Introduction

Amidst the backdrop of the continuing COVID-19pandemic and the UK’s departure from the EU, Chancellor of the Exchequer Rishi Sunak’s second Budget was a balancing act premised on three foundations: supporting the economy and jobs, fixing finances and building the UK’s future economy.

Key measures announced included an increase in the rate of corporation tax to 25 percent from April 2023, a new 130 percent “super deduction” for expenditure on plant and machinery by companies and the extension of key COVID-19 supports.

On a Northern Ireland specific note, discussions will continue between the UK Government and the NI Executive on the delivery of Freeports in Northern Ireland. As part of this, the Government will legislate to create ‘tax sites’ in Freeports, which will benefit from a number of tax reliefs.

COVID-19 supports

The continuation of the coronavirus job retention scheme (“CJRS”) and the extensions to both the stamp duty land tax £500,000 zero rate threshold and the 5 percent reduced VAT rate for the hospitality sector gives businesses a fighting chance of a viable comeback. The Budget Day announcement that many of the newly self-employed in 2019/20 will be eligible for the fourth and fifth self-employed income support scheme grants is also welcomed.

Job retention scheme extension

The CJRS is extended for a further five months from the end of April 2021 to the end of September 2021. There will be no employer contributions required beyond employers NIC and pensions in the months of April, May and June.

From July, the Government will introduce an employer contribution towards the cost of unworked hours of 10 percent in July, 20 percent in August and 20 percent in September, as the economy reopens. Employees will continue to receive 80 percent of their current salary, capped at £2,500 per month, for hours not worked.

The CJRS has protected more than 11 million jobs since its introduction last March and was due to close at the end of April. Approximately 110,000 jobs in Northern Ireland are currently protected by the scheme. The budgeted cost of extending the scheme until September is £6.945 billion.

Self-employed income support scheme

As expected, details of the fourth self-employment income support scheme (“SEISS”) grant were announced. This will be worth 80 percent of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total and will cover the period February to April, and can be claimed from late April.

Self-employed individuals must have filed a 2019/20 self-assessment tax return which, according to the Chancellor’s speech, must have been filed by midnight on Tuesday, 2 March.

This means the fourth grant can now also be claimed by the newly self-employed in 2019/20, subject to the relevant criteria being met. All other eligibility criteria will remain the same as the third grant.

A fifth and final SEISS grant covering May to September will also be available. The value of the grant will be determined by a turnover test as follows:-

• anyone whose turnover has fallen by 30 percent or more will continue to receive the full grant worth 80 percent of three months’ average trading profits, capped at £7,500;
• anyone whose turnover has fallen by less than 30 percent will receive a 30 percent grant, capped at £2,850.

The final grant will open for claims from late July.

Stamp duty land tax zero percent threshold

The extension of the stamp duty land tax zero percent rate on residential properties in England and Northern Ireland costing less than £500,000, which was due to end on 31 March, is now extended to 30 June 2021. From July, the zero percent threshold will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.

5 percent VAT for the hospitality sector

The temporary 5 percent rate of VAT for goods and services supplied by the tourism and hospitality sector, which was due to end on 31 March 2021, will remain at 5 percent until 30 September 2021. To help businesses manage the transition back to the standard 20 percent rate, a 12.5 percent rate will apply for the subsequent six months until 31 March 2022.

Corporation tax (“CT”)

Rate of CT

From April 2023, the rate of corporation tax will increase from 19 percent to 25 percent on profits over £250,000. The rate for small profits under £50,000 will remain at 19 percent. According to the Budget documents, there will be relief for businesses with profits under £250,000 so that they pay less than the main rate.

Companies were expecting corporation tax to be reduced to 17 percent in April 2020; however, that reduction was put on hold in last March’s Budget, with the rate staying at 19 percent from April 2020.

A Budget policy paper confirms that the small profits rate will not apply to close investment-holding companies. The definition of a close investment-holding company will follow the definition previously found at Section 34 CTA 2010.

Marginal relief provisions will also be introduced so that, where a company’s profits fall between the lower and upper limits, it will be able to claim an amount of marginal relief that bridges the gap between the lower and upper limits providing a gradual increase in the rate of corporation tax.

The £50,000 lower and £250,000 upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

The 51 percent group company test relevant when determining if corporation tax instalments are required will be repealed and replaced by associated company rules. This will be the case for its application for determining whether a company is large or very large for quarterly instalment payment purposes or for determining whether a company may elect to use the small claims treatment for the Patent Box.

“Super-deduction” for plant and machinery

The Chancellor announced that from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery will benefit from a 130 percent first-year capital allowance.

Investing companies will also benefit from a 50 percent first-year allowance for qualifying special rate (including long life) assets which can include integral features (such as those integral to a building).

This relief will not be available to unincorporated businesses; however, such businesses can still take advantage of the extension of the £1 million annual investment allowance limit announced in November 2020, which will remain at this level until the end of 2021 (the limit was due to fall back to £200,000 from 1 January 2021).

The policy paper sets out that there will be exclusions for used and second-hand assets and expenditures on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021. Plant and machinery expenditure which is incurred under a hire purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.

The rate of the super-deduction will require apportioning if an accounting period straddles 1 April 2023.

