The Chancellor, Rishi Sunak, delivered the UK Budget on Wednesday 3rd March, in what was largely billed as the Budget to set out his plans for the Country’s recovery from COVID. So what did the Chancellor say and what does this mean?
There were a few key tax measures of interest, which are summarised below:
- The Chancellor will increase personal allowances to £12,570 and the Higher Rate threshold to £50,270 for the 2021/22 tax year. However, these rates and thresholds will then be frozen until April 2026. Scottish taxpayers are not impacted by the increase to the Higher Rate threshold for income subject to the Scottish rate of income tax.
- There are no changes announced to any of the headline rates of tax applicable to individuals, sticking to the Government’s pledge.
- The National Insurance threshold will increase from 6 April 2021 from £9,516 to £9,568 for employed individuals (and £9,568 for self-employed individuals). The upper limit for primary contributions will; increase to £50,284 and £50,270 for self-employed individuals.
- The pensions lifetime allowance will remain frozen at £1,073,100 and will not be increased until April 2026.
- ISA limits will not increase from April 2021; current subscription limit of £20,000 will remain in place (or £9,000 for Junior ISA’s or Child Trust Funds).
- Tax relief currently available for investing in social enterprises in the UK will continue to be available until April 2023.
- The IHT nil rate threshold will remain frozen at £325,000 until April 2026.
- No further changes announced to Business Asset Disposal Relief or Investors’ Relief.
- Annual exemption frozen at £12,300 (£6,150 for Trusts) until April 2026.
- No changes announced to any headline capital gains tax or inheritance rates.
- No changes to the application of Business Property Relief for IHT purposes.
- The current Stamp Duty holiday in England and Northern Ireland (where the 0% threshold has been increased from £125,000 to £500,000) has been extended to 30 June 2021. Between 1 July 2021 and 30 September 2021, the nil rate threshold will drop to £250,000 before returning to its previous rate of £125,000 from 1 October 2021.
- The headline rate of Corporation Tax will increase to 25% from April 2023 for companies with profits exceeding £250,000.
- From April 2023, there will also be a small company rate of 19% for companies with profits less than £50,000 and a tapered rate for profits between £50,000 and £250,000.
- The temporary extension to the annual investment allowance limit of £1m has been extended for a further year to 31 December 2021. From 1 January 2022 the rate is reduced to £200,000.
- There will be an extension to the capital allowances regime for Companies to provide for a new “Full Expensing: Super Deduction” first year allowance of 130% of qualifying expenditure on assets qualifying for capital allowances at the main rate (giving effective tax relief at c. 25%, based on a corporation tax rate of 19%), or 50% for assets which fall into the special rate. Introduced with effect from 1 April 2021, for a period of two years.
- Both incorporated and unincorporated businesses will have greater flexibility in relation to the use of trading losses realised in the 2020/21 and 2021/22 tax years. This relief is in addition to the normal carry back provisions and will allow up to a maximum of £2m of losses in each tax year to be carried back to profits of the previous three years (rather than the current one year). Losses will be set against later years first.
Late Filing and Payment Penalties
- A new system of assessing late payment penalties will be introduced. Initially from 6 April 2023 for self-assessment taxpayers with business or property income over £10,000, before extending to all taxpayers from 6 April 2024. In summary:
- Taxpayers will receive a penalty point every time a submission deadline is not met.
- After accruing a certain level of penalty points a financial penalty of £200 is charged for that failure and every subsequent failure.
- For annual tax returns, the financial penalty is charged after reaching the penalty threshold of 2 points.
- In the future, when quarterly returns are required under the making tax digital regime, it will have a separate penalty threshold of 4 points.
- Penalty points will have a lifetime of two years, after which they will expire.
- Similarly, a new regime is being introduced for late payment of tax. Summarised as follows:
- A first penalty will now be levied where tax is unpaid 15 days after the due date.
- This penalty is set at 2% but will increase to 4% if the tax remains unpaid 30 days after the due date.
- If the tax remains unpaid 31 days after the due date, a further penalty will accrue daily at a rate of 4% per annum until payment is made.
- Taxpayers can avoid the late payment penalty arising by approaching HMRC for a time to pay arrangement.