After an unprecedented 12 months, with UK Gross Domestic Product falling by about 10%, Chancellor Rishi Sunak delivered his second Budget on 3rd March 2021.
Here are the highlights from the Budget affecting small business owners and the self-employed.
COVID-19 support for businesses
The government announced an extension of existing measures, and some new measures to help the economy through the coronavirus pandemic.
Furlough scheme extended to the end of September 2021
In advance of the budget, the Chancellor announced the extension of the furlough scheme (Coronavirus Job Retention Scheme or ‘CJRS’) until the end of September 2021. Workers will continue to receive 80% of their current salary for hours they don’t work because they’ve been furloughed.
The support will be provided by a grant to their employers. Employers will need to make a contribution of 10% of the worker’s salary for unworked hours in July, and a 20% contribution in August and September. The £2,500 monthly limit for the grant remains in place.
There was no announcement of any further support for small limited company directors who take most of their income through dividends and can only claim a small amount (or even nothing) on the CJRS scheme.
Check our CJRS article about claiming furlough relief for more information and information on making a claim.
New measures to help the newly self-employed through the Self-Employed Income Support Scheme (SEISS) and existing scheme extended to a fifth round
The scope of the SEISS grant has been extended, and the fourth grant under the scheme will now be available to individuals who began self-employment in the 2019/20 tax year, as well as those who have previously claimed.
Individuals who are eligible will be able to claim the fourth round of SEISS at 80% of average trading profits capped at £7,500 for three months. The fourth grant will be available in April. There will be a fifth grant to cover May, June, and July, likely to be available over the summer. If your turnover has fallen by 30% or more, you’ll receive the full 80% grant. If turnover has fallen by less than 30%, the grant is reduced to 30%. Check our article about claiming under the SEISS for more information.
To be eligible for the fourth grant, and for new entrants to the scheme, you must have filed a Self Assessment tax return for the 2019/20 tax year by midnight on 2nd March 2021. All other eligibility criteria will remain the same as the third grant. Further details will be published in due course.
Previous grants (applications for the third grant closed on 29th January 2021) have involved a taxable grant worth 80% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £7,500 in total.
Recovery Loan Scheme
From 6th April 2021, the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes. We’ll give further details on the new scheme once they’re available.
The previous loan schemes Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme will close as planned on 31st March 2021.
New Restart Grants to help businesses reopen in England
New ‘Restart Grants’ to help businesses in England reopen when lockdown begins to ease from April 2021 were announced:
- Non-essential retail businesses will receive grants up to £6,000 per premises.
- Hospitality and leisure, including personal care and gyms, which are more impacted by restrictions and may not open until later in the year, can each receive grants of up to £18,000.
Measures to help businesses reopen across the rest of the UK are expected to be announced in due course by the relevant devolved administrations.
Business taxes and allowances
Corporation Tax to increase for larger companies
The Corporation Tax rate will remain at 19% for business profits up to £50,000, but will have a tapered increase to a main rate of 25% for profits over £250,000 from April 2023.
The VAT cut to 5% will remain in place until the end of September for the hospitality and tourism industries. It will then rise to 12.5% for another six months before returning to the full 20% rate in April 2022. No other changes are being made to VAT.
The threshold for businesses to register for VAT will remain at £85,000 until 31st March 2024 when it will be reviewed.
Business investment tax relief and loss relief for businesses
A new “super-deduction” tax relief was announced for businesses to reduce their tax bill by 130% of what they spend on investment. The Chancellor also announced the extension of the normal loss carry-back rules from one year to three years for losses of up to £2 million. This will enable tax repayments to be claimed, providing relief and cash flow support for businesses.
Research and Development
A consultation will commence on the Research and Development tax credit regime.
Annual Investment Allowance (AIA)
In November 2020, the government announced the extension of the AIA’s temporary £1 million cap until the end of 2021. No other changes were announced.
Business rates reliefs
Eligible retail, hospitality and leisure properties in England will continue to receive 100% business rates relief from 1st April 2021 to 30th June 2021.
This will be followed by 66% business rates relief for the period from 1st July 2021 to 31st March 2022, capped at £2 million per business for properties that were required to be closed on 5th January 2021, or £105,000 per business for other eligible properties.
Nurseries will also qualify for relief in the same way as other eligible properties.