R&D tax relief

For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability.

And, in line with the recommendations of the NI Tax Committee in its response to the consultation on the scope of expenditure for R&D Tax Credits, the Government is considering bringing data and cloud computing costs into the scope of relief. In addition, a review is being carried out of R&D tax reliefs, with a consultation published alongside the Budget.

Extended loss carry-back for businesses

A recommendation of this Institute in its July 2020 The Next Financial Year position paper, the trading loss carry-back rule will be temporarily extended to three years. This will allow for much earlier recognition and relief for losses and improved cash flow position with tax refunds.

The extended carry-back will be available to both companies and unincorporated businesses as follows:-

• Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020/21 and 2021/22;
• Companies in a corporate group will be able to obtain relief for up to £200,000 of losses in each of 2020/21 and 2021/22 without any group limitations;
• Companies in a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020/21 and 2021/22, but subject to a £2 million cap across the group as a whole (currently the cap for such groups is £5 million).

Deep freeze treatment for tax allowances and thresholds

The income tax personal allowance (which applies across the UK) and the higher rate thresholds (“HRT”) are increasing as planned to £12,570 and £50,270, respectively, from 6 April 2021. However, these will then be maintained at those levels until April 2026.

The HRT for savings and dividend income will apply UK-wide. However the HRT for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland only.

The current inheritance tax thresholds, pensions lifetime allowance and the capital gains tax annual exemption will remain at their existing levels until April 2026.

As legislated for in February 2021, in 2021/22 the national insurance contributions (“NICs”) thresholds will rise with inflation, bringing the primary threshold/lower profits limit to £9,568 and the upper earnings limit (UEL)/upper profits limit (UPL) to £50,270.

The UEL/UPL will then remain aligned with the HRT at £50,270 until April 2026. And finally, the 0 percent starting rate band for savings income will remain at £5,000 in 2021/22.

Other tax measures

Other key items flagged in Budget documents are:-

• The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022 (currently these are £85,000 and £83,000, respectively);
• The penalty regime for VAT and Income Tax Self-Assessment (“ITSA”) for late returns will be points-based and a financial penalty will only be issued when the relevant threshold is reached. A new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is and the Government will also introduce a new approach to interest charges and repayment interest to align VAT with other tax regimes. These reforms will take effect for VAT from periods starting on or after 1 April 2022, from accounting periods beginning on or after 6 April 2023 for taxpayers in ITSA with business or property income over £10,000 per year and for all other taxpayers in ITSA from accounting periods beginning on or after 6 April 2024;
• A call for evidence has been launched on whether and how more UK companies should be able to access Enterprise Management Incentives to help them recruit and retain the talent they need to scale up;
• The operation of social investment tax relief is extended to April 2023;
• From 6 April 2021, fuel benefit charges and the van benefit charge will increase in line with CPI;
• Fuel duty is frozen once again; however, air passenger duty rates will increase in line with RPI but not until April 2022; and
• The duty rates on beer, cider, wine and spirits are frozen for another year.

Administration, avoidance and evasion

The Budget documents confirm additional investment in HMRC and several avoidance and evasion measures.

Key areas are as follows:-

• A review will be conducted of large businesses’ experiences of UK tax administration;
• New powers will be introduced to make the possession, manufacture, distribution and promotion of electronic sales suppression (“ESS”) software and hardware an offence and new ESS-specific information powers will allow HMRC to identify developers and suppliers in the ESS supply chain and access software developers’ source code;
• The Government will consult on the implementation of OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and the seller themselves;
• A consultation will be launched on the implementation of OECD rules to combat offshore tax evasion;
• A summary of responses to the consultation ‘Tackling Promoters of Tax Avoidance’ is now published;
• The penalties that may be charged to anyone receiving a Follower Notice as a result of using tax avoidance schemes are being reduced from 50 percent to 30 percent of the tax under dispute. A further penalty of 20% will be charged if the Tax Tribunal decides that the recipient’s continued litigation against HMRC is unreasonable;
• From April 2023, the Government will make the renewal of certain licences in Scotland and Northern Ireland conditional on applicants completing checks that confirm they are appropriately registered for tax. In Northern Ireland, this will apply to licences to drive taxis;
• A civil penalty for the unauthorised removal of goods that have been seized from the trader’s premises will apply to traders removing seized goods without prior authorisation from HMRC; and
• The Government will invest a further £180 million in 2021/22 in additional resources and new technology for HMRC.

Conclusion

The Budget 2021 announcements and publications can be found on GOV.UK, which also links to HMRC’s dedicated Budget 2021 tax-related documents and announcements page. The main Budget documents are the Red Book, and the Overview of Tax Legislation and Rates (OOTLAR).

OOTLAR contains detailed tax information, including Tax Information and Impact Notes on all the Budget and Finance Bill measures.

As always, the devil is often in the detail; at the time of writing Finance Bill 2021 was still due to be published and on 23 March a number of other tax consultation and policy papers are also expected to be launched. The Budget 2021 coverage herein should therefore be read in that context.

Leontia is UK Taxation Specialist with the Advocacy and Voice Department of Chartered Accountants Ireland

Email: leontia.doran@charteredaccountants.ie

Web: https://www.charteredaccountants.ie/knowledge-centre