Spring Budget 2021 Tax Bite

Tax Bite – Spring 2021 Budget

The Budget delivered yesterday did not produce any of the immediate tax shocks that had been feared in light of the effect of the Covid-19 pandemic on the country’s finances. In particular, no immediate increases in tax rates were announced, and business asset disposal relief (previously entrepreneurs’ relief), whilst having been severely curtailed in the 2020 Budget, escaped without being abolished altogether or further restrictions, at least for now.

The CGT annual exemption is not being reduced or abolished, however it will be frozen (along with the income tax personal allowance and rate boundaries, after a small planned increase next tax year) until 2026.

It is important to note however that there is a “Tax Day” scheduled for 23 March 2021, when the government will launch various tax consultations and calls for evidence. We may then know more about what, if any, more significant tax changes might be coming down the line and (we would hope) a clear timetable for any significant changes. The Chancellor did say yesterday that the government is not going to raise the rates of income tax, national insurance, or VAT, but capital gains tax was noticeable by its absence from that list.

An increase in the rate of corporation tax for larger companies to 25% from April 2023 was announced, together with the re-introduction of a small companies’ rate which will be at the current rate of 19%. The profit limit for the small companies’ rate will be £50,000, with a sliding scale up to 25% on all profits once they are over £250,000.

Weighed against this (and coming into effect earlier) is some increased flexibility on the use of corporation tax (and income tax) trading losses. There will be a three-year carry back for trading losses incurred in this and the next financial / tax year, relieved against the most recent year(s) first, and a limit of £2m (per group if the company is in a group) of carry-back of losses from any one year to the second and third preceding years.

Companies (only) will also be able to claim a “super-deduction” for investing in qualifying new plant and machinery between 1 April 2021 and 31 March 2023. For “main rate” items that would normally benefit from 18% allowances, the allowance will be 130%, and for special rate items what would normally be a 6% allowance will be 50%. It is worth noting however that most plant and machinery qualifies for the 100% annual investment allowance, which is being maintained at a generous £1m for the calendar year 2021.

A few other points for companies and their shareholders to be aware of:

• A call for evidence on Enterprise Management Incentive (EMI) options was published, with a deadline of 26 May for responses. Many companies will no doubt want to respond to stress the importance of EMI options, and it may even be possible that EMI could be widened now that the scheme will no longer be subject to EU State Aid constraints.

• The PAYE-related cap on R&D claims from 1 April 2021 had already been announced and will be enacted.

• A further, wider consultation on R&D tax reliefs has been launched with a deadline for responses of 2 June.

• The exemption from UK withholding tax on interest and dividend payments to EU companies that applied in certain cases under the EU Interest and Royalties Directive is being repealed for payments on or after 1 June 2021 (or earlier in some cases) so affected companies may need to consider what other exemptions from withholding tax might be available.

Posted on 31/01/2022 in Tax News


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