Budget announcements: freeze to income tax thresholds, rise in corporation tax, extension of Covid support schemes.
Chancellor Rishi Sunak MP acknowledged in the Budget speech that the Covid-19 pandemic had caused 700,000 job losses, economic shrinkage of 10% and borrowing at record peacetime levels.
The economy is expected to return to its pre-Covid level by the middle of 2022, according to the Office for Budget Responsibility. 4% growth is forecast in 2021, followed by 7.3% in 2022.
Unemployment is expected to peak at 6.5% in the coming months.
The furlough scheme is to be extended until September 30, and any worker placed on furlough will continue to receive 80% of their salary (to a maximum of £2,500 per month) until this time. Employers will be asked to contribute 10% of salary during July and 20% during August and September as the scheme is wound down.
The Self-Employed Income Support Scheme will be extended to include two additional grants, each covering a three-month period, although Mr Sunak stressed that the fifth grant will be the last. The standard payment will once again cover 80% of trading profits, although those whose profits have fallen by less than 30% will only receive a grant for 30% of their profits. However, eligibility for the scheme has been extended to include the newly self-employed, provided they had filed their 2019/20 tax return by midnight on March 2.
The national living wage will increase to £8.91 per hour from April.
Non-essential retailers will receive Re-Start Grants of up to £6,000 and hospitality and personal care businesses grants of up to £18,000 to support their re-opening.
A Recovery Loans Scheme will replace the Bounce Back Loan Scheme and the Business Interruption Loan Scheme. Businesses can apply for loans of between £25,000 and £10 million for the remainder of the year, with the Government guaranteeing 80% of the loan.
The business rates holiday for hospitality, retail and leisure businesses will be extended until the end of June, and for the remainder of the tax year, their rates will be discounted by two-thirds.
Hospitality and tourism businesses will continue to pay VAT at just 5% until September 30, and then they will pay a special rate of 12.5% for a further six months.
The stamp duty holiday, where the nil rate band is £500,000, is to be extended until June 30. The nil rate band will then be £250,000 until September 30 and it will only revert to the normal level of £125,000 on October 1.
To assist first time buyers, a new Mortgage Guarantee Scheme is to be launched. If buyers can provide a 5% deposit on a property valued at up to £600,000, they will benefit from a Government guarantee on their 95% mortgage.
However, after outlining all these support measures, Mr Sunak spoke of “huge challenges for our public finances” and said he would also take steps to ensure Government borrowing fell significantly in the coming years.
While the headline rates of income tax, national insurance or VAT will not rise, income tax thresholds are to be frozen. Initially, the thresholds will rise – the personal allowance will rise to £12,570 and the higher rate threshold to £50,270 in the next tax year – but these will then remain unchanged until 2026.
Inheritance tax and capital gains tax and thresholds and allowances will remain unchanged until April 2026, as will the pension lifetime allowance.
Corporation tax will rise in 2023 to 25% for businesses with profits in excess of £250,000. Businesses with profits of £50,000 or less will continue to pay at the current rate of 19%.
Scott Robert are regulatory risk, compliance and strategy experts, contact our team today.