UK Spring Budget 2021: Buy homes, raise tax, save the economy

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.

Entrepreneurs, Consultants and Personal Tax

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.

Innovation

R&D

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

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.

Green energy

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 launch of a £20 million programme to support the development of floating offshore wind technology across the UK
• the launch of a new £68 million UK-wide competition to implement several first-of-a-kind energy storage prototypes or technology demonstrators
• a £4 million UK-wide competition for the first phase of a biomass feedstocks programme, to support the rural economy in making improvements to the production of green energy crops and forestry products.

Business Tax changes

Corporation Tax and Diverted Profits Tax rates

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.

The Super Deduction

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.

Extended loss carry-back for businesses

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:

• £200,000 of losses in each of 2020-21 and 2021-22 without any group limitations; and
• £2 million of losses in those tax years, but subject to a £2 million cap across the group.

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.

Freeports

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:

• An enhanced 10% rate of Structures and Buildings Allowance for constructing or renovating non-residential structures and buildings within freeport tax sites. To qualify, the structure or building must be brought into use on or before 30 September 2026.
• An enhanced capital allowance of 100% for companies investing in plant and machinery for use in freeport tax sites in Great Britain, once designated. This will apply to both main and special rate assets, allowing firms to reduce their taxable profits by the full cost of the qualifying investment in the year it is made, and will remain available until 30 September 2026.
• Full relief from Stamp Duty Land Tax on the purchase of land or property within freeport tax sites in England, once designated. Land or property must be purchased and used for a qualifying commercial purpose. The relief will be available until 30 September 2026.
• Full Business Rates relief in freeport tax sites in England, once designated, again until 30 September 2026. Relief will apply for five years from the point at which each beneficiary first receives relief.
• Subject to Parliamentary process and approval, the government also intends to make an employer National Insurance contributions relief available for eligible employees in all freeport tax sites from April 2022 or when a tax site is designated if after this date. This would be available until at least April 2026 with the intention to extend for up to a further five years to April 2031.

COVID-19 – government support package

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.

General

• Extension of the Coronavirus Job Retention Scheme until 30 September 2021, with the same benefits to employees (80% of salary for unworked hours) being guaranteed throughout that period. However, employers will be expected to fund 10% of the cost from July, and 20% in August and September.
• Extension of the Self-Employed Income Support Scheme for two further grants. Eligibility is broadened to anyone who had filed a self-assessment tax return for the year ended 5 April 2020 by midnight on 2 March 2021. The fourth grant will be worth 80% of three months’ average monthly trading profits. The fifth and final grant will be determined by a turnover test.
• The £20 increase to the standard Universal Credit allowance has been extended for another six months, and recipients of the Working Tax Credit will get a lump sum payment of £500.

Retail & Consumer

• 100% relief from Business Rates for eligible retail, hospitality and leisure properties in England will continue until 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties. Nurseries will also qualify for relief in the same way as other eligible properties.
• New legislation will be passed to ensure that businesses which have voluntarily repaid business rates relief (e.g. supermarkets and other retailers) will be able to treat those payments as deductible for corporation tax and income tax purposes.
• The temporary reduced rate of 5% VAT introduced last year for goods and services supplied by the tourism and hospitality sector will continue until 30 September 2021, and the 20% standard VAT rate will be phased back in after a transition period – with a 12.5% rate to apply from 1 October 2021 until 31 March 2022.
  
• However, UK VAT registration and deregistration thresholds (currently £85,000 and £83,000 respectively) will not change from 1 April 2022 until after April 2024.
• Alcohol duty rates on beer, cider, wine and spirits will be frozen for another year, as will fuel duty. The government will also legislate to raise the Gross Gaming Yield bandings for gaming duty in line with RPI.

Media, entertainment and sport

• A sport recovery package will provide £300 million for continued support to major spectator sports in England, supporting clubs and governing bodies.
• Additional funds have been provided to support the UEFA Women’s Euro football competition, assisting with the tournament to be held in England in 2022.
• Funds will be provided to support a joint UK & Ireland bid for the 2030 FIFA Men’s World Cup, as well as an investment of £25 million in UK grassroots community sports facilities.
• The Culture Recovery Fund will be extended to provide a further £300 million to continue to support key national and local cultural organisations in England.
• The film and TV production Restart Scheme will be extended for six months to 31 December 2021.
• Additional funds will be provided to support National Museums and cultural bodies in England.

Housing

• The SDLT holiday will be extended. The nil rate band of £500,000 was due to expire at the end of March, but instead it will continue until 30 June 2021 at which point the nil rate band will fall to £250,000, before returning to £125,000 on 1 October 2021.
• This boost to the residential property market will be further supported by a new mortgage guarantee scheme which is intended to increase the availability of high loan to value mortgages to borrowers with only small deposits. The scheme will provide lenders with the option to purchase a government guarantee that compensates them for a portion of their losses in the event of foreclosure.

Read our detailed guidance to the government’s support package for business and individuals here.

Tackling Fraud

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.

Clamping down on import non-compliance

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.

Temporary approvals to trade

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.

Reforms to penalties and interest for missed tax obligations

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.

Electronic suppression of sales investigations

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?