There were a number of developments, extensions and tweaks to pandemic measures, including temporary extensions to loss reliefs for Income Tax and Corporation Tax.
There were also announcements that set out how the government intends to pay for its largesse. Basically, individuals will start to pay more tax as key allowances and thresholds are kept stationary up to and including 2025/26 (in most cases) – fiscal drag.
But the biggest bill will be laid at companies, where profits above £50,000 will be hit by a tax rate of at least 25% from April 2023. I seem to recall a not-too-previous Chancellor claiming that it was self-evident that lower Corporation Tax rates would result in a higher tax yield. Perhaps the current Chancellor’s candour – saying the measures might be unpopular but at least they were honest – is as unconventional as some of his policies.
Documents are as follows:
Reference are to the OOTLAR unless noted as Red Book (“RB”)
Coronavirus Job Retention Scheme (CJRS) to be retained for a further 5 months to the end of September 2021 (RB 2.14)
The details appear to be as follows:
|Current Position (to April)||May, June||July||August, September|
Government contribution to “usual” wages pro-rata for times furloughed in pay period
up to 80% but no more than £2,500
up to 80% but no more than £2,500
Government contribution: Employers’ NICs and statutory pension contributions
Employer contribution: Employers’ NICs and pension contributions (incl. for any furlough period)
Employer’s minimum own contribution to furloughed wages
80% up to £2,500 per month
80% up to £2,500 per month
80% up to £2,500 per month
80% up to £2,500 per month
Note that it seems likely that the Chancellor is banking on the government’s contribution by September being quite low, as more and more businesses are able to open / function as normal.
Self-Employed Income Support Scheme (SEISS) also extended (RB 2.15, 2.16)
4th SEISS Grant – worth 80% of 3 months’ worth of average trading profits, and claimable from late April. It seems claimants will have to have filed a 2019/20 tax return. Of course the first 3 SEISS grants were based on taxpayers’ 2018/19 results, thereby excluding a claim from those who had commenced in 2019/20. This will mean that people who started self-employment in 2019/20 (and have already filed a tax return) will also now be in a position to claim. The number of potentially eligible claimants is expected to rise by more than 600,000.
While we await further details, the inference is that average results will now be based on 2019/20 self-employment pages. This may in turn mean that some traders’ average profits will have ‘started’ to fall, in response to the start of the pandemic early last (calendar) year, but much will depend on the basis period adopted for the 2019/20 tax return. The award will be 80% of the average of 3 months’ trading profits, capped at £7,500.
5th SEISS Grant – the grant will be split according to a turnover test – presumably comparing the 2019/20 results as returned to HMRC with current results?
- Individual traders whose turnover has fallen by 30% or more will be eligible for a further “full” award of 80% of 3 months’ worth of trading profits, capped at £7,500
- Individual traders whose turnover has fallen by less than 30% will get an amount of 30% of 3 months’ worth of trading profits, capped at £2,850 (NB 3/8ths of £7,500 is £2,812.50 but it’s presumably rounded up to the nearest £50)
This final grant will be claimable from late July and further details will follow, but will presumably require some more detailed self-certification than in the past. Note that the maximum award is meant to cover a period of 5 months, despite remaining pegged at 3 months’ worth of average profits. As with the CJRS, the Chancellor’s rationale may be explained by a hope that more businesses will be more active /profitable by September.
Two further developments with regard to the SEISS:
(1.12) Finance Bill 2021 will update the legislation to ensure that grants received on or after 6 April 2021 will be treated in the year of receipt. Partnership claims aside, the current legislation simply says that all SEISS payments are taxable in 2020/21, which in theory meant that you would be taxed on the 4th and 5th SEISS grants the year before you actually received them (FA 2020 Sch 16 Para 3(3)). The change in the legislation will mean that SEISS received in late April 2021 and July 2021 will be taxable as trading income of 2021/22. The exception in the case of a payment made to a partner distributed among the partnership will apparently be unchanged.
(1.13) The legislation will also be updated to facilitate HMRC’s recovery of SEISS grants for which the claimant was eligible at the time, but subsequently prove not to be, or to be excessive.
