On Wednesday 3 March, the Chancellor of the Exchequer, Rishi Sunak, delivered the Budget for 2021, outlining the current state of the economy and the government’s plans for the future.
Income Tax, National Insurance and VAT
One key focus of the Budget is whether the government will be raising or lowering taxes, particularly following the promise by the Conservatives in 2019 to say that they would not raise the rates of the three largest taxes: income tax, national insurance and VAT.
Mr Sunak did not, in fact, raise these tax rates in the Budget, although he did announce the decision to freeze the income tax threshold in order to increase the amount of income tax gathered. The current income tax threshold is set at £12,500- this is the amount of money that you can earn each year without having to pay any income tax. Usually, this figure increases a small amount each year to reflect inflation, and the way in which many people’s wages rise.
Instead, the threshold will raise to £12,570 in April 2021 but then remain the same until 2026. This also includes the threshold at which you must start to pay the higher rate of 40% (£50,270), meaning if people do manage to get a wage rise between now and 2026, they will have to pay more income tax.
Whilst there were no rises in income tax, national insurance or VAT, Sunak did announce that corporation tax on company profits above £250,000 would rise from 19% to 25% in April 2023. Any profits between £50,000 and £250,000 will be tapered from 19% to 25%.
Deductions for Corporation Tax
In an attempt to prevent large companies from withholding their cash until the 25% tax rate comes into force and boost short-term growth, the government has announced a two-year period of a 130% ‘super deduction’ for most new plants and machinery (18% pool) from April 2021. Those companies with the highest plant and machinery expenditure where the annual investment allowance is insufficient will likely benefit from this decision the most.
Stamp Duty Land Tax
Following a great deal of campaigning from the housing sector, the temporary stamp duty holiday has had its deadline extended from 31 March to 30 June 2021.
Currently, there is a 0% stamp duty on the first £500,000 of property purchases. From 1 July to 30 September, the threshold will be reduced to £250,000 and finally reverting back to £125,000 from 1 October.
Business Rates Holiday
For eligible retail, hospitality and leisure properties, the business rates holiday has been extended until 30 June 2021. From July until the end of the year, business rates will be discounted for some business.
VAT for Hospitality and Tourism
The 5% cut to VAT for hospitality and tourism businesses has also been extended until September 2021. From 1 October to 31 March 2022, the VAT cut will increase to 12.5%, returning to 20% in April 2022.
To find out more about what to expect this year, why not take a look at our Budget 2021 Round-Up.
At Ryans, we can help your business to stay updated with all of these changes and make the most out of any government schemes or holidays available as the lockdown restrictions start to ease and your business aims to return to operating as usual. Don’t delay, get in touch today to talk tax with our helpful team at Ryans.