Gains Tax amendments and also immediate changes to Corporation Tax rates. This is seen as positive step for now and also avoids the adverse headlines that could result, were such changes levied today. The Chancellor’s reiterated his support for the economy and country as a whole, and has provided certainty in a number of areas for now.