Income Tax Personal Allowance and the basic rate limit
The personal allowance and basic rate limit will be maintained at their 2021/22 levels up to and including 2025/26. The Personal Allowance at £12,570, and the basic rate limit at £37,700 will be set for tax years up to 2025/26.
The higher rate threshold (the Personal Allowance added to the basic rate limit) is therefore £50,270. The National Insurance Contributions Upper Earnings Limit and Upper Profits Limit remain aligned.
From 2026/27 onwards, existing legislation means that the Personal Allowance and basic rate limit will be indexed with Consumer Price Index (CPI).
Maintaining the personal allowance and basic rate limit saves the largest earning population from increased tax costs. However, not increasing the allowance for four years could have a detrimental impact for lower earners in particular, if we face interest rate rises or inflation:
The minimum wage is to rise from 1 April by 2.2% i.e. for 23 and 24 year olds to £8.91, which is 71p more an hour than previously. The increase is unlikely to result in more savings or investment but instead it will be spent thereby potentially injecting money supply into the economy potentially resulting in growth.
Temporary Income Tax and National Insurance Contribution exemption for home-office expenses
The temporary Income Tax and Class 1 National Insurance contributions (NICs) exemption for employer reimbursed expenses that cover the cost of relevant home-office equipment is extended. The exemption was due to end on 5 April 2021 and is now extended until 5 April 2022. This measure would appear to fairly account for home workers during the pandemic.
Off-payroll working rules from April 2021
The off-payroll working rules have been in place since 2000. The rules apply to engagements with medium or large-sized client organisations in the private and voluntary sectors. The rules aim to tax an individual who provides personal services through their own limited company as if they were an employee. The rules do not apply to a ‘genuine’ self-employed person.
The responsibility for operating the rules moves to the business being supplied with the individual’s services. The current 5% allowance for administering the rules, which is available to suppliers that are caught is being removed from 6 April 2021. The allowance continues to be available to suppliers to small organisations outside the public sector.
There is a new requirement for public sector organisations to issue a Status Determination Statement, which should include the reasons for the status decision.
Engagements with small client organisations outside the public sector are exempt. The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:
- An annual turnover of more than £10.2 million.
- A balance sheet total of more than £5.1 million.
- More than 50 employees.
Provisions will allow in certain circumstances, the transfer of liability and the passing of information are to be included.
Whilst the rules do not apply to all organisations, it does not mean that smaller businesses can simply engage workers on a self-employed basis rather than as an employee. Whether the relationship between a worker and a business is one of employee and employer is largely based on how well that worker is integrated into the business. HMRC continue to review employment status and this may be a likely area attracting an increase in HMRC scrutiny.
The standard Lifetime Allowance 2021/22 to 2025/26
The annual link to the Consumer Price Index increase for the next 5 fiscal years is removed thereby maintaining the standard lifetime allowance at £1,073,100.
Employer provided cycles exemption
A time limited easement to disapply the condition which states that cycles and cyclist’s safety equipment, where obtained through a Cycle to Work scheme, must be used mainly for qualifying journeys. The easement will apply to existing users and will allow those employees to continue to benefit from the employer provided cycle tax exemption without needing to meet the qualifying journeys condition. The measure appears to be aimed at provide the continued benefit during the pandemic where journeys are not being made to work.
The predicted alignment of CGT rates to the higher rates of income tax did not materialise. Maybe not unsurprising because in difficult economic times, the disposal of businesses and assets at gains is likely to be significantly less than in a buoyant economy.
The CGT annual exempt amount is to be maintained at its current amount of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the tax years 2021/22 up to and including 2025/26.
Whilst no changes have been introduced in this Budget, a review of CGT and recommendations have been made. It is likely that changes will be forthcoming in future years.
The Corporation Tax charge and main rates will be:
- 19% for the financial year beginning 1 April 2022
- 5% for the financial year beginning 1 April 2023
- Small Profits Rate at 19% for the financial year beginning 1 April 2023
From 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
The increased rate and marginal relief is a step back to previous tax regimes, which saw a much higher rate of corporation tax. The Conservatives had sought to maintain a low corporation tax rate to incentivise businesses and this measure works against that goal. It may be in light of an election, the higher rate of corporation tax in 2023 will not materialise or will be short lived.
Temporary extension to carry back of trading losses for Corporation Tax and Income Tax
Legislation is to be introduced to temporarily extend the period over which businesses may carry trading losses back for relief against profits of earlier years. For those that were profitable pre Covid and suffered financially during the pandemic, they will be able to carry such losses back and obtain a refund. This is likely to generate much needed funds, which will probably be used by those businesses on recovery or maybe event spent on plant and machinery to obtain an enhanced relief.
Temporary increase in annual investment allowance for plant and machinery
The annual investment allowance is increased from £200,000 to £1,000,000 for expenditure on plant and machinery incurred during the period from 1 January to 31 December 2021. The increase is direct encouragement for investment to be made.
