Budget 2021: The rabbits that knew their placeby
So many rabbits had escaped – or been pulled - from the Chancellor’s hat over the last week that some commentators were starting to wonder if there were any left to emerge on Budget day.
Emerge, however, they did (though most of the ones that caught my attention were not in the Chancellor’s speech, but in the Red Book and in documents released by HMRC).
Bleak economic outlook
The Chancellor had an incredibly difficult economic canvas on which to paint. The Covid-19 pandemic has pushed government borrowing to unprecedented levels: it is set to hit £2.456tn by 2026 (though that is £258bn lower than had been predicted in the March Budget).
While the government will continue to borrow in each of the next five years, borrowing as a percentage of GDP is forecast to fall each year.
Business tax measures
Reform of the business rates system was well overdue and some targeted reliefs were announced in the speech, particularly for hospitality, leisure and retail businesses.
Businesses looking to invest in new equipment will have welcomed the continuation of the current £1m annual investment allowance limit through to 31 March 2023.
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The extension of R&D relief to include data and cloud computing costs was also good news and I will be interested to see – later in the autumn - HMRC’s plans for tackling abuse of the R&D tax regime and improving compliance.
Basis period reform
The basis period reform proposals, taking effect from April 2024, are a mixture of good and bad news.
Yes, they will do away with the double taxation of early year profits and the need for overlap relief, but for businesses with year ends other than 31 March or 5 April they will bring a new complication: the need to apportion accounts into tax years.
For businesses with year ends between 31 December and 28 February (and in reality, probably between 31 October and 28 February) it will mean using estimates. HMRC believes that 528,000 business will have to apportion accounts; 278,000 sole traders and partners will have to use estimates and submit amended returns.
At a time when we are looking to harness technology to give greater certainty, introducing the need for estimates seems to me a retrograde step. For those facing higher tax bills due to the transition in 2023/24, at least there is a transitional relief.
More rabbits in the undergrowth
Other rabbits lurking in the undergrowth included an extension to 60 days of the 30-day time limit for making a CGT return and paying the tax on the sale of a UK residential property (a recent OTS recommendation) and a change applying both prospectively and retrospectively to the law on discovery assessments, aimed specifically at failure to declare HICBC, Gift Aid and certain pension liabilities.
While there was nothing new on MTD, more funding was announced for the Single Customer Record/Single Customer Account, which will be vital components in improving taxpayer interaction and also additional funding to modernise HMRC’s IT systems and increase their resilience.
So, for all the rabbits that escaped in the week before the Budget, several still knew their place and waited patiently for Budget Day. Not a bumper Budget for tax announcements, but I for one am not complaining about that.
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Paul Aplin was for many years a tax partner with an independent West Country firm. He is a past president of ICAEW, a former Chair of the ICAEW Tax Faculty, a member of CIOT Council and the Tax Technology Committee of CFE. He is a non-executive director of three companies, a member of HMRC’s Admin Burdens Advisory Board and the OTS Board....