Balancing the Books

Martin Mockler FCCA, Chair of the London Chapter and Partner at Evans Mockler Accountants, Auditors, Business and Tax Advisors

It felt like the whole of the UK came grinding to a halt recently, not due to lockdown but on the third of March at 12.30 for the Budget. I am even aware of some offices that held viewing parties.

This is not surprising, with the incredible upheaval that the country has undergone in the past 12 months, and last Autumn’s budget being deferred, it felt like businesses across the land were waiting to collectively exhale. As well they might; although there were a few stings in the tail as Mr Sunak valiantly attempted to compensate for what has amounted to almost unimaginable amounts borrowed by UK plc, overall, there were some enticing elements for businesses and workers.

The structure of this Budget, like its predecessor, was driven by the pandemic’s impact on the economy. With some form of lockdown continuing over the next few months, Mr Sunak extended the main employment support schemes through to 30 September 2021 and added further grants and loans to assist struggling businesses.

The total cost of the pandemic measures in this tax year and next are now projected to be greater than the amount that will be raised in income tax over the same period. How the government can claw back that expenditure, while rebuilding the economy, formed the focus of the Chancellor’s speech.

How each of the main points are received will largely depend on your personal and business position, however as the UK economy shrank by 10% in 2020 and an anticipated amount of £355bn being borrowed this year, the Budget offered an effort to invest in infrastructure, development, and jobs as a way of getting back on track. As a result, the economy is expected to return to pre-Covid levels by mid-2022.

The Chancellor has made a bold move regarding the main rate of corporation tax, which will be increased to 25% from April 2023 for companies with profits over £250,000. At the same time, a new small companies’ rate of 19% will apply to companies with profits of up to £50,000, with a marginal tapered rate between £50,000 and £250,000.

Also, for the two years from April 2021, companies investing in qualifying new plant and machinery will benefit from a 130% first-year super-deduction. This has been of particular interest to our BITA members that work in the thriving construction industry.

There will be changes to the Research and Development (R&D) tax credit system from 1 April 2021. The maximum amount payable as a tax credit for loss making businesses will be capped at £20,000 plus three times the company’s annual PAYE and NIC liability. The standard R&D offset against taxable profits will continue to operate as before.

Furthering the government’s agenda for regional investment and attracting new businesses, the sites of the UK’s first eight freeports were announced: East Midlands Airport, Felixstowe and Harwich, Humber Region, Liverpool City Region, Plymouth, Solent, Thames and Teesside. Several tax reliefs will be available in designated tax sites within the freeports once these sites have been confirmed. In addition, a new UK Infrastructure Bank is to be set up in Leeds with £12bn capital and the aim of funding £40bn worth of public and private projects.

Of course, the budget also impacts individuals, not just businesses, and the hole in the UK’s public finances need to be addressed. However, perhaps due to the intervention from the International Monetary Fund and Institute for Fiscal Studies, the Chancellor has decided not to press ahead with tax rises, at least until the economy has a firm footing on the road to recovery. Mr Sunak’s budget is for the most part a cautious one, and for the next few years he has limited tax rises to the old stealth option of freezing most personal tax allowances and bands until 2026.

The personal allowance will rise to £12,570 and the higher rate threshold will be £50,270 for 2021/22, following which both will be frozen for the next four tax years, and the capital gains tax annual exemption, inheritance tax rate nil rate bands and pensions lifetime allowance will all be frozen at their current levels until April 2026.

To help maintain the buoyant property market, exemption from Stamp Duty Land Tax on the first £500,000 of residential property purchases will be extended to 30 June 2021 and then replaced by a £250,000 exemption until 30 September 2021.