With an unprecedented economic challenge resulting from the Covid-19 pandemic (having finally got Brexit done), Chancellor Rishi Sunak faced his second Budget with the unenviable task of seeking to support the economy through the easing of restrictions, introducing measures to support economic bounce back whilst keeping one eye on public finances. No easy task with borrowing at its highest level in peace time and due to peak at 97.1% of GDP in 2023/2024.
Perhaps it is no surprise that the headlines will be dominated by a hike in the main rate of corporation tax to 25% in 2023 (noting that in aggregate firms accumulated additional savings of almost £100 billion between March and December 2020) albeit tempered by the reintroduction of the small companies corporation tax rate (to remain at 19%), a more generous tax loss carry-back and enhanced capital allowances.
Despite the Chancellor commissioning a review of Capital Gains Tax last July which suggested that rates should be increased, the rate of Capital Gains Tax remains unchanged at 20% (or 10% if the individual qualifies for Business Asset Disposal Relief).
The Chancellor did announce that from April 2021, the income tax Personal Allowance will rise to £12,570 and the higher rate threshold will increase to £50,270. These levels will remain until April 2026. He further froze the inheritance tax thresholds, the pensions Lifetime Allowance and Annual Exempt Amount for Capital Gains Tax at their existing levels until April 2026.
It has further been announced that the government will publish a call for evidence on whether more UK companies should be able to access the Enterprise Management Incentive (EMI) scheme.
Confirmation was given that the reform of the off-payroll working rules (IR35) will not be deferred again. The law will come into effect on 6 April 2021, with clients being required to assess the deemed employment status of all contractors engaged through intermediaries. Minor amendments will be made to the rules which were incorporated in Finance Act 2020 to ensure they work as intended. Read more about the proposed reforms here.
The Budget contains a range of measures designed to support innovation. Tax measures announced include a review of R&D tax relief, with a consultation published alongside the Budget. In particular, the government is considering bringing data and cloud computing costs into the scope of relief.
However, as an anti-abuse measure, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D credit receivable in any year will be capped at £20,000 plus three times total PAYE and NIC liability.
Digital platforms remain a key focus sector for the government in seeking their cooperation to help promote tax compliance and to combat e-commerce tax fraud. Following the UK’s latest changes to the VAT treatment of goods sold by businesses to UK customers which involve online marketplaces (see our article: Brexit Key Tax Points), the government will consult on the implementation of the OECD’s model reporting rules for digital platforms. This will require digital platforms to send relevant information about the income of their sellers to both HMRC and the seller themselves, in order to help taxpayers in the sharing and gig economy get their tax compliance right and help HMRC detect and tackle non-compliance. The OECD’s rules recognise the relevance of certain reported information for areas of both direct and indirect tax compliance, and there is scope to extend the rules to sales of goods. This consultation is not unexpected in light of the government’s call for evidence published in December 2020 on VAT and the Sharing Economy, which the government believes is creating certain challenges to the UK’s VAT tax base.
The government will issue a minimum of £15 billion of green gilts this year, with the first gilt to be issued this summer. These gilts are intended to fund expenditure designed to meet the government’s environment objectives – more detail to follow.
Renewable energy is high up the government’s priority list. It has already committed to doubling spending on energy innovation, and is now supporting the development of new solutions to cut carbon emissions and accelerate near-to-market low-carbon energy innovations:
The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%. There will be a taper for businesses with profits between £50,000 and £250,000 so that they pay less than the main rate.
In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 so that it remains an effective deterrent against diverting profits out of the UK.
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest. Investing companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.
The trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.
Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22.
Companies that are members of a corporate group will be able to obtain relief for up to:
This is intended to help otherwise-viable UK businesses which have been pushed into a loss-making position. It may also have the effect of ensuring businesses use more of their losses while the corporation tax rate is lower, reducing the amount they have to carry forward to offset against profits when the corporation tax rate is higher.
The government intends to create eight new freeports in England, which will be areas where businesses will benefit from more generous tax reliefs, simplified customs procedures and wider government support. Some of these are intended to commence operations from late 2021. Discussions continue between the UK government and the devolved administrations to ensure the delivery of freeports in Scotland, Wales and Northern Ireland as soon as possible. Legislation on freeports will include powers to create ‘tax sites’ in freeports where businesses will be able to benefit from a number of tax reliefs, including:
Many of the announcements had already been leaked, so will not have come as a shock to observers, but the Chancellor still kept a couple of rabbits up his sleeve to reveal at the dispatch box.
Read our detailed guidance to the government’s support package for business and individuals here.
Following reports circulating in the press over the last few days, the Government has now formally announced the creation of a ‘Taxpayer Protection Taskforce’, equipped with 1,265 HMRC staff and over £100m in funding, to tackle both fraud and error within COVID-19 support schemes. The Government has described this as ‘one of the largest responses to a fraud risk by HMRC’, adding that it will raise awareness of enforcement action and ‘significantly strengthen’ law enforcement for Bounce Back Loans. Read our detailed guidance here.
In relation to customs duty and VAT, penalties will be introduced for the unauthorised removal of seized goods that are held on the trader’s own premises (known as ‘in situ’). Seized goods are typically held in Border Force controlled warehouses; where goods are allowed to be detained in the trader’s premises, civil penalties may now be levied for any removal of those goods without authorisation from HMRC.
Businesses that require customs or excise approval by HMRC to carry out an activity under certain due diligence schemes, and have had their approval revoked, can apply for temporary approvals while waiting for any appeal against the revocation to be heard. This measure protects such businesses from the commercial impact of a revocation decision, pending a review of the decision. The scope of the change will affect warehousekeepers, alcohol wholesalers, controlled oil dealers and tobacco manufacturers, amongst others.
Sanctions for the late submission and late payment of VAT and Income Tax Self-Assessment are to be reformed, as part of the package of policies aimed at building a fair and sustainable tax system. Under a new late submission penalty regime, a financial penalty is only levied when the taxpayer reaches a certain threshold of points. The new regime replaces the previous automatic fine for failure to meet a submission obligation, with penalties proportionate to the amount of the tax owed and how late the tax due is.
Rules for calculating and charging interest on any VAT paid late will be harmonised to ensure consistency between tax regimes. The changes affect the rate of late payment interest, due on late payments of VAT, and repayment interest, due from HMRC to taxpayers for any tax overpaid. The combination of changes to the penalty and interest frameworks is forecast to raise £5m in 2022-23, £90m in 2023-24, and £155m annually from 2024.
HMRC will be given new powers to penalise those using electronic software to reconstitute sales records and evade tax. It will be an offence to possess, manufacture, distribute and promote such software, and specific information powers will be introduced to allow HMRC to identify and access the code of ESS developers and suppliers.
And finally...
Single contactless payments will be increased up to £100 later this year, with cumulative contactless payments up to £300 without the need to enter a chip and pin.
£28 million has been allocated towards the Queen’s Platinum Jubilee event in 2022 – Robbie Williams back on the Mall perhaps?