Spring Budget Update #1 - Tax Summary

Following last week’s Spring Budget statement by the Chancellor and our brief summary of the announcements, the intention is now to expand on those over a couple of digestible emails to provide greater detail around the main points we think will be of most relevance.

The first instalment below deals with the various announcements around taxation, with a second to follow in the coming days around updates to Covid relief measures.  

Corporation Tax

Change to Rates

The current main rate of corporation tax is set to remain at 19% until 31 March 2023.

From 1 April 2023 the main rate will then increase from 19% to 25% on profits in excess of £250k per annum.

Those with profits less than £50k will retain the current rate of 19% from that point, with a tapered rate up to 25% on profits between £50k and £250k.

Investment ‘Super Deduction’

From 1 April 2021 to 31 March 2023 a new ‘super deduction’ has been announced for companies investing in plant and equipment.

Expenditure on qualifying assets will benefit from an enhanced deduction to taxable profits of 130% (i.e. a reduction in taxable profits of £130 for every £100 spent).

Qualifying assets are expected to include most ‘plant, machinery and equipment’ type assets typically acquired by trading businesses - the super deduction won’t be available for used or second hand assets or cars.

It will also not be available for expenditure incurred under a contract entered into prior to 3 March 2021, even if the expenditure is incurred after 1 April 2021.

It is important to note that this will only be available for companies and not to individuals or partnerships.

Extended Loss Carry Back

The trading loss carry-back rules (which currently allow companies to claim unused trading losses against its profits for the preceding year) will be extended from one year to three for accounting periods ending between 1 April 2020 and 31 March 2022.

There will be no restrictions to losses carried back one year in line with the current rules, but a cap of £2m of losses for each of the financial years covered by the extension will apply to the extended period.

Losses carried back beyond the first year will be allowable against the next most recent year before earlier years.

The £2m cap will be subject to a limit for group companies - where groups with companies that have capacity to carry back losses in excess of a de minimis of £200,000 the cap must be apportioned between the group companies.

R&D Tax Credits

As we announced last week, for accounting periods beginning on or after 1 April 2021 the amount of R&D tax credits a company can receive under the SME scheme in any one year will be capped at £20,000 plus 3x the company's PAYE and National Insurance contributions liability for the year.

Income Tax

Rates and Thresholds

There were no changes to the current rates of personal tax.

From 6 April 2021 the tax-free threshold will increase to £12,570 where it will remain until April 2026.

The higher rate threshold will also increase from that date to £50,270 where it too will remain frozen until April 2026.

Extended Loss Carry Back

The same extended loss carry-back rules apply to unincorporated businesses as noted for companies above, in that trading losses made in the tax years 20/21 and 21/22 can be carried back up to three years instead of the current restriction to one. 

VAT

Rates and Thresholds

Despite speculation the main rate of VAT may increase, this has remained at 20% (and 5% for the reduced rate).

Registration thresholds (£85k for registration and £83k for deregistration) will remain in place until April 2024. 

Hospitality and Tourism Reduced Rate

The 5% reduced rate announced earlier in 2020 applicable to the hospitality and tourism sectors will be extended until 30 September 2021.

An interim rate of 12.5% will then apply between 1 October 2021 and 31 March 2022, at which point it is intended to revert to the main rate of 20%.

Other Taxes

Capital Gains Tax

A point of much speculation pre-budget, the Chancellor made no reference to changes in the current rates of capital gains tax which (for now!) should come as good news to those with either business or property transactions on the horizon.

The annual exemption allowance (i.e. the amount an individual can make in gains annually before they become chargeable) is to remain at its current level of £12,300 until April 2026.

Inheritance Tax

The inheritance tax nil-rate band will also remain fixed at £325k (in addition to the residence nil-rate band of £175k) until April 2026. 

Pensions

The pensions Lifetime Allowance has also been fixed at the current rate of £1,073,100 until April 2026.

Stamp Duty (SDLT)

As was widely anticipated and what should be welcome news for homebuyers rushing to complete in the coming weeks, the current increase in the SDLT nil-rate band for purchases of principal residential properties to £500k due to end on 31 March 2021 has been extended until 30 June 2021. 

From this point there will be a gradual removal of the extension, with the threshold dropping to £250k from 1 July 2021 to 30 September 2021 and a full reversion to £125k from 1 October 2021.

If you have any questions regarding this or anything else please get in touch, and for regular updates, announcements and news please check our website (www.dsaprospect.co.uk) and make sure you’re following our LinkedIn page: https://www.linkedin.com/company/dsa-prospect-ltd