The Spring Budget was delivered on 3 March 2021 as a 3-part plan, with the first and second parts focusing on COVID-19 support and recovery measures and the third part on furtherance of the Government’s green agenda.
This article focuses on the COVID-19 support and recovery measures announced by the Chancellor.
SPRING BUDGET – FIRST PART: COVID-19 SUPPORT
The CJRS has been extended to the end of September 2021. Key points are:
- Furloughed workers to continue receiving 80% of their salary for hours not worked.
- Employers will be required to contribute 10% for July 2021, and 20% for August and September 2021 towards furloughed workers’ hours not worked. The government’s contribution will decrease to 70% and 60% respectively for these months.
- Employers will continue being responsible to pay the Employers National Insurance and Employers pension contributions for hours not worked by furloughed workers.
It is anticipated that reliance on the CJRS will naturally decrease over the next 6 months as businesses take steps to return to full capacity.
The Fourth Grant, covering February 2021 – April 2021, has been set at 80% of 3 months’ average trading profits, and will be paid out in a single instalment. It will be capped at £7,500 in total. The 3 month average calculation will be based on an individual’s self-assessment tax return for the year ended 5 April 2020.
- A claim facility is set to be available from late April until 31 May 2021.
- HMRC will contact eligible taxpayers in mid-April.
The Chancellor also announced that there will be a fifth and final grant covering May to September 2021.
- Tax payers will be able to claim from late July if they are eligible for the Fifth Grant.
- The amount of the Fifth Grant will be determined by how an individual’s turnover has been reduced in the year April 2020 to April 2021.
- It will be worth 80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more, and
- 30% of 3 months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%.
- The 3 months’ average profits are likely to be based on the individual’s self-assessment tax return for the year ended 5 April 2020, however, the guidance is not clear on this point.
- Further details of the Fifth Grant will be published in due course but, like the CJRS, it anticipates a gradual return to pre-COVID-19 trading conditions.
The government is to provide a new Restart Grant in April to retail, hospitality, leisure and personal care businesses. This will be administered by local councils and will be targeted as follows:
- Non-essential retail businesses to receive grants up to £6,000 per premises.
- Hospitality, leisure and personal care businesses to receive grants up to £18,000 per premises.
Businesses should check with their local councils for instructions on how to apply for this grant.
As mentioned in our update of 8 January, the application deadline for the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS), and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) end on 31 March 2021.
In their place, the government has announced a new Recovery Loan scheme to continue providing funding support to businesses.
Loans under the Recovery Loan Scheme will be available to all businesses and will provide:
- loans from £25,000 up to £10 million,
- a government guarantee to lenders of 80% of the loan value.
Businesses which have taken out a CBILS, CLBILS or BBLS facility will be able to access the Recovery Loan scheme, although the maximum they are allowed to borrow will depend on their lender’s assessment and scheme requirements.
The British Business Bank is responsible for administering the Recovery Loan Scheme and a list of accredited lenders will be available on its website.
The Recovery Loan Scheme will launch on 6 April 2021 and is expected to be available until the end of 2021.
Our first COVID-19 rescue update of 30 March 2020 gave details of the business rates holiday introduced by the government for retail, hospitality and leisure businesses for 12 months. The Chancellor has now extended this holiday to the end of June 2021.
Furthermore, for the remaining 9 months to March 2022, business rates will still be discounted by 2/3rds, up to a value of £2 million for closed businesses.
A lower cap will apply for those businesses which have been able to stay open throughout COVID-19.
Businesses will need to apply through their local council to which they pay business rates.
Our update of 28 September 2020 included details of the extension, to 31 March 2021, of the temporary reduced rate of VAT (5%) for the hospitality and tourism industries.
The Chancellor has announced further help for these industries by:
- extending this reduced rate by another 6 months to the end of September 2021, and
- fixing an interim rate of VAT (12.5%) for another 6 months from October 2021 to March 2022.
These industries will only return to the standard rate of VAT (20%) from April 2022.
The aim of the temporary and interim rates of VAT is to enable businesses in hospitality and tourism to become more competitive by allowing them to reduce their prices for the consumer. A reduction in price is expected to help in regenerating activity in these industries following the significant slowdown due to the pandemic.
