Moore Accountancy Update

BUDGET UPDATE

In the Chancellor’s second real Budget on 03/03/21 Rishi Sunak announced that he had to level with people about the state of the UK economy.
He has chosen a fine line between raising taxes to start paying down the massive Government borrowings but at the same time stimulate economic recovery and save jobs. He was also mindful of pledges made in the Conservative Party manifesto not to raise income tax, VAT and national insurance. So that leaves corporation tax, CGT and inheritance tax…

Maybe he will delay the announcement of significant increases in taxation until later in the year as it is anticipated that there will be a further Budget in the Autumn. By then the economy will hopefully have started to bounce back.

It has already been announced that there will be important consultation documents issued on 23/03/21 which will seek views on future tax changes. That may be when the expected reforms to CGT and IHT will be announced.

Look at our website for further blogs and information on some of these changes.

If you have missed any of our previous newsletters, then our website has a backlog of them here.

CORPORATION TAX RATES TO INCREASE
TO 25% BUT NOT FOR ALL COMPANIES

The UK corporation tax rate is currently one of the lowest rates of the G20 countries and the government states it is committed to keeping the rate competitive.

That should have the effect of encouraging companies to remain in the UK and companies to set up here. With other countries considering raising corporate tax rates the chancellor has announced that the UK will follow suit and consequently the rate will increase to 25% from 01/04/23 where profits exceed £250,000. However, where a company’s profits do not exceed £50,000 the rate will remain at the current 19% rate and there will be a taper above £50,000.

Businesses will however be able to take advantage of new tax breaks to encourage investment in equipment and an enhanced carry back of losses, although these are limited for a small profitable trading company.

SUPER-DEDUCTION FOR INVESTMENT IN NEW EQUIPMENT

In order to encourage companies to invest in new capital equipment the chancellor announced a radical new “super-deduction” of 130% where they invest in new plant. This would mean that when a company buys plant costing £10,000 they would qualify for a £13,000 deduction in arriving at business profits. The new deduction, which will run for two years from 01/04/21, will not be available for motor cars. Certain assets such as fixtures in buildings will only qualify for 50% relief in the first year instead of the normal 6% writing down allowance.

THREE YEAR CARRY BACK OF TRADING LOSSES

Many businesses will have made a loss in the last year as a result of the Coronavirus pandemic and the difficult trading environment.
Trading losses can normally only be set against profits of the preceding accounting period or previous tax year in the case of unincorporated businesses.

The chancellor has announced that the carry back period will be temporarily increased to 3 years thereby enabling the business to obtain a tax refund. For companies this will apply to loss making accounting periods ending in the period 01/04/20 to 31/03/22. For unincorporated traders, the extended loss relief will apply to losses incurred in 2020/21 and 2021/22.

VAT CHANGES

5% VAT RATE FOR FOOD, ATTRACTIONS AND ACCOMMODATION EXTENDED

In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30/09/21.

The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK.
From 01/10/21 until 31/03/22 the rate will be set at 12.5% and will then revert to 20% from 01/04/22.

REGISTRATION LIMIT FROZEN AT £85,000 UNTIL 01/04/24

The VAT registration limit normally goes up each year in line with inflation but will remain at £85,000 for a further two years. Arguably this makes it easier for businesses to assess whether or not they are required to register for VAT as it is no longer a moving target.

MAKING TAX DIGITAL EXTENDED TO ALL VAT REGISTERED BUSINESSES FROM 1 APRIL 2022

The government has confirmed that the requirement to maintain accounting records in a digital format and submit the data to HMRC electronically will be extended to all VAT registered businesses from 01/04/22 regardless of the level of taxable supplies.

CJRS FURLOUGH SCHEME EXTENDED TO 30 SEPTEMBER

The current version of the furlough scheme that started on 01/11/20 was due to end on 30/04/21.
In order to avoid a “cliff-edge” with resulting widespread redundancies the chancellor has announced a further extension of the scheme and also a phased reduction in support to employers. The CJRS furlough grant for May and June will remain at 80% of the employees’ usual pay for hours not working but it will then be limited to 70% for July and then 60% for August and September.

This phased reduction will operate in a similar way as in September and October 2020 with the employer being required to contribute the remaining 10% and then 20% of an employee’s regular pay so that they continue to receive 80% pay for furloughed hours.

In addition to the 10% and 20% contributions employers will continue to be responsible for paying employers national insurance and pension contributions on the full amount being paid to employees.

Contact us if you need assistance with your CJRS furlough claims.

SELF-EMPLOYED INCOME SUPPORT GRANTS EXTENDED

We had been waiting for the details of the calculation of the fourth SEISS grant covering the period to 30/04/21 and we now know that the support will continue to be 80% of average profits for the reference period capped at £2,500 a month and can be claimed from late April. There will then be a fifth SEISS grant covering the 5 months to 30 September.

Finally, the scheme has been extended to include certain traders who were previously excluded. Thus, those who commenced self-employment in 2019/20 will now be included provided they had submitted their 2019/20 tax return by 02/03/21 and are still trading.

Conditions for the fifth grant will be linked to a reduction in business turnover. Self-employed individuals whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £2,500 a month. Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £950 a month. We are awaiting further details of this fifth grant.

NO CHANGES TO INCOME TAX RATES AND PERSONAL ALLOWANCE FROZEN

The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.

The personal allowance and higher rate threshold have been increased in line with inflation to £12,570 and £50,270 respectively for 2021/22. These thresholds will then be frozen until 2025/26 possibly yielding an extra £19 billion for the government.

There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.

KEY DATES

19/03/21 - PAYE & NIC deductions for month ended 05/03/21 (February payroll)

31/03/21 - Corporation tax due for year to 30/06/20

05/04/21 - End of 2020/21 tax year - consider pre tax year actions such as contributions to pensions and making gift aid donations, as well as ensuring trivial benefits have been taken and savings allowances have been utilised.

19/04/21 - PAYE & NIC deductions for month ended 05/04/21 (March payroll) - all quarterly payments due

30/04/21 - Corporation tax due for year to 31/07/20

For any businesses struggling with payments, please contact HMRC to see if they will agree a Time To Pay arrangement - https://www.gov.uk/difficulties-paying-hmrc

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Moore Accountancy · 1 Northway · Altrincham · Cheshire, WA14 1NN · United Kingdom