Spring Budget 2021

It is less than a year since Rishi Sunak presented his first budget, after having been in the role of Chancellor for less than a month.  His despatch box premiere featured an allocation of £12bn towards mitigating the impact of Covid-19.  Ironically, on the same day as Mr. Sunak revealed that boost to spending, the World Health Organisation declared the outbreak a pandemic.  Total expenditure on dealing with the pandemic is now estimated to be around £300bn.

The March 2020 Budget was what should have emerged in the Autumn of the previous year, before being deferred because of the General Election.  The March 2021 Budget is the result of a similar delay.  Last September the Chancellor decided that the uncertainties created by the pandemic meant it wisest that he waited until Spring 2021 to present the Budget.  Since then, Mr Sunak has been kept busy announcing extensions to the various Covid-19 support schemes introduced in 2020.  Whether the Chancellor feels the economic outlook today is much clearer than six months ago is a moot point.

One financial aspect which has been painfully clear for some time is that the government’s finances have been fundamentally changed by the pandemic.  A year ago, the Office for Budget Responsibility (OBR) forecast that the government would borrow around £55bn in 2020/21.  Twelve months later its estimate has risen to £400bn.  The coming year, 2021/22, should see borrowing more than halve according to the OBR, but the deficit is still projected to be running at over £160bn – more than three times the figure of just two years ago.

Dealing with this level of borrowing is probably not what Mr. Sunak signed up for when he moved into 11 Downing Street.  He now has to deal with total government debt of about £2,100bn, equal to the UK economic output for the year.  The last time debt was as high was in the early 1960s, when the UK was still in the business of paying down the bills incurred in World War II.

Despite the lake of red ink, Mr. Sunak was never going to introduce significant tax increases in this Budget.  For a start, nearly all economists, regardless of political hue, were saying that economic recovery was the priority and sorting out the debt could wait.  Secondly, Mr. Sunak’s boss, Boris Johnson, cannot even bring himself to mention the A-word (austerity) which would ruin his ‘leveling up’ agenda.  As a result, the Budget was one of tax pain largely deferred.

The proposals of most interest were:

The addition of £70 to the personal allowance and £200 increase in the basic rate band, in line with indexation requirements.  However, after 2021/22, the personal allowance and higher rate threshold (outside Scotland) will be frozen for four tax years.

The inheritance tax nil rate band, the pensions lifetime allowance and the capital gains tax annual exemption will all be frozen at their current levels for the next five tax years.

For companies with profits of over £250,000, in April 2023 the rate of corporation tax will jump by 6% to 25%.  A new smaller companies’ rate of 19% for companies with profits of up to £50,000 will be introduced at the same time.

A new ‘super-deduction· 130% first-year allowance will be introduced for companies investing in plant and machinery between 1 April 2021 and 31 March 2023.

The temporary £500,000 0% band for stamp duty land tax will continue to apply for residential property purchases up to 30 June 2021. The band will then be halved for the following three months before reverting to its original £125,000 level from 1 October.

The coronavirus job retention scheme (CJRS – furlough scheme) and the self-employed income support scheme will be extended to September, albeit with reductions in the final three months of their life.

The business rates holiday for retail, hospitality, and leisure businesses will also be extended. Until June 2021 100% relief will apply and thereafter reduced (and capped) 66% relief will operate until the end of March 2022.

12 Quick Tax Tips

1.           Don’t waste your (or your partner’s) £12,570 personal allowance in 2021 /22.

2.           Don’t forget the personal savings allowance, reducing tax on interest earned.

3.           Don’t ignore the dividend allowance, eliminating tax on £2,000 of dividends.

4.           Don’t dismiss National Insurance contributions – they are really a tax at up to 25.8%.

5.           Think marginal tax rates – the system now creates 60% (and higher) marginal rates.

6.           ISAs should normally be your first port of call for investments and then deposits.

7.           Even if you are eligible for a LISA. you still might find a pension is a better choice.

8.           Tax on capital gains is usually lower and paid later than tax on investment income.

9.           Trusts can save inheritance tax but suffer the highest rates of CGT and income tax.

10.         File your tax return on time to avoid penalties and the taxman’s attention.

11.         If you are entitled to a company car, going hybrid or electric could slash your tax bill.

12.         Don’t assume HMRC won’t know automatic information exchange is now widespread.

If you need further information on how you will be affected personally, you are strongly recommended to consult your financial adviser. If you would like one of our Advisors to review your finances, are unsure of how your portfolio is performing, or want to look at alternate ways to get a good return on your savings and pensions, please call us on 0114 235 3500 for a free initial meeting.

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