The Chancellor delivered the Spring 2021 Budget on 3 March 2021. Senior editors from Practical Law Tax and Private Client reflect on some of the key announcements that were made, along with the ramifications for taxpayers and their advisers. For full details of our coverage, visit Practical Law, Spring 2021 Budget (free access).
Q. Did the Chancellor use the Budget to announce further COVID-19 support measures as you expected?
A. He did. The coronavirus job retention scheme (furlough pay) will now be extended until 30 September 2021 and the self-employed income support scheme will pay out a fourth grant (as previously confirmed) covering the period from February to April 2021 and a fifth grant covering the period from May to September 2021.
The Chancellor also announced an extension to the 5 percent reduced rate of VAT for the hospitality sector (originally set to expire on 31 March) until 30 September 2021, with a new reduced rate of 12.5 percent applying after that until 31 March 2022. Finally, and despite categorical statements to the contrary in the weeks before the Budget, the Chancellor announced an extension of the temporary increase in the Stamp Duty Land Tax (SDLT) nil-rate band for purchases of residential property in England and Northern Ireland (or SDLT ‘holiday’) until 30 June 2021, followed by a gradual tapering of the relief until 1 October 2021.
Practical Law has more information on all these issues in the following practice notes:
- COVID-19: business tax implications: Employment.
- COVID-19: Coronavirus Job Retention Scheme (furlough).
- SDLT and stamp duty rates (for land).
Q. There wasn’t much about capital taxes in the Budget. Are we out of the woods?
A. No, or rather, not yet. Despite pre-Budget speculation of significant reforms to inheritance tax and capital gains tax, or even the introduction of a one-off wealth tax, none of these materialised on Budget day. Instead, the Chancellor announced a freeze, until April 2026, of the income tax personal allowance and basic rate limit, the capital gains tax annual exempt amount, the inheritance tax nil rate band and residence nil rate band, and the pensions lifetime allowance. While useful revenue-raisers for a Chancellor needing to urgently replenish the Treasury’s coffers, these measures are less radical than those anticipated by many. For more information on the Budget announcements relevant to individual taxpayers, see Legal update, Spring 2021 Budget: key private client tax announcements (free access).
However, the scale of government borrowing incurred over the last year (and likely to be incurred over the next six months), suggests that further revenue raising measures will follow. Tax-related consultations and calls for evidence are due to be published on 23 March 2021 (referred to in government publications as ‘Tax Day’) and if there is a return to the normal budgetary cycle, we could see a second Budget in Autumn 2021. It is therefore premature to think that reforms to capital taxes are off the table.
Among the possible reforms are the abolition of business asset disposals relief, the equalisation of Capital Gains Tax with the top rate of income tax and a radical overhaul of inheritance tax; the consultations published on Tax Day may offer a further insight into the government’s thinking in this area.
To keep on top of any changes as they are announced and for more background on these areas of tax, see Private client tax legislation tracker 2020-21 and Practice notes:
- Tax on chargeable gains: scope, administration and payment.
- Entrepreneurs’ relief / Business asset disposal relief.
- Tax rates and limits.
- Inheritance tax: overview.
Q. What tax-raising measures were announced for corporates?
A. As predicted, corporation tax is going to rise, but not immediately, and not for all corporates. The rise, from 19 percent to 25 percent is admittedly a hefty one, but will only take effect from 2023 and the new top rate will only apply to corporates with annual profits over £250,000. Companies with profits under £50,000 will continue to pay corporation tax at 19 percent, and those with profits in between the two rates will pay a blended rate. For more information, see Practice note, Corporation tax: general principles (licence required).
No mention of an online sales tax was made in the Chancellor’s speech. However, the government is understood to be considering this in conjunction with its review of the business rates system, on which it intends to publish an interim report on Tax Day, with a full report due to be published in Autumn 2021. An online sales tax seems a potential candidate for the Autumn 2021 Budget.
Q. Did the Budget make changes to any previously announced measures, such as the extension of the off payroll working rules for the private sector and a two percent SDLT surcharge for non-residents purchasing United Kingdom (UK) property?
A. The extension of off-payroll working rules to the private sector will take effect from 6 April 2021 as planned, although some minor changes, intended to correct some unintended consequences of the drafting of the Finance Act 2020 ant- avoidance provisions, were announced. For more information, see Practice note, Workers’ services provided through intermediaries: off-payroll working rules for private sector entities (licence required).
The Chancellor also confirmed that the proposed two percent SDLT surcharge for non-residents purchasing UK property, draft legislation for which has already been published, is unchanged. A further draft of the legislation was included in the Finance Bill 2021, published on 11 March 2021. For more information, see Practice note, SDLT: 2% surcharge for non-resident buyers of dwellings (licence required).
Q. What else did the Chancellor announce in the Spring 2021 Budget?
A. It was a substantial Budget, particularly in light of the fact that some announcements and documents will not be published until Tax Day. Other announcements made by Chancellor included:
- A ‘super-deduction’, that will allow companies investing in qualifying plant and machinery between 1 April 2021 and 31 March 2023 to claim a deduction of 130 percent of the expe4nditure incurred (for more information, see our Practice notes on Capital allowances on property transactions and Enhanced capital allowances (ECAs) for investment in environmental technologies (licence required)).
- A further review of research & development tax credits (see Practice note, R&D tax reliefs: practical aspects (licence required)).
- Confirmation that a raft of anti-avoidance measures, first announced at the March 2020 Budget, will be enacted in the Finance Bill 2021. For an introduction to HMRC’s avoidance and evasion powers, see Practice note, A guide to Practical Law’s materials on HMRC’s tax avoidance and evasion powers (licence required).
- Details of the location of eight freeports and the proposed tax reliefs. We will publish a practice note on freeports later this year. For full details of our provisional publishing schedules and new content lists, see:
You can track individual measures through our tax legislation trackers and Private client tax legislation tracker 2020-21 (licence required). For comprehensive, cross-sector coverage of the Spring 2021 Budget, and planned coverage of Tax Day, visit Practical Law, Spring 2021 Budget (free access).
This article is co-authored by Senior Editors in Practical Law: