Corporation tax to increase to 25%
The headline rate of corporation tax will rise from 19% to 25% from 2023, the Chancellor has announced, an increase he says is necessary to make public finances sustainable in the long-term. Mr Sunak said he wanted to reduce borrowing by raising more tax revenue rather than by cutting public spending, adding: "The only other alternative would be to increase the rates of tax on working people, but I don't think that would be right". He also announced that businesses with profits under £250,000 will be spared the increase, seeing a 19% rate instead. EY’s Chris Sanger said the Chancellor “seems to be focusing on small rather than small and medium-sized businesses”. Meanwhile, PwC’s Jon Richardson said that following years of a declining headline corporation tax rate, Mr Sunak’s “hand has clearly been forced” by the pandemic and the strain on public finances. KPMG analysis shows that the 25% rate exceeds the EU average of 21.7% but is lower than the US’ 27% and Japan's 30.62%.
Income tax allowances frozen
The Budget saw the Chancellor announce that as of April, there will be a freeze on the amount of money employees earn before paying income tax at £12,570, with this to continue until the middle of the decade. The Office for Budget Responsibility estimates that the move will see an extra 1.3m people start to pay income tax by 2026. The level at which employees start paying the higher rate of tax will be frozen at £50,270, with an extra 1m people set to fall into the 40% band within five years as a result. The policy will bring an extra £8bn a year for the Treasury, analysis suggests. Meanwhile, the Chancellor also announced that inheritance tax thresholds, pensions lifetime allowances and annual capital gains tax exemptions are to be frozen at 2020/2021 levels until 2025/26. Several papers note that the freezes to personal allowances will see the tax burden increase to its highest level since 1969, hitting 35% of GDP, while Blick Rothenberg said the freezes mark “a clear tax rise for all taxpayers”.
No penalty for one-off late filing
A move to make rules around filing of tax returns “fairer and more consistent” was announced as part of the Budget, with those filing returns late on a one-off basis now set to be spared HMRC’s £100 penalty. The new system, which will be introduced for VAT taxpayers from 2022 and for those filing income tax self-assessments from 2023, will see heftier penalties for repeat offenders than the current rules. The Budget Red Book said: “The new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is.” The Government will legislate the shift in the Finance Bill 2021, with the reform forecast to raise £5m in 2022/23, £90m in 2023/24 and £155m in 2024/25 and 2025/26. Meanwhile, a crackdown on evasion and avoidance is expected to raise £2.2bn by 2025/26. BDO’s Dawn Register comments that catching tax cheats will help repair public finances, although RSM’s George Bull fears the increased tax take from the crackdown will “not be a game-changer”.
Eight English freeports named
The Chancellor has announced the eight English ports that are to be designated as freeports, claiming that policy for the low-tax areas will be “on a scale we’ve never done before” and will “exemplify the future economy”. The full list of freeports includes: East Midlands airport; Freeport East - Felixstowe with Harwich; Humber - including Hull, Grimsby, Immingham and Goole; Liverpool City Region; Plymouth and South Devon; Solent - including Southampton; Thames - combining London Gateway and Tilbury ports; and Teesside. Concerns have been raised over regulation and governance in the new freeports, with questions over whether the tax breaks could breach trade agreements.
Tax break concern over super-deduction
Under a new tax "super-deduction" detailed in yesterday’s Budget, companies investing in new plant and machinery assets will be able to deduct 130% of the investment from their taxable income for the next two years. This means they would be able to cut their tax bill by up to 25p for every £1 that they invest. PwC has suggested the move may boost "levelling up" as manufacturers are more concentrated outside London and the south-east. However, Labour’s Dame Margaret Hodge suggested the way the tax was structured was a "big concern", saying that the “devil will be in the detail” as it appears the initiative may be “little more than a tax break” for Amazon and other tech giants. The Telegraph notes that an online sales tax may still be put in place to target such firms, with Mona Bitar of EY suggesting "greater certainty is needed in this area".
Furlough extension confirmed
Chancellor Rishi Sunak has confirmed that the furlough scheme, which was due to end in April, will be extended to the end of September. The extension will mean the Government will continue to contribute 80% towards wages to help firms keep staff on the payroll. As of July, employers will start paying 10% of furloughed employees' pay, with this increasing to 20% from August. It was also announced that a fourth round of self-employment grants will help support those left out of previous support because they had not filed tax returns. The fresh round of grants, which will be worth up to £7,500, will see support for an additional 600,000 people. The Office for Budget Responsibility expects the cost of the furlough scheme to be £10.8bn extra between April and September.