Restart Grants (RB 2.43)
Following on from the business rates-based grants scheme that ends in March 2021, there will be a fresh round called “Restart Grants” in April 2021:
- Up to £6,000 per premises for non-essential retail businesses
- Up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses
Recovery Loan Scheme (RB 2.42)
A new scheme with government backing of 80% against loans between £25,000 and £10million, available to all businesses of any size (including those that have already benefitted from the ‘original’ coronavirus loan offerings)
Business Rates Reliefs (RB 2.47)
Eligible retail, hospitality and leisure properties in England will continue to benefit from 100% business rates relief for the 3 months from 1 April 2021 to 30 June 2021.
This will be followed by 66% business rates relief for the 9 months 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.
There will also be provision for businesses to get tax relief on any repayments of business rates relief received, so that they are no worse off than if they had paid the higher amount of business rates in the first place. This will apply across the UK (RB 2.49)
(1.40) Reduced VAT Rate for Tourism and Hospitality to Continue
Hospitality, hotel/holiday accommodation and attractions admission charges will continue to benefit from reduced rate(s):
- 5% for the first 6 months to 30 September 2021
- 5% for the next 6 months 1 October 2021 to 31 March 2022
Following which, it will revert to the standard rate. The Flat Rate Scheme will be tweaked so as effectively to accommodate the new 12.5% rate.
(1.56) Stamp Duty Land Tax (SDLT) Holiday Extended
- Held at £500,000 for a further 3 months from 1 April 2021 through to 30 June 2021
- Temporarily stepped down to £250,000 for the next 3 months from 1 July 2021 to 30 September 2021 (note that First Time Buyer Relief will not be disapplied during this period)
- Revert to the standard £125,000 from 1 October 2021
Mortgage Guarantee Scheme (RB 2.25)
The government will introduce a new mortgage guarantee scheme in April 2021, that will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000 (note, not £500,000). Under the scheme, all buyers will have the opportunity to fix their initial mortgage rate for at least five years if they wish. The scheme, which will be available for new mortgages up to 31 December 2022, will increase the availability of mortgages on new or existing properties for those with small deposits.
Other “Housekeeping Measures” Dealing with the Pandemic
(2.4) Temporary Income Tax exemption / NICs disregard for the employer reimbursement of the cost of relevant home office equipment will be extended to 5 April 2022.
(1.13) Retrospective 2020/21 Income Tax exemption for employer reimbursement of COVID-19 antigen test
(1.14) Extension of the Income Tax exemption / NICs disregard for employer-provided (and now employer-reimbursed) COVID-19 antigen tests for 2021/22
Note the antigen tests are to test for “live” virus, while antibody tests (which are not covered in these provisions) are to see if someone has previously had the virus. The immediacy of the “live” test effectively clears someone to work at a given point in time.
Universal Credit – temporary £20 per week enhancement to be retained for a further 6 months, to September 2021 (RB 2.19). Other easements for UC and Working Tax Credit have also been provided.
Apprenticeships in England - The government will extend and increase the payments made to employers in England who hire new apprentices, for the 6 months to 30 September 2021, at £3,000 per new hire. This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies (RB 2.30)
CONSULTATIONS AND (RELATIVELY) FRESH DEVELOPMENTS
Similar to the last “once in a lifetime” global economic crisis measures introduced in FA 2009 s 23, Sch 6, Income Tax losses in either or both of the two tax years 2020/21 and 2021/22, and Corporation Tax losses in either or both of the two fiscal years ending 31 March 2022, may be carried back up to 3 years (i.e., 2 more than usual for an ongoing trade).
Unlike the quite modest sums allowed in 2009, however, each year of loss can carry back losses of up to £2million, against Yr -2 / Yr -3 in aggregate (as usual, no restriction for losses carried back to the preceding Year’s loss Yr -1).
Of course losses will still be carried back to offset against most recent years first.
Where there is a group, then the £2million per year of loss cap applies to the group as a whole
Interestingly, for Corporation Tax:
- Losses are claimable against total profits
- If an earlier Accounting Period to which losses are being carried back is less than 12 months’ duration, there is no corresponding restriction of the overall cap.
