How Corporation Tax, Self-Employment, VAT and Charities fared in the Chancellor’s Budget 2021 statement

4th Mar 2021
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On 3rd March 2021, Chancellor Rishi Sunak opened the despatch box to share his financial plans for the country. In a statement that lasted almost an hour, Mr Sunak laid out his strategy for supporting businesses and individuals while the Prime Minister’s roadmap out of lockdown is enacted, and his further plans to help the public purse recover from the cost of that support. There was also news about stamp duty, mortgages, apprenticeships and the first eight Freeport locations in England.

Read on to see what could affect accountants in the coming years as a result of the Budget 2021.

How Corporation Tax, Self-Employment, VAT and Charities fared in the Chancellor’s Budget 2021 statement

The headlines from Budget 2021

  • £33bn spent supporting the self-employed during the pandemic
  • Apprentice payments doubled to £3,000
  • Restart Grants from £6,000 to £18,000 to help businesses reopen
  • Additional money for the £1.57bn Culture Recovery Fund
  • New Recovery Loans scheme with 80% government backing guarantee to lenders
  • Business rates holiday extended and new reductions after June
  • Extension of the VAT reduced rate for hospitality and tourism sectors
  • Personal Allowance frozen, and no increase in income tax, national insurance or VAT this year
  • Corporation Tax will rise in 2023 to 25% for businesses with profits over £250,000
  • Super Deduction announced to offset business investment in new equipment by 130% against tax
  • Eight Freeports announced for England to create customs zones with enhanced benefits for their local areas
  • Total fiscal stimulus between Spring Budget 2020 and Budget 2021 is £407bn

Corporation Tax static until 2023, but only 10% affected by the full new rate

Budget 2021 - Corporation Tax in brief

  • Corporation Tax stays at 19% until 2023
  • In 2023, the rate will be tapered to a maximum of 25%
  • The Small Profits Rate will mean businesses with profits below £50,000 remain at 19%
  • Between £50,000 and £250,000 profit, businesses will pay a tapered rate

We asked Ian Katté, CFO of BTCSoftware, whether the plans for a tapered rate of Corporation Tax would achieve the Chancellors goal of protecting small businesses.

Ask the CFO: Is this a real benefit to protect businesses? Which is better; 19% now or 25% in the future?

Please note: This is not to be taken as advice. Guidance can be obtained from your industry body.

There is to be a temporary extra two-year loss carryback facility – extending the current one year carry back to three years with a cap on losses that can be carried back more than one year set at £2m (applies per group, not per company).

A loss carryback could of course generate a tax repayment. It seems like good news, but will only save tax at 19%.

A 19% rate on profits up to £50,000 and a 25% rate on profits above £250,000 implies a marginal rate of tax on profits between those two amounts of 26.5%. So small companies could, within the tapered rate margin, see their tax rate jump by nearly 40% (19.5% -> 26.5%).

It might well, therefore, be better to carry the loss forward and save tax at 26.5% (for profits between £50,000 and £250,000) or 25% for companies with profits above £250,000.

Self-Employment support renewed

Budget 2021 - Self-Employment Support in brief

  • Confirmation of the fourth grant under the Self-Employment Income Support Scheme
  • Addition of a fifth and final grant that will be paid inline with an income impact test
  • 600,000 newly self-employed people now included
  • £33bn in total support for the self-employed since the pandemic began

Of note for accountants is the renewed Self-Employment Income Support Scheme. The Chancellor announced the expected fourth grant to cover 80% of average trading profits from February to April but also added a fifth and final grant from May.

With the February extended Self-Assessment deadline now passed, the SEISS will support 600,000 more people who filed their first tax return to HMRC for 2020/21. That is likely to be the reason further information was not released about the fourth grant prior to the Budget Statement; despite the previous grant ending in January, there were 1.8 million taxpayers still to file after the usual 31st January deadline who could well have missed out on the grant if it was announced in February.

Perhaps creating an additional headache for accountants will be the fifth grant which will include a turnover test. The level of support through the final grant will be determined by this test, with the severity of the pandemic’s impact on the Self-Employed deciding what value will be given.

£300m extra for the Culture Recovery Fund

Budget 2021 - Culture Recovery Fund in brief

  • An extension of the current fund to support cultural organisations in England
  • £2.8 million pledged to support the UK and Ireland’s World Cup 2030 bid
  • Charities registered with the Charity Commission can benefit

Many cultural organisations in the UK are charities that rely on donations and patrons attending their venues or shows to support their work. The announcement of further funding for Culture is likely to be welcomed by those charities, although there are charities in other sectors who appear to be lacking in specific support in this Budget.

VAT reduction extended to protect jobs in hospitality and tourism

Budget 2021 - VAT reduction in brief

  • Protection for 2.4 million jobs in hospitality and tourism
  • 150,000 businesses will benefit from reduced VAT for longer
  • The rate remains at 5% until 1st October then rises to 12.5% until April 2022

The Chancellor’s support for hospitality and tourism businesses goes beyond the Roadmap out of lockdown with a long-term view to help these hardest-hit sectors recover from the impact of the pandemic. The 5% reduced rate of VAT was planned to end on 31st March but now will remain in place until October 1st when the interim rate of 12.5% will come in for the following six months.

For affected VAT registered businesses using BTCHub, please get in touch with us by emailing [email protected] should you need access to our amended VAT template spreadsheets.

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