A year
ago, Rishi Sunak delivered his first Budget just as the pandemic began to take
hold. While his £30 billion package sounded significant, it’s a sum that has
paled into insignificance over the last 12 months as the chancellor has spent £280
billion shoring up the UK economy.
As the
chancellor acknowledged in his speech: “The damage coronavirus has done to our
economy has been acute”.
So, who
are the winners and losers of the 2021 Budget?
Winners
Retail,
leisure, and hospitality businesses
It’s been
a tough year for many sectors, and retail, leisure, and hospitality businesses
have been particularly hard hit.
The chancellor
announced £5 billion in government grants to businesses in these sectors. Non-essential
retail businesses will receive grants of up to £6,000 per premises, while
hospitality and leisure businesses will receive grants of up to £18,000.
Sunak also
confirmed an extension to the temporary 100% business rates relief for
hospitality, retail, and leisure until the end of June. He will then discount
business rates by two-thirds, up to a value of £2 million for closed
businesses, with a lower cap for those who have been able to stay open.
The
chancellor also extended the temporary VAT reduction in these sectors from 20%
to 5% until 30 September. There will then be an interim 12.5% VAT rate until
April 2021.
Alcohol
duties were frozen for the second year in a row.
Businesses
with staff on furlough
In a
pre-Budget statement, Sunak summed up his Budget: “We’re using the full measure
of our fiscal firepower to protect the jobs and livelihoods of the British
people.”
Sunak most
clearly demonstrated this commitment by announcing the government will extend
the furlough scheme until the end of September 2021 – longer than businesses
expected.
The government
will cover the wages for workers who have been put on leave due to the pandemic
(up to a maximum of £2,500 a month) at the following rates:
- 80% until
the end of June 2021
- 70%
in July 2021
- 60%
in August and September 2021
Employers will
have to pay the difference to 80% – so 10% of wages in July and 20% in August
and September.
This is a
major commitment by the Treasury as the scheme costs around £5 billion each
month.
Self-employed
workers (including the recently self-employed)
The fourth
Self-Employed Income Support Scheme (SEISS) grant for February, March, and
April 2021 will cover 80% of monthly profits up to a maximum of £2,500 a month.
People who
became self-employed in the 2019/20 tax year, and have filed a 2019/20 tax
return, will also be eligible for the fourth and fifth grants, helping an
additional 600,000 workers.
A fifth grant, covering May, June and July 2021 will also
be available.
- For
self-employed workers whose turnover has fallen by 30% or more, the grant will
continue to pay 80% of monthly profits up to £2,500 a month.
- For
self-employed workers whose turnover has fallen by less than 30%, the grant
will pay 30% of monthly profits up to £2,500 a month.
Homebuyers
As
expected, the chancellor announced a three-month extension to the Stamp Duty
holiday. This tax break will now finish at the end of June, at a cost of about
£1 billion to the Exchequer.
The Stamp
Duty nil-rate band will then be increased from £125,000 to £250,000 until the
end of September 2021.
Sunak also
relaunched the Help-to-Buy scheme to bring back 95% mortgages, which are mainly
used by first-time buyers and have been in short supply due to the pandemic.
Here, the
Treasury will offer lenders a guarantee covering 95% of property value, up to
£600,000. This will encourage banks and building societies to lend to
first-time buyers and current homeowners.
Sunak
said: “By giving lenders the option of a government guarantee on 95% mortgages,
many more products will become available, helping people to achieve their dream
and get on the housing ladder.”
Lenders
including HSBC, Lloyds, and Halifax will offer these deals from April 2021
onwards.
People
claiming Universal Credit
The government
have extended the temporary £20 per week uplift in Universal Credit benefits until
the end of September 2021. This will be a one-off payment of £500.
The
National Living Wage will rise to £8.91 from April 2021.
Businesses
looking to invest
After
announcing a hike in business tax rates (see below), the chancellor announced
what he called the “biggest business tax cut in modern British history”.
A new “Super
Deduction” will come into force for two years. This means that, when companies
invest, they can reduce their tax bill by 130% of the cost of the investment.
Sunak gave
the example of a firm currently spending £10 million on equipment. At present
they benefit from a £2.6 million tax reduction but, under the Super Deduction
they would get a tax break worth £13 million.
The Office
for Budget Responsibility say it will boost business investment by 10%.
Drivers
The
chancellor cancelled the planned increase in fuel duty.
People
living in the East Midlands, Liverpool, Plymouth, and other freeport locations
Goods that
arrive at freeports from abroad aren’t subject to the tax charges that are
normally paid to the government. The tariffs are only payable when the goods
leave the freeport and are moved somewhere else in the UK.
To help
regenerate deprived areas, Sunak announced the creation of eight new freeports:
East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region,
Plymouth, Solent, Thames, and Teesside.
Losers
Medium-sized
and large businesses
The first
step to repairing the public finances came in the form of a Corporation Tax
rise which will come into force in April 2023.
From April
2023, the Corporation Tax rate will rise to 25%. Despite a significant six-point
increase in the rate, the chancellor argued that the UK will still boast lower
Corporation Tax rates than the likes of Germany, Japan, the US, and France.
Small
businesses – those with profits less than £50,000 – will benefit from a “small
profits rate” of 19%. This means 1.4 million businesses will be unaffected and pay
the same rate.
There will
be a taper for profits above £50,000, so the 25% Corporation Tax rate will only
apply to businesses who make profits of £250,000 or more. Sunak says that just 1
in 10 companies will pay the full higher rate.
Income Tax
payers
While the chancellor
announced no Income Tax, VAT or National Insurance rises, the decision to freeze
the Personal Allowance at £12,570 and the higher-rate tax threshold at £50,270 from
2021/22 to 2026 equates to, essentially, stealth taxes.
A freeze drags more people into paying Income Tax and will also push 1.6 million people into the higher tax bracket by 2024, raising around £6 billion for the Exchequer.
Pension
savers
In an
expected move the chancellor announced he was freezing the Lifetime Allowance –
the amount an individual can save into a pension before incurring tax charges.
The allowance will remain at £1,073,100 until 2026.
This is
another stealth tax, as it means that anyone whose pension savings are above
this amount could face a levy of up to 55% on any additional lump sums or
income taken from their pension pot.
Wealthier
individuals and families
Just as
the chancellor froze the pension Lifetime Allowance, he also announced a freeze
in the Inheritance Tax (IHT) threshold and the Capital Gains Tax (CGT) annual
exemption until April 2026.
The IHT
threshold will remain at £325,000 with the “residence nil-rate band” at
£175,000.
The annual
Capital Gains Tax exemption will remain at £12,300 for five years.
As the
value of assets such as house prices and investments rises over the next five
years, this freeze will see more people face a CGT or IHT liability, raising
additional revenue for the Exchequer.
Get in
touch
If you
want to chat about how the 2021 Budget affects you, please get in touch.