A temporary increase in the nil rate band for Stamp Duty Land Tax(“SDLT”) was introduced from 8 July 2020 as covered in our update of 14 July 2020.
This temporary measure was due to come to an end on 31 March 2021.
However, in his Budget statement, the Chancellor announced that this temporary increase in the nil rate band for residential purchases in England and Northern Ireland has been extended:
- The £500,000 nil rate band will be in place until 30 June 2021 , then
- A nil rate band of £250,000 will be in place between 1 July 2021 to 30 September 2021, and
- The nil rate band will return to the standard amount of £125,000 from 1 October 2021
This will benefit anyone buying a residential property over the coming months, and will take many home-buyers out of the SDLT charge completely. It will also mean that buyers who were concerned about missing the 31 March deadline should now be able to benefit from this temporary raising of the threshold.
SPRING BUDGET – SECOND PART: COVID-19 RECOVERY
The Personal Allowance threshold will rise to £12,570 from 6 April 2021 and will be frozen at that level up to 5 April 2026. The combined effect of the frozen personal allowance and future rises of inflation would be that consumers are left with less disposable income.
The Capital Gains Annual Exemption threshold will be frozen at its current rate of £12,300 until 5 April 2026.
All Inheritance tax thresholds, rates and the nil rate band will be frozen until 5 April 2026.
The pensions Lifetime Allowance has also been frozen at £1,073,100 until 5 April 2026.
As anticipated, the Chancellor announced an increase in the corporation tax rate, to be effective from 1 April 2023, giving companies time to recover from COVID-19. The changes will re-introduce differential rates of corporation tax for different-sized companies. The key points are:
- From 1 April 2023, the corporation tax rate will increase from 19% to 25% for companies with taxable profits over £250,000.
- Companies with taxable profits of £50,000 or less will continue to be taxed at 19%.
- Where taxable profits are between £50,000 and £250,000, the tax rate will be 25%, but companies will be able to claim marginal relief, making the effective tax rate to fall between 19% and 25% depending on the profit level.
- The taxable profit thresholds will be reduced by the number of associated and group companies as well as pro-rated for shorter accounting periods.
The tax relief available from trading losses has been extended in scope temporarily and businesses will be able to carry back such tax losses by three years as opposed to 12 months.
- This temporary extension applies for trading losses incurred
- By companies in accounting periods ending between 1 April 2020 and 31 March 2022.
- By unincorporated businesses for tax years 2020/21 and 2021/22.
- The losses will be carried back against later years first, on a last-in-first-out basis.
- There is no limit on the amount of trading losses that can be carried back to the preceding year. However, after that, a maximum of £2 million of unused losses are available for carry back against profits of the same trade for the earlier two years.
In order to encourage companies to invest, a super deduction claim and a 50% First Year Allowance (FYA) claim for capital allowances have been introduced.
Companies will be able to claim the following enhanced and accelerated reliefs for qualifying expenditure incurred from 1 April 2021 to 31 March 2023:
- A super deduction allowance of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances,
- A first year allowance (FYA) of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
These reliefs will not apply to any expenditure for which contracts have been entered into prior to 3 March 2021.
They will also not apply to property companies which are in the business of letting or leasing properties.
The rate of the super deduction will require apportioning where qualifying expenditure is incurred in an accounting period that straddles 1 April 2023.
The current annual investment allowance (AIA) which provides a deduction of 100% for qualifying expenditure of up to £1m is to be extended to 31 December 2021. Companies should review qualifying acquisitions between 1 April 2021 and 31 December 2021 to establish the most tax-efficient method of acquisition to take full advantage of available capital allowances.
Upon disposal of a super-deduction asset, the proceeds will be grossed up to 130% and treated as a balancing charge, rather than being reduced from the general pool. Disposals of 50% FYA special-rate pool assets will similarly give rise to a balancing charge. Therefore, these assets would need to be kept in a separate pool to ensure that they are easily identifiable.
In order to tackle fraud taking place in the various COVID-19 schemes, the government is to set up a new HMRC taskforce of 1,265 HMRC staff. This will include a particular focus on the CJRS and the SEISS grants claimed by employers and the self-employed.
There were no changes announced in respect of capital gains tax though we understand that the government intends to hold consultations in this area separately from the Budget as part of a wider review, not specific to COVID-19 recovery.