- “Small” claims of up to £200,000 can be made outside of the return – including before a return for the period of loss has been submitted, so long as it is after the period of loss itself has ended and it can be quantified appropriately.
For Income Tax:
- There is no cap at the partnership level – so each individual can carry back up to £2million of losses from 2020/21 to 2018/19 and 2017/18 under this extension, (and similarly again for losses in 2021/22 but for 2019/20 and 2018/19)
- But this Income Tax loss extension applies to losses carried back against earlier profits of the same trade, not against general income, so actually it is conceivable that the standard “losses against general income of the current/previous tax year” route may be preferable, or prioritised, despite the corresponding restrictions for claims against general income (it seems this loss extension can be claimed alongside a standard claim against general income – albeit not to the same target year – or in the absence of such a claim, although further detail will be welcome)
- Relief against Class 4 NICs will also be available
- A claim may be made for losses from Furnished Holiday Accommodation
- There is no corresponding “small claim” route set out but a claim involving more than one year can be made outside of a Self Assessment tax return anyway.
See also Extended Loss Carry Back for Businesses for further information
(1.33) Capital Allowances “Super-Deduction” – Qualifying investments in eligible brand new plant and machinery – but only by companies – will get:
- 130% relief if a main-rate asset, or
- 50% relief if a special-rate asset
Covers expenditure incurred from 1 April 2021 and before 1 April 2023, but not contracts entered into before Budget Day, 3 March 2021; also, further conditions will apply to credit sales / Hire Purchase-type arrangements. The measure is supposed to encourage “cash-rich” companies to invest in plant capital, ahead of the introduction of the new 25% CT rate, so the special rate will need to be apportioned if the Accounting Period of expenditure straddles 1 April 2023 (as well as the qualifying expenditure having to be incurred prior to that date in the first place). There will also need to be special rules dealing with disposal values, as the proceeds adjustment would otherwise be limited (simply) to 100% of the original cost.
(1.34) There is also the extension to the temporarily-increased £1million Annual Investment Allowance, to 31 December 2021, in recognition of the fact that many businesses hoping to have made qualifying investments within the original window (up to 31 December 2020) may have been stymied by events beyond their control.
(2.18) Research & Development – The government will carry out a review of R&D tax reliefs, with a
consultation published alongside the Budget.33 This review will consider all elements of the two
R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for
cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is
(1.24) Preventing Abuse of R&D Relief for Small and Medium-Sized Enterprises – Meanwhile, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability, in order to deter abuse. This £20,000 de minimis is new. Also, the company will be exempt from the cap if:
- Its employees are creating, preparing to create or managing Intellectual Property (IP) and
- It does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons
(2.17) Enterprise Management Incentive (EMI) Schemes – a consultation alongside the Budget on whether and how to expand the current Enterprise Management Incentive scheme to ensure it offers effective support for high-growth companies seeking to recruit and retain key employees, and remains internationally competitive.
(1.29) Enterprise Management Incentive (EMI) Schemes – a time-limited exception to Working Time Arrangements, to help prevent withdrawal of EMI status just because employees have been furloughed.
Free ports have been announced for England at:
- East Midlands Airport
- Felixstowe and Harwich
- Liverpool City Region
Other sites may be designated free in the devolved nations.
Free ports will include designated zones eligible for:
(1.35) Enhanced Structures and Buildings Allowance straight-line rate of 10% rather than the standard 3% (so long as brought into use on or before 30 September 2026)
(1.36) Enhanced Capital Allowances of 100% for expenditure incurred on or before 30 September 2026, on brand new plant and machinery for use within free port tax sites, but then subject to clawback if its primary use is outside a free port tax site within 5 years of acquisition or being brought into use.
(1.57) Stamp Duty Land Tax Relief for purchases made up to 30 September 2026 on land or property acquired for and used in “a qualifying commercial manner”, subject to a 3-year clawback period
Full Business Rates Relief for new businesses, and certain existing businesses where they expand onto the designated tax sites, up until 30 September 2026 (RB 2.115)
Employer NICs relief for people eligibly employed at a free port tax site from April 2022 (subject to parliamentary approval) up to at least April 2026 (and potentially a further 5 years to April 2031) (RB 2.115)
Paying for the Pandemic
Freezing Rates, Thresholds and Allowances
“This government is not going to raise the rates of Income Tax, National Insurance, or VAT. Instead, our first step is to freeze personal tax thresholds.”
