The Chancellor of the Exchequer, Rishi Sunak unveiled the contents of the 2021 Budget on Wednesday 3rd March, with its primary aim to set out the Government’s tax and spending plan for the year ahead.
Here is a summary of the main points:
In 2023, Corporation Tax rates will increase to 25% for companies with profits over £250,000 and taper relief will be available for companies with lower profits. A small profits Corporation Tax rate of 19% will remain where profits are below £50,000.
- This is a reintroduction similar to the marginal rate relief scheme which was in place until 2016 and will only effect larger profit-making companies, with many being subjected to a rate between 20%-25% due to the taper.
- For companies claiming R&D tax relief, for every £1 spent, tax relief of 32.5% will be obtained at a 25% CT tax rate.
Corporation Tax losses can be carried back for three years instead of two, effective immediately.
- Where an R&D claim results in a loss for tax purposes, there is now more scope to carry back against previous profits to recoup Corporation Tax paid at 19%.
A super-deduction tax relief at 130% has been announced today, hence investment in business can reduce profits chargeable to tax at a rate of 130%.
- The term ‘super-deduction’ was used to describe the uplift on the R&D Tax Credit Scheme until a few years ago. At Innovation Tax, we were pleased to see the term come back into use; however, in this context, it’s a mechanism for businesses to receive a 130% deduction in the tax computation compared to claiming AIA at 100% up to the annual allowance limit. The fact that the 130% rate is the same as the R&D enhancement rate is coincidental but welcomed news for businesses looking to invest in new plant and machinery.
R&D Tax Reliefs Consultation
A consultation was issued today which will review areas such as the definition of R&D for the purposes and what qualifies, asking if these remain fit for purpose.
- Innovation Tax welcome this consultation and will be taking part to share our views of how this important relief could be modified to further encourage spending and provide increased benefits to businesses investing in innovative activities.
HMRC Task Force
Over 1,000 new inspectors to crackdown on tax avoidance and evasion.
Innovation Tax are aware of specialist firms that offer questionable advice in relation to claiming R&D reliefs. We work with clients to ensure that they claim their maximum entitlement and therefore welcome increased scrutiny from the revenue to ensure the R&D scheme is not exploited.
Furlough Scheme Extension
The furlough scheme extension will help companies where the pandemic has impacted their ability to trade and therefore staff have not been able to work as a result; the extension, until the end of September, remains at 80% contributed by the Government (capped at £2,500). From July, employers will have to contribute 10%, increasing to 20% in August and September, with the remainder contributed by the Government.
This is a lifeline for business whereby staff are unable to work from home and have had closures due to the pandemic. The extension has the ability to reduce redundancies and help employees of businesses who have been severely affected by the pandemic. At Innovation Tax we welcome this news.
From April 2021, the living wage increases by 2% to £8.91 (previously £8.72); minimum wage also increases at the same time:
- Apprentices increase to £4.30 (previously £4.15)
- 16 – 17 years old increase to £4.62 (previously £4.55)
- 18 – 20 years old increase to £6.56 (previously £6.45)
- 21 – 22 years old increase to £8.36 (previously £8.20)
Employers will now also receive hiring incentive payments for taking on apprentices, set at £3,000 for all new hires of any age.
Recovery Loan Scheme
The new scheme launches on 6th April 2021, with the Government guaranteeing 80% of the loan, and will be available for amounts between £25,000 and £10m per business. Invoice finance will also be available between £1,000 and £10m; to be eligible, the business must trade in the UK and have had been impacted by the pandemic.
Business Rates Holiday
Three months of free rates for businesses including retail, leisure and hospitality.
The 5% rate for hospitality and tourism will be extended until September, with an interim rate of 12.5% applying for the following six months.
Help to Grow Management Training & Digital Skills
Businesses can access Management Training and Digital Skills which will be subsidised by the Government.