Business Tax Issues - UK Budget 2021

Tax issues relating to businesses

Corporation tax rise

This is set to remain at 19% for the years April 2021-22 and 2022-23. However, the following financial year will see an increase to 25% for profits over £250,000. Whilst smaller businesses with profits below £50,000 will continue to be taxable at a small profits rate of 19% this increase will affect a large majority of businesses. A marginal relief for profits between £50,000 and £250,000 will provide a gradual increase in the effective rate of CGT. However, there are a number of measures designed to assist business and stimulate investment.

Extended Loss Carry Back

For the accounting periods ending between 1 April 2020 and 31 March 2022, loss relief will be extended to three years.

Losses will be required to be set against most recent year first before carrying back and whilst amounts carried back to the first year remain unlimited there will be a cap of £2million of losses to be carries back to the earlier two years. A separate cap of two million will be available for all relevant account periods ending in each financial year (2020 and 2021). Groups will be subject to a group cap of £2m. Companies will now be able to claim additional tax refunds of up to £760,000.

Capital Allowance Super Deduction

A temporary increased relief will be introduced on qualifying plant and machinery expenditure incurred from 1 April 2021 up to an including 31 March 2023. This increase means companies can claim an allowance of 130% on most new plant and machinery investments as opposed to the current 18%. For investments that ordinarily qualify for the special rate allowance of 6%, this will be temporarily increased to 50% for the period.

General exclusions will apply and any contracts entered into prior to 3 March 2021 are excluded even if expenditure is incurred after 1 April 2021.

You may want to bear in mind that for all the hype of super deductions - the point about this relief is that it gives tax relief at 25% even though CT is at 20%. i.e. the same tax relief now that you would get once the 25% CT rate starts on 1/4/2023 - so it encourages large firms not to wait. For firms who will not pay the higher CT rate - it does still represents an extra tax bonus.

Off payroll working

Importantly from 6 April 2021 new off-payroll working rules come into force which were delayed from April 2020 due to COVID-19.

The new rules shift responsibility for operating the off-payroll working rules from an individuals PSC to the client organisation or business to which the individual is supplying their services.

As a result, the 5% allowance currently available to PSCs for the admin costs associated will be removed from 6 April 2021.

Other important points

• Information Sharing – the government will consult on using OECD rules to give powers to HMRC to access information from digital platforms on the income of sellers providing services on their platforms. This allows jurisdictions to exchange information quickly and allows HMRC to have greater visibility of income as with traditional businesses.

• Reforms will be taking place to align late payment penalties and interest for VAT and ITSA.

• Stamp Duty Land Tax surcharge for non-residents. As previously announced an additional surcharge of 2% will apply to SDLT charged on the sale of UK property where the purchaser is not resident in the United Kingdom for the purposes of SDLT.

Individuals Rates and Allowances

Although there will be a small increase in the personal allowance and higher rate tax band, going forward rates and allowances for both tax and NICs will now remain the same until 2026.

Stamp Duty

The nil rate band of £500,000 for Stamp Duty Land Tax will now be extended to 30 June 2021. This was due to revert to £125,000 on 31 March 2021. Additionally, from 1 July to 30 September 2021 a further temporary relief period will mean the nil rate band will be £250,000.

If you wish to discuss any of the above changes and how they might impact your business as well as any tax planning to mitigate theses changes then we will be more than happy to assist.