A lot of things have been frozen, so that fiscal drag will mean that many people will end up paying more tax in the long run:
- (1.2) Personal Allowance will be increased to £12,570 from 2021/22 (in line with CPI as intended) and stay there up to and including 2025/26.
- Higher Rate Threshold will likewise increase to £50,270 from 2021/22 and stay there until 2025/26. (Note devolved administrations hold sway over the bands for earnings or, strictly, non-savings, non-dividend income). These measures combined are estimated to recoup almost £20billion by the end of 2025/26, according to Table 2.1 of the Budget Red Book
- The NIC Upper Earnings Limit and Upper Profits Limit will remain aligned with the Higher Rate Threshold throughout
- (2.76) CGT Annual Exemption will likewise be frozen at £12,300 until the end of 2025/26, saving a relatively modest £65million (although note the Chancellor made no promise as regards CGT rates, either).
- (1.6) IHT Nil Rate Band will remain at £325,000 up to and including 2025/26
- Likewise the Residence Nil Rate Band will remain at £175,000 until 2025/26; these measures should together yield a further c£1billion up to and including 2025/26
- (1.4) Pension Lifetime Allowance will rise to £1,073,100 for tax years 2021/22 and then the link to CPI will be negated for the next four years up to and including 2025/26, recovering a further £1billion to the end of 2025/26
- 6 VAT registration threshold will remain at £85,000 for a further 2 years up to 31 March 2024, and the de-registration limit will likewise remain at £83,000, resulting in a combined Treasury saving of £480million
Corporation Tax rates are set to increase (back) up to 25% from FY2023 (Fiscal Year commencing 1 April 2023). We last saw rates this high (well, 26% at least) in FY 2011.
The Chancellor will, however, protect modest profits by re-introducing a Small Profits Rate for CT of 19% - i.e., it will stay at 19% as now for companies making taxable profits of up to £50,000. Even so, this will not apply to Close Investment-Holding Companies, as previously defined. Those Family Investment Companies that cannot lay claim to predominantly property business income will doubtless be hoping that this is a short-lived trip down memory lane. But they may be disappointed.
We shall see the return of “associated companies” rules to prevent disaggregation of business profits between several companies under common control.
There will also be a marginal rate of Corporation Tax where profits fall between the Small Profits threshold of £50,000 and the Main Rate Threshold of £250,000. My hazy recollection of the corresponding formula puts this at a Marginal Rate of 26.5%.
The increase in the Main Rate of Corporation Tax to 25% is calculated per Table 2.1 of the Red Book to accrue almost £48billion by the end of 2025/26 – an enormous sum. Note, in particular, that nowhere does it say that the increase in the Main Rate of CT is temporary.
General Compliance Measures Announced
1.68 Interest Harmonisation Across the Taxes and Penalties Reform for Late Returns / Payment – as long-trailed for a number of years now, a new regime will be introduced to complement the introduction of MTD for VAT (for all businesses) and MTD for Income Tax.
Late Submission Penalty
A fixed penalty of £200 for late filing on reaching a points threshold, depending on submission frequency (one point will accrue for each failure):
- Annually = 2 points
- Quarterly = 4 Points
- Monthly = 5 Points
A penalty point accrued will expire after 24 months, so long as the relevant points threshold is not reached. Otherwise, all points will expire when the taxpayer meets their filing obligations throughout the period:
- For annual returns, 24 months
- For quarterly returns, 12 months
- For monthly returns, 6 months
Late Payment Penalty
Comprises 2 components:
|Days after payment due date||Action by taxpayer||Penalty|
|0 to 15||Payments made or taxpayer proposes a Time To Pay arrangement (TTP) that is eventually agreed||No penalty is payable|
|16 to 30||Payments made or the taxpayer proposes a TTP that is eventually agreed||Penalty will be calculated at half the full percentage rate (2%)|
|Days after payment due date||Action by taxpayer||Penalty|
|Day 30||No payment made, no TTP required||Penalty will be calculated at the full percentage rate (4%)|
A second charge will also become payable from Day 31 and will accrue on a daily basis, based on amounts outstanding. As with the first charge, the taxpayer can agree a TTP arrangement with HMRC. The penalty will stop accruing from the date a TTP arrangement is agreed.