New reduced rate of VAT for hospitality, holiday accommodation and attractions
The government announced on 8 July 2020 a temporary 5% reduced rate of VAT to certain supplies relating to hospitality, hotels, holiday accommodation and admission to certain attractions. The Budget extends the temporary reduced rate for a further six-month period at 5% until 30 September 2021. A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022. The scope of the relief will remain unchanged.
The reduced rate, if passed onto consumers, may increase the customer flow and allow the paying public to enjoy leisure time more.
VAT deferral new payment scheme and deterrent
The scheme follows the Chancellor’s commitment as part of the Winter Economy Plan. The commitment stated that businesses which deferred VAT until 31 March 2021 would be given longer to pay: up to 11 smaller interest-free instalments.
The Payment Scheme has a portal enabling businesses to pay their deferred VAT in instalment by direct debit. The first instalment is in the month that the business opted into the scheme. After that, payments are made in equal monthly instalments. Fewer instalments may be made but there must be at least two. Settlement may still be made in full by 31 March 2021.
A penalty of 5% of the deferred VAT applies if a business does not opt in or has not made an alternative arrangement to pay by 30 June 2021. The normal Default Surcharge will not apply to deferred VAT.
Temporary increase to the Stamp Duty Land Tax nil rate band for residential properties
There is a staged withdrawal of the temporary increase to the SDLT nil rate band:
- An extension applies to 30 June 2021 to the nil rate band of £500,000.
- For the period 1 July 2021 to 30 September 2021 the nil rate band will be £250,000.
The temporary measure is likely to smooth out transactions in property as opposed to a significant fall off after 31 March. It should also help maintain activity in the market throughout the summer months.
Changes to tackle abuse in the construction industry scheme (CIS)
Following the HMRC consultation, ‘Tackling Construction Industry Scheme abuse’, draft legislation was published in November 2020. The changes include:
- Making the rules around deductions of materials costs clearer.
- Giving HMRC more powers to correct errors in setting off deductions.
- Changing the rules for determining which entities outside the construction sector need to operate the CIS.
- Extending the cope of penalties.
Company versus personal ownership
There were no changes to those wishing to incorporate a property portfolio. Where a property portfolio is owned in a partnership or LLP ahead of incorporating SDLT can still be saved/mitigated. Detailed advice should be sought. Lenders generally need to be made aware and therefore holding property on trust for a partnership or the company is not necessarily advisable. To obtain incorporation relief, there needs to be a transfer of a business. It is essential that the properties are managed, maintained and advanced as a business.
The Chancellor announced an increase the rate of Diverted Profits Tax from the current rate of 25% to 31% from 1 April 2023. The rate of Diverted Profits Tax charged on diverted profits which are ring-fence profits or notional ring-fence profits remains unchanged at 55%. The rate of Diverted Profits Tax charged on taxable diverted profits which would have been subject to the bank surcharge remains unchanged at 33%.
The diverted profits tax was introduced in 2015 and targets profits considered to have been diverted from the UK. The tax can apply if there are either transactions in a global supply chain involving low-tax entities lacking economic substance, or arrangements which have a main purpose of avoiding a UK corporation tax charge.
New temporary tax reliefs on qualifying capital asset investments from 1 April 2021
A temporary increase in relief for expenditure on plant and machinery was introduced for qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023. Companies can claim in the period of investment:
- A deduction providing allowances of 130% on most new plant and machinery investments (ordinarily qualifying for 18%).
- A first year allowance of 50% on most new plant and machinery investments (ordinarily qualify for 6%).
Certain expenditure will be excluded. Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the deduction and special rate relief.
The rate of the deduction will require apportioning if an accounting period straddles 1 April 2023.
Amendments will be made to bring in new disposal rules that will apply to assets subject to these allowances. Disposal receipts should be treated as balancing charges. For assets subject to the deduction, the disposal value for capital allowance purposes should take the disposal receipt and apply a factor of 1.3. This rule does not apply to the 50% first-year allowance for special rate expenditures.
An anti-avoidance provision applies to counteract arrangements which are contrived, abnormal, or lacking a genuine commercial purpose as well as the exclusion of connected party transactions.
This measure will introduce a power to designate the location of one or more tax sites within any Freeport located in Great Britain from 9 March 2021. The new freeports will be located at East Midland’s Ariport, Felixstowe and Harwich, Humber region, Liverpool City Region, Plymouth, Solent, Thames, and Teeside.
Enhanced capital allowance for plant and machinery in Freeports
An enhanced capital allowance will be available to companies for qualifying expenditure on plant and machinery for use within Freeport site. It will be available for such qualifying expenditure incurred on or after the date the Freeport tax site is designated until 30 September 2026. The allowance will be for 100% of the qualifying expenditure for the tax period in which it is incurred.