The apprentice hiring incentive in England was extended to September 2021 and the payment increased to £3,000. A flexi-apprenticeship scheme was also announced that will allow apprentices to work with multiple employers in a sector.
Statutory Sick Pay
Small and medium-sized employers in the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay (SSP) costs per employee from the government.
Help to Grow Programme
The Chancellor announced a new Help to Grow scheme to offer up to 130,000 companies across the UK a digital and management boost. The programme aims to help small and medium-sized businesses across the UK learn new skills, reach new customers and boost profits. Further information is on the Gov.uk website, where you can also register your interest.
Personal Tax, Allowances and Savings
Income Tax Rates and Thresholds
The basic personal tax-free allowance will increase to £12,570 from April 2021, and then it will stay at that level until 2026. The Higher Rate threshold will increase to £50,270 and will then also be frozen to 2026.
In the 2021/22 tax year the new National Insurance thresholds are:
- Lower Earnings limit remains at £6,240, earnings below this limit will incur no National Insurance Contributions
- Primary Threshold for employee’s Class 1 National Insurance increases to £9,568
- Secondary Threshold for employer’s National Insurance increases to £8,840
- Upper Earnings Limit (UEL)/Upper Profits Limit increases to £50,270
- Small profits threshold for Class 2 National Insurance for self-employed increases to £6,515
- The Lower Profits limit for starting to pay Class 4 National Insurance for the self -employed increases to £9,568 and the Upper profits limit for Class 4 National Insurance increases to £50,270.
No changes were announced to the rates of Income Tax or National Insurance.
Higher-income Child benefit charge threshold not increasing
Since January 2013, there has been a clawback charge on the higher earner of a couple where one claims Child Benefit and either has an income over £50,000. This has always been called the ‘High Income Child Benefit Charge’, but now for the first time, it appears that it can apply to a basic rate taxpayer, because there was no mention of a change to the £50,000 threshold, even though the Income Tax higher rate threshold did increase.
National Minimum Wage
The government confirmed that the National Minimum Wage would rise to £8.91 per hour. Further details in our article on the National Minimum Wage (NMW) and the National Living Wage (NLW).
The threshold for paying Inheritance Tax has not changed at £325,000 and will be maintained up to 2026.
Pensions Lifetime Allowance
The pension’s lifetime allowance remains at £1,073,100 and will be maintained at that level up to 2026.
Capital Gains Tax
The Capital Gains Tax annual exempt amount remains at £12,300 and will be maintained at that level up to 2026.
The band of savings income that is subject to the 0% starting tax rate will remain at its current level of £5,000 for 2021-22.
The adult ISA annual subscription limit for 2021-22 will remain unchanged at £20,000.
The annual subscription limit for Junior ISAs and Child Trust Funds for 2021-22 will remain unchanged at £9,000.
Universal Credit and Working Tax Credit
The government announced that the temporary additional £20 Universal Credit uplift will be extended by a further six months and also announced a £500 one-off payment for eligible Working Tax Credit claimants.
IR35 – planned changes for the private sector will come into force on 6th April 2021
As expected, there was no further news concerning the implementation of the IR35 changes in the private sector. The Chancellor resisted industry pleas for further delaying the introduction and the new rules will now apply from 6th April 2021. We have a detailed article on how contractors and businesses should get ready for IR35 in the private sector, as well as a wealth of IR35 related help and support on our IR35 Hub.
Alcohol and Fuel Tax
Duty on alcohol and fuel continues to be frozen for the next 12 months and planned increases are cancelled.
Stamp Duty Land Tax
The Chancellor announced that the stamp duty holiday for the first £500,000 Nil Rate Band of the purchase price will continue until the end of June. From 1st July 2021, the Nil Rate Band will reduce to £250,000 until 30th September 2021 before returning to £125,000 on 1st October 2021.
Mortgage Guarantee Scheme
A new mortgage guarantee scheme will be introduced in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000. Under the scheme, all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to.
The scheme, which will be available for new mortgages up to 31st December 2022, will increase the availability of mortgages on new or existing properties for those with small deposits. Our Crunch Mortgages team will be able to let you know more about how you can take advantage of any of the mortgage updates.
Where necessary, we’ll be updating this article and our related articles with further changes as more details are released. If you’re not already a Crunch client, please join our free self-employed community Crunch Chorus, to keep up to date with all the latest news and information that affects business owners in the UK, or sign up for our newsletter below.