The Budget 2021
Chancellor Rishi Sunak has opened the famous red briefcase and revealed the details of the Budget in the House of Commons earlier this year.
Below we have highlighted some of the key changes to both personal and business tax.
Personal tax
No changes to rates of income tax, national insurance.
The personal allowance will remain at £12,570 from April 2021 until 2026.
Higher rate income tax threshold will remain at £50,270 from April 2021 until 2026
Inheritance tax thresholds, pensions lifetime allowances and annual capital gains tax exemptions to be frozen at 2020-2021 levels until 2025-26.
Business tax
Corporation Tax Rates
The main rate of corporation tax will remain at 19% until 1 April 2023 and then it will increase to 25% for companies with profits over £250,000.
The 19% rate will become a “small profits rate” payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at a marginal rate between the two rates (19% to 25%).
Capital Allowances
There are two capital allowances rates that will apply between 1 April 2021 and 31 March 2023 i.e before the corporation tax rate goes up. They are the “super deduction” and 50% first year allowances.
Super Deduction
This is a new type of first-year capital allowance for companies that invest in assets that qualify for the main rate of capital allowances. These assets will get 130% “super deduction”.
This means that a £100,000 machine where tax relief would have been £19,000 will now give tax relief of £24,700 i.e £100,000 invested gives an allowance of £130,000 x 19% = £24,700.
It is being sold that companies can cut their tax bill by up to 25p for every pound they invest i.e £1 x 130% = £1.30 x 19% = £0.247
The rate of the super deduction will require apportioning if an accounting period straddles 1 April 2023.
The super-deduction applies to an unlimited amount of expenditure.
50% First Year Allowances
Assets that normally qualify for special rate relief (currently 6% writing down allowance) will benefit from the 50% first-year allowance. This means a qualifying spend of £100,000 on these assets will now give tax relief of £9,500 whereas previously it was £1,140 i.e £50,000 at 19% = £9,500 compared to £6,000 writing down allowance at 19% which equals £1,140.
Special rate pool additions are for the following types of expenditure:
Integral features.
Long life assets.
Thermal insulation of buildings.
Cars with Co2 omissions over a certain threshold.
Note that apart from cars, special rate pool additions can also qualify for Annual Investment Allowance (AIA) i.e 100% allowances. Therefore, the interpretation is that you would only use the new 50% first-year allowance for the special pool if you have maximised your AIA.
N.B.
The super deduction and 50% first-year allowances are only for companies not available to partnerships or sole traders. Furthermore, there are exclusions, for example, second-hand assets (it has to be new assets) or assets acquired under a contract entered into before 3 March 2021.
Tax losses
There will be a temporary extension of the period where businesses can carry back trading losses against earlier years. It will cover the periods ending between 1 April 2020 to 31 March 2022 for company’s and for tax years 2020/2021 and 2021/2022 for sole traders and partnerships.
The carry back will be extended from the current 1 year entitlement to a period of 3 years, with losses being carried back against later years first (you may remember we did have this as a temporary loss relief a few years ago). Please note there are restrictions when losses exceed £2 million.