Enhanced Structures and Buildings allowances in Freeports
An enhanced rate of Structures and Buildings Allowance will be available. It will be for businesses with qualifying expenditure for the construction of new, and renovation of existing, non-residential structures and buildings within the Freeport site. The enhanced allowance will be available for qualifying assets brought into use on or before 30 September 2026. The enhanced rate will be at 10% on a straight-line basis.
Stamp Duty Land Tax relief for Freeports
There will be Stamp Duty Land Tax relief for purchases of land and buildings within a Freeport tax site, subject to a ‘control period’ of up to 3 years and the land being acquired and used in a ‘qualifying manner’. Relief from Stamp Duty Land Tax will apply to qualifying transactions with an effective date from the date the Freeport tax sites are designated until 30 September 2026.
Introduction of Plastic Packaging Tax 2021
A new tax will apply to plastic packaging manufactured in, or imported into the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.
It will not apply to any plastic packaging which contains at least 30% recycled plastic, or any packaging which is not predominantly plastic by weight.
Imported plastic packaging will be liable to the tax, whether the packaging is unfilled or filled.
Amending HMRC’s Civil Information Powers
Following a consultation in 2018, this measure introduces a new Financial Institution Notice (FIN) that will be used to require financial institutions to provide information to HMRC when requested about a specific taxpayer, without the need for approval from the independent tribunal that considers tax matters.
Information received in response to a FIN will be used for the purpose of checking the tax position of a taxpayer and used for debt collection purposes. The FIN will be balanced by a number of taxpayer safeguards, including:
- the information sought will have to be reasonably required for the purpose of checking a known taxpayer’s tax position – for international requests the information in the FIN will need to be relevant to the administration or collection of tax and the jurisdiction requesting the information would need to have exhausted all reasonable domestic ways to get the information
- documents subject to legal professional privilege cannot be requested
- HMRC will be required to tell the taxpayer why the information is needed, unless a tax tribunal rules this condition should not apply
- an authorised officer of HMRC (someone with the relevant experience and training) will need to approve the decision to issue a FIN
- if a Financial Institution does not comply with a FIN and as a result HMRC charges penalties, the Financial Institution will be able to appeal against the penalties
In addition, HMRC will report to Parliament annually on the use of the FIN.
Reporting rules for digital platforms
Introduction of a power to enable regulations to be made.
Regulations made under this power will require certain UK digital platforms to report information to HMRC about the income of sellers of services on their platform.
HMRC will then exchange the information with the other participating tax authorities for the jurisdictions where the sellers are tax resident. Under the Organisation for Economic Co-operation and Development rules, digital platforms in participating jurisdictions will be required to provide a copy of the information to the taxpayer to help them comply with their tax obligations.
Interest harmonisation and penalties for late payment and late submission
There is no penalty at all if the taxpayer pays the tax late but within 15 days of the due date.
The first penalty is 2% of the outstanding amount if paid between 16 and 30 days after the due date.
The second penalty is 4% of the outstanding amount if there is tax left unpaid 30 days after the due date. The second late payment penalty is calculated on a daily basis on the total unpaid tax incurred from day 31.
The penalty may be avoided by agreeing a Time to Pay Arrangement with HMRC.
The above comes into force from 6 April 2023 for individual taxpayers with business or property income over £10,000 per annum; and from 6 April 2024 for all other ITSA taxpayers.
The new late submission regime will be points-based, and a financial penalty of £200 issued for every missed submission on and after relevant points threshold is reached.
The VAT interest rules will change and will be similar to those that currently exist in ITSA. The measure will make the following changes to interest payments in VAT:
- when an amount is not paid by the due date, late payment interest will be charged to the taxpayer from the date that payment was due, until the date the payment is received
- HMRC will pay repayment interest on any overpaid tax and/or tax refunds due to be repaid
Updates to tax charges when a person is no longer eligible to Self-Employment Income Support Scheme payments
Current legislation enables HMRC to reclaim overpaid Self-Employment Income Support grants where the claimant did not meet the eligibility criteria at the time of claim. The new measure makes changes to the time and circumstances when a 100% tax charge may arise in relation to Self-Employment Income Support Scheme payments. It enables HMRC to recover grants where an individual was entitled to the grant at the time of claim but subsequently ceases to be entitled to all or part of the grant. It also brings the Self-Employment Income Support Scheme within the Treasury’s regulation making powers in relation to charges if a person is not entitled to a coronavirus support payment.
Taxation of the Self-Employment Income Support Scheme grant for Income Tax
The legislation will be updated to confirm that payments from SEISS are subject to tax, as announced by the Chancellor on 26 March 2020. Under the current legislation, a payment from SEISS is taxed as income for the tax year 2020 to 2021. Future payments from SEISS to be taxed as income for the tax year in which they are received.