UK staff take fewer sick days in 2020
Figures from the Office for National Statistics (ONS) show that workplace absences due to illness fell in 2020. The UK’s sickness absence rate declined from 1.9% to 1.8% last year – the lowest level since its records began in 1995. The ONS said that coronavirus lockdowns, restrictions and social distancing rules in the workplace may “have led to less exposure to germs and minimised some of the usual sickness absences”. It added: “Homeworking could allow people to work from home when they were a little unwell … they might not have travelled to a workplace but feel well enough to work from home.” The report shows 118.6m working days were lost because of sickness or injury in 2020, equating to 3.6 days for each worker.
Three months added to business rates holiday
The business rates holiday rolled out to support firms during the pandemic has been extended for another three months, with the break, which had been set to run for a year and conclude at the end of the month, now running until the end of June. Real estate adviser Altus Group said the cost of extending the relief will be around £3bn. With some retailers having been criticised for accepting business rates relief despite being able to remain open under lockdown rules, a number of big chains last year committed to repaying £2.2bn of the support. Following yesterday’s announcement of the three month extension, Tesco, Sainsbury’s, Asda and Morrisons said they would not take advantage of the relief.
Chancellor reveals 'restart' grants
Retail, hospitality and personal care businesses, which are set to reopen from April as coronavirus restrictions are eased, are to be offered support in the form of the new Restart Grant. The Chancellor announced that retailers will be eligible for grants of up to £6,000 per premises, while pubs, restaurants and salons, which will be closed until June, will be able to claim grants of up to £18,000. Detailing the support in his Budget announcement, the Chancellor said the new grants will total an extra £5bn of help. He added that this takes the Government’s direct cash support to business to £25bn.
Apprentice cash doubles
Payments to employers that take on apprentices are to be doubled, with employers to receive £3,000 for each new apprentice they hire between April and September. KPMG’s Shashi Prashad believes the doubling of the grant could stimulate new jobs and Zlatina Loudjeva of PwC said the Chancellor “has pulled some of the most immediate levers available to get people back into work.”
Hospitality sees VAT cut extended
The 5% reduced rate of VAT for the hospitality sector will continue for another six months, the Chancellor has announced. Rishi Sunak told the House of Commons the reduced rate would be extended until September 30. He also announced there will be an interim rate of 12.5% for another six months until April 2022. In total the move will see VAT cut by around £5bn. Christian Mole of EY warned that the sector will face challenges, even as restrictions are lifted, calling for ongoing Government support and describing the sector-specific support being offered as “encouraging”.
EU says UK grace period extension breaches international law
The EU says UK plans extend grace periods for Irish Sea border checks will be a breach of international law. Northern Ireland has remained a part of the EU's single market for goods so products arriving from GB undergo EU import procedures. The grace periods mean procedures and checks are not yet fully applied. The first of these periods will expire at the end of March, but the UK has said it will be extended until October. European Commission Vice President Maroš Šefovi said the move amounted to "a violation of the relevant substantive provisions" of the Brexit deal on Northern Ireland, known as the NI Protocol. He said the EU would respond in accordance with the "legal means" established by the protocol and the wider Brexit deal.
Vaccines to drive economic recovery, says OBR
The Office for Budget Responsibility (OBR) says the UK’s coronavirus vaccine programme will help drive a "swifter and more sustained" economic recovery, with the Government’s independent forecaster saying it expects growth of 4% this year and 7.3% in 2022. The latter would mark the highest growth rate since official records began and see the economy hit its pre-pandemic level by the middle of next year - six months earlier than previously estimated. The OBR analysis noted that British households have built up savings of around £180bn in the past year, with it forecasting that around a quarter could be spent once coronavirus-related restrictions are lifted, pointing to a potential "degree of euphoria" among consumers. It also warned that economic uncertainty remained "considerable". The OBR also said unemployment is set to peak at 6.5%, considerably lower than the 11.9% expected last July.
UK infrastructure bank to be based in Leeds
Chancellor Rishi Sunak announced in yesterday’s Budget that the UK’s first infrastructure bank, which will direct billions of pounds of investment, will be based in Leeds, benefitting from the city’s position as an established financial hub. Mr Sunak said the bank will be tasked with delivering “world-class infrastructure” through investment in sectors like renewable energy, carbon capture, storage and transportation, and providing low-cost loans to mayors and local authorities to fund projects.
Read more: Daily Mail, The Times, BBC News, City AM, The Daily Telegraph, Daily Mirror, The Guardian
Visit our website here for more news and product information, or click the button below to submit a short enquiry form for your finance needs.