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Coronavirus continues to make its mark on the economy. The Government’s efforts to protect jobs means that borrowing is at a record level in peacetime. How and when will we pay back the national debt? All was revealed in the Spring Budget 2021 tax update. The Chancellor made no bones about it. Ultimately, taxes will rise.

 

CORPORATION TAX HIKE

The headline Budget tax announcement concerns Corporation Tax. Companies with profits above £250,000 will pay more, as the rate rises to 25%. But this change doesn’t come in until 2023. Even then, SMEs businesses will benefit from a concession. Those making a profit of £50,000 or less will continue to pay tax at the current 19% rate.

 

TORY PLEDGE UPHELD

As expected, the Chancellor upheld the Conservatives’ promise on tax rises. So, no change to income tax or National Insurance Contributions. And no hike in the VAT rate. We saw much speculation about other taxes. Capital Gains Tax was the spotlight. There was even talk of alignment with income tax rates.

 

CAPITAL GAINS TAX

Now we know. The Spring Budget 2021 tax update contains no announcement about a CGT rise. It may be covered in a future consultation. So, we don’t foresee changes before the end of 2021/22. The annual exempt amount remains the same. It’s £12,300 until the end of 2025/26.

 

RAISING TAXES BY STEALTH

The Spring Budget 2021 tax update made one point clear. The Government must address the cost of its pandemic support. Freezing allowances and reliefs is an alternative way to boost the nation’s coffers.

 

PERSONAL ALLOWANCE

For 2021/22 the Personal Allowance increases from £12,500 to £12,570. Plus, the basic rate band goes up from £37,500 to £37,700. The threshold for 40% tax is now £50,270.

 

Now for the bad news. The Personal Allowance and the rate bands are fixed. Taxpayers will enjoy no increase in line with inflation. The freeze is in place until the end of the 2025/26 tax year. What will this achieve? Potentially, it will generate an extra £8billion in income tax in 2025/26.

 

VAT REGISTRATION THRESHOLD

VAT registration and deregistration thresholds are similarly affected. These are frozen at £85,000 and £83,000 respectively until 31 March 2024. Of course, businesses must register for VAT as they grow. This freeze is therefore another tax-raising measure.

 

ISAS AND PENSIONS

Investment limits for 2021/22 remain unchanged. Good news for adults, who can invest £20,000 each year. Within this, £4,000 can be in a Lifetime ISA. The limit for a Junior ISA or Child Trust Fund is £9,000.

 

PENSION TAX RELIEF

Pension tax relief was a hot topic prior to the Spring Budget 2021 tax update. Certainly, it was likely that the Chancellor would reduce it. There was no information about this. That said, the forthcoming consultations may cover it. The only pension measure relates to the Lifetime Allowance. This remains fixed at £1,073,100 until the end of 2025/26.

 

INHERITANCE TAX

Currently, the IHT nil rate band is £325,000. Unsurprisingly, it too is fixed. It will stay at this level until the end of 2025/26.

 

STAMP DUTY HOLIDAY EXTENSION

Many homebuyers welcomed last year’s temporary increase in the Stamp Duty Land Tax threshold. It meant that no tax was payable on properties in England worth £500,000 or more. Originally, transactions had to be completed by 31 March 2021. An extension takes this to 30 June 2021. Also, for transactions between 1 July and 30 September 2021 the threshold is £250,000.

 

From 1 October 2021 the threshold reverts to £125,000. In addition, the normal 2% charge will apply between £125,000 and £250,000. The Welsh Parliament is taking a similar step. The £250,000 nil rate threshold for Land Transaction Tax is extended to 30 June 2021.

 

IR35 RULES

HMRC dislikes people working through personal service companies. It’s regarded as a way of avoiding PAYE and Class 1 NICs. The IR35 rules address the issue. Basically, PSCs have to pay PAYE and NICs on what HMRC considers employment income. The rule was to apply to private sector businesses from April 2020. However, its introduction was delayed due to the pandemic. The Spring Budget 2021 tax update clarifies the position. There are only technical amendments. The IR35 rules will take effect from 6 April 2021.

 

IMPROVING COMPLIANCE

HMRC is cracking down on avoidance, evasion and non-compliance. The Government intends to invest £180million in additional resources and new technology to support this. Of course, there are supposed to be benefits for taxpayers. Easier access to tax services is one. Yet, it’s clear the overall aim is to raise revenue.

 

NEW FREEPORTS

To encourage trade the Government is introducing more ‘Freeports’. Basically, they are areas in which key incentives operate. Benefits include enhanced tax reliefs until 30 September 2026. Eight Freeports are expected to commence operations later this year.

 

For full details read our Spring Budget 2021 report.

 

Download the full PDF report here

 

More advice about the Budget

Read our blog Budget Support to combat the impact of coronavirus.

For help or advice call us on 01785 243276 or email admin@howardsca.co.uk