2020 and COVID-19 saw the UK Government on the biggest borrowing spree since WWII. Circa £12billion was spent battling COVID-19, and that spend continues this year. But this year’s Budget is particularly important, being the first in a post-Brexit Britain.
As usual, the UK Budget covers UK-wide programs, and programs focused on England. The other nations within Great Britain announce their own Budgets (Scotland – Wales – Northern Ireland) and their own spending programs.
As expected, social programs are a big feature of Chancellor Rishi Sunak’s 2021 Budget, as the battle against COVID-19 continues. With the unemployment rate measured in December 2020 at 5.1%, and expected to peak at 6.5% in Q4 2021, protecting jobs is a priority.
The furlough scheme (to guarantee staff receive 80% of their normal salary while in COVID-lockdown) is extended until September 2021, but businesses in the scheme will be required to contribute from July/August.
Mr Sunak announced the creation of eight new ‘freeports’ in England, each one up to 45km (27 miles) across. Freeports are “secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply” and intended to help boost deprived areas. Importers bringing goods into a freeport do not have to pay customs duties until the goods leave the freeport and enter the domestic market. In England, companies inside the freeports will also be offered temporary tax breaks, mostly lasting five years, including reductions to property taxes and reduced national insurance for new staff.
An extension to the carry back of trading losses for corporation tax made in accounting periods that end between 1 April 2020 and 31 March 2022. There is a £2m cap for trading losses being carried back more than one year, with a separate £2m cap applying for each period of 12 months. (E.g.: a company with a 31 March year end will have one £2m cap for its 2021 year end, and a second £2m cap for its 2022 year end.)
A temporary 130% super-deduction will be introduced for two years from 1 April 2021, for companies that invest in qualifying plant and machinery, allowing claims of 25p per £1 spent. A first year allowance of 50% will also be available for spend on items that would usually attract the special rate of relief of 6%. These reliefs are only available in connection with contracts signed after 3 March 2021. In addition, the increase in the Annual Investment Allowance (AIA) to £1m for plant and machinery has been extended by a year—from 1 January 2021 to 31 December 2021. This should generate interest from the Funds market and investors, and potentially gives a boost to the UK’s renewable energy market.
The stamp duty land tax holiday will be extended to 30 June 2021, with a transitional nil rate band of £250,000 applying until 30 September 2021.
The Chancellor welcomed the recent review of the UK’s financial services industry, and committed to a consultation on its recommendations—which included changes to the free float requirement for UK listed companies from 25% to 15%, and reducing regulation on SPACs (Special Purpose Acquisition Companies). Something PE and Fund Managers will be keeping their eyes on.
On the new talent front, businesses can receive funding for apprentices or trainees, with an extension of the apprenticeship hiring incentive to September 2021 (England only) and an increased payment to £3,000. Traineeships are also being promoted with an additional £126m for 40,000 more traineeships, aiming to fund high quality work placements and training for 16–24 year olds in England over the 2021/22 academic year. And pledged reforms to the immigration system will help UK businesses attract international talent.
The hospitality and leisure sector also featured in the Budget, being one of the sectors hardest hit by COVID-19. Mr Sunak announced an extension to the VAT cut to 5% for hospitality, accommodation, and attractions across the UK until the end of September, followed by a 12.5% rate for a further six months, until 31 March 2022. Business rates for the sector (and the Retail sector) have been at 0% since April 2020, and the 0% rate has been extended until June 2021, then tapering for the rest of the year. The Chancellor also announced Restart Grants—a one off cash grant of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England.
The renewable energy sector received some incentives too, as part of the UK’s goal to have offshore wind power every home by 2030. £68m has been allocated to a UK-wide competition to deliver first-of-a-kind long-duration energy storage prototypes, £4m allocated to a biomass feedstocks program, and £20m for another UK-wide competition to develop floating offshore wind demonstrators. The government also pledged at least £15 billion of ‘green gilt issuance’ in the coming financial year, to help finance critical projects to tackle climate change and other environmental challenges, fund important infrastructure investment, and create green jobs across the UK.
There was also the announcement of the launch of a UK Infrastructure Bank, intended to replace the European Investment Bank in a post-Brexit UK. Beginning this spring with £12bn and rising to c£40bn, it will provide support to both private and public infrastructure projects. The Chancellor emphasised that it will be mandated to invest in green infrastructure, assisting the UK in its goal of Net Zero.
But, as always, there is some bad.
Corporation Tax will increase to 25% from 2023. Businesses with profits of £50,000 or less will continue to be taxed at 19%, and a taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
The current Capital Gains Tax annual exempt amounts of £12,300 for individuals and £6,150 for most trustees will not change up to and including the 2025/26 tax year. The IHT nil-rate band and residence nil-rate band have also been frozen at their current levels until 5 April 2026.
In addition, the Personal tax-free allowance will be frozen from April 2022 until 2025/26. Basic and higher rate income tax thresholds will be frozen at £37,700 and £50,270, respectively, till 2025/26.
All in all, a lot of the announcements made by Mr Sunak were not unexpected—after all, COVID related spend has hit the coffers hard. Analysis is still coming in, but Chris Sanger, Head of Tax policy at EY, told the BBC this Budget was “three years of support, followed by three years (and more) of pain”.
Can we use this UK Budget as a predictor? Can we expect similar efforts to recoup COVID-spend in other countries?
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