The taxpayer can claim a reasonable excuse against the imposition of points or penalties.
The TIIN forecasts a net increase in yield of more than £150million a year. Frankly, the rates of these proposed penalties are such that I shouldn’t be surprised if that proves a conservative estimate.
Finally, bear in mind that, based on the TIIN, you have to agree Time To Pay – with HMRC.
2.15 New Powers to Tackle Electronic Sales Suppression
The government will make new offences for the possession, manufacture, distribution and promotion of electronic sales suppression software and hardware.
There will also be electronic sales suppression-specific information powers allowing HMRC investigators to identify developers and suppliers in the electronic sales suppression supply chain and to access software developers’ source code and the locations of code and data.
In a similar vein, the government will be introducing rules that will require digital platforms to send information about the income of their sellers to both HMRC and to the seller themselves, but not before January 2024.
Investment in Compliance Activity
The Red Book also sets out that the government intends to invest a further £180million in 2021/22 for additional resources and new technology for HMRC, but expecting a yield of more than £1.6billion, primarily through recruiting additional compliance staff to increase its ability to target non-compliance through illicit financial flows, and continuing to fund compliance work on the loan charge, historic disguised remuneration cases and early intervention to encourage individuals to exit tax avoidance schemes. I am not sure that this is accurately reflected in Table 2.1 (see line 38). (RB 2.104)
1.63 Conditionality: Licensing in England and Wales – as trailed in Budget 2020, certain traders, such as taxis and scrap metal dealers, will not be able to renew their licence with their respective Local Authority until they have been ‘cleared’ as compliant with HMRC. The latest TIIN merely refers to their having “an obligation to notify their chargeability to tax”, whereas in previous MIM publications, it seemed that the government was gravitating towards requirements for returns to be filed and that the taxpayer provide “information about any relevant authorised activity income”. At this stage it is difficult to say if the TIIN is reflecting a newly-pared back approach or that more demanding requirements will be made when the scheme is implemented.
1.18 CGT Relief for Gifts of Business Assets – So far, this is merely to do with disapplying gift relief for disposals made by non-residents who control the company to which the business asset is being given. So far.
1.58 The previously-announced 2% Surcharge on SDLT, for Purchases of Residential Property in England and Northern Ireland by non-residents, will go ahead from 1 April 2021 as planned. There is a pay now, reclaim later approach to non-residents who are in the process of becoming UK-resident. The definition of residents does not follow the Statutory Residence Test but is for SDLT purposes here. There is also provision for when married couples / civil partners are buying, and one is UK resident but the other is not.
1.67 Amending HMRC’s Civil Information Powers to allow HMRC to issue a “Financial Institution Notice” to a bank or similar, requesting information about a named individual without requiring their permission or that of a tribunal. Ostensibly the measure is necessary so that HMRC can streamline its response to enquiries from other tax authorities but also happens to cover dealing with HMRC tax debts. HMRC is supposed to be reporting annually on its use of these new measures.
1.62 Follower Notices and Penalties - the government will legislate in Finance Bill 2021 to change the penalties that may be charged to people receiving Follower Notices as a result of using avoidance schemes. The rate of penalty will be reduced from 50% to 30% of the tax in dispute, but a further penalty of 20% will be charged if the tribunal decides that the recipient of a Follower Notice continued their litigation against HMRC’s decision on an unreasonable basis.
1.50 Plastics Packaging Tax – will go ahead from 1 April 2022, broadly at the rate of £200 per tonne of any plastics packaging that contains less than 30% recycled plastics content. However, small-scale importers (less than 10 tonnes of packaging) will be exempted.
1.11 Income Tax Exemption for Financial Support Payments to Potential Victims of Modern Slavery and Human Trafficking. Astonishing that these were not made exempt at the outset.