Budget 2021: What you need to know
In last week's Budget given by the Chancellor Rishi Sunak, the main focus was on the economic challenges which have arisen due to the ongoing COVID-19 pandemic.
Over the past year, Sunak has introduced various financial support packages for individuals and businesses. As we prepare to move out of lockdown, he set out the steps needed to aid the UK recovery, mentioning tough choices and “whatever it takes to support the economy”.
The GDP growth forecast for this year has been downgraded from 5.5% to 4%. Sunak advised that he expects the economy to return to pre-COVID levels by mid-2022. But he reported that the national debt is likely to peak at 97% of GDP in 2023-24. A three-point plan to respond to the coronavirus was announced, with the aim of protecting people’s jobs and livelihoods. Sunak’s main priority is to support those who have been hit the hardest.
An extra £65bn of fiscal support will be provided, including £30bn for businesses, bringing the total to £407bn. Alcohol duties and fuel duty have also been frozen. The key talking points of the Spring Budget 2021 are summarised below:
Income & Business Tax
This April, the tax-free Personal Income Tax Allowance will rise to £12,570; the Basic Rate threshold will increase to £37,700 and the Higher Rate to £50,270. After 2021, income tax allowances will be frozen until April 2026.
Corporation Tax will increase by 6% to 25% in 2023, although it will stay at 19% for companies with profits less than £50,000 (70% of companies). This will be off-set by a new 2-year 'super-deduction' scheme to incentivise business investment. Companies will be able to reduce taxable income by 130% for investments which would usually qualify for 18% plant and machinery writing down allowances.
Support for businesses
The government announced continuing economic support as part of their roadmap to reopen the economy. A key focus was on the retail, hospitality and leisure sectors, which have been heavily impacted through forced closure due to the pandemic.
Coronavirus Job Retention Scheme (CJRS) - the furlough scheme has been extended until the end of September 2021. Employers will be asked to contribute 10% in July, 20% in August and 20% in September.
Self-Employment Income Support Scheme (SEISS) - has been extended, and an extra 600,000 of the newly self-employed will now be eligible for state support.
New business recovery loan scheme - 80% guaranteed by the government to replace other bounce-back and coronavirus business loans.
Support for the retail, hospitality and leisure sectors:
> The business rates holiday has been extended until the end of June, and they will still be discounted by up to two-thirds for the remaining 9 months of the fiscal year.
> Reduced rate of 5% VAT has been extended until the end of September; it will then rise to 12.5%, and then return to 20% in April 2022.
Restart grants worth £5 billion will be available for businesses forced to close due to COVID-19. An eligible company will be entitled to a grant up to £18,000. Up to 6,000 grants will be available for shops to reopen and £250,000 for communities to buy pubs.
Stamp Duty, Housing Schemes & Other Taxes
There will be an extension to the current stamp duty holiday. For properties worth up to £500,000, this will be extended until the end of June. For properties worth up to £250,000, there will be no stamp duty to pay until the end of September. From October 2021, the stamp duty threshold will return to £125,000.
A new 5% deposit scheme to help home buyers was announced, with the government guaranteeing 95% mortgages.
Inheritance Tax (IHT) will be frozen until April 2026.
The Capital Gains Tax allowance will stay at £12,300 until April 2026.
Pensions & Savings
The State Pension will increase by 2.5% this April.
The Pensions Lifetime Allowance (LTA) for contributions will be frozen at £1,073,100 until April 2026. This is the amount you can save within a private pension without incurring a big tax charge.
There are no changes to the Individual Savings Account (ISA), Junior Individual Savings Account (JISA), and Child Trust Fund allowances.
For the full Executive Summary of this year’s Budget, visit the Government website: https://www.gov.uk/government/publications/budget-2021-documents/budget-2021-html
Have you been affected by the recent Budget changes? If you would like a financial review, get in touch to speak to our team.
(Above Gov.uk website)