Chancellor Rishi Sunak’s Budget continues emergency support for the UK economy ravaged by the Covid-19 pandemic – and the figures are eye-watering.
In the short-term, the emergency support – most notably the Coronavirus Job Retention Scheme – has been extended as the Government starts to unlock the economy over the coming months.
The Chancellor opened his battered briefcase to reveal an additional £65 billion for the Coronavirus response taking the total fiscal support over the last 12 months to a staggering £407 billion.
Government debt has risen to an historic peacetime high – forecasts show Government borrowing reaching £355 billion in 2020-21, 17% of national income – and it will have to be paid back eventually.
The start time for that pay back formed the second part of Wednesday’s Budget with largest and most profitable companies bearing the load with an increase in Corporation Tax from 19% to 25% from April 2023.
That is expected to raise £50 billion but the Chancellor has pledged it will only impact profitable businesses. What these tax rises mustn’t do, however, is discourage innovation, job creation, R&D and inward investment. That would be counter-productive to hopes of a sustained recovery.
The large companies impacted by this – those with profits over £50,000 – are also likely to have capital repayment obligations, such as loans, which are paid after Corporation Tax. What we don’t want to see is companies retrenching.
Everyone will share the debt repayment burden to some extent, however, as Income Tax will also rise in future years. Personal allowances will be frozen which will eventually lift people into higher tax brackets.
The Chancellor had little choice other than to continue to shore up the economy and finish what he’d started in supporting businesses, families and jobs.
He was buoyed by forecasts that the economy is expected to return to pre-Covid levels by the middle of next year – six months earlier than thought – but nothing is certain as we take tentative steps out of the pandemic. Unemployment fears still loom large as furlough is unwound.
What the Chancellor has done this week is leave the public in no doubt about the scale of the crisis. We’ll be paying off Coronavirus debts for decades and that, ultimately, means higher taxes for everyone.
Here are some of the main points of the Budget and what it might mean for you:
Furlough and support for the self-employed extended
The Coronavirus Job Retention Scheme – or furlough – has been extended until the end of September with the Government paying 80% of salary, though employers will be asked to put in 10% from July and 20% from August.
The Self-Employed Income Support Scheme (SEISS) continues with a fourth grant from the three months to April 2021, paid at 80%. A fifth and final grant will be based on extent of reduction in turnover. A greater than 70% reduction in turnover will enable self-employed people to claim the full 80%. A reduction of less than 70% in turnover will mean a grant of 30%.
There was good news for those who have previously missed out on SIESS because they are relatively new to self-employment. The scheme is now available to around 600,000 people with 2019-20 tax returns taken into account. Previously anyone who hadn’t filed a 2018-19 tax return and who became self-employed after April 6 2019 was ineligible.
Help for businesses
The Coronavirus Business Interruption Loan Scheme ends on March 31, 2021 and is replaced by a new Loan Recovery Scheme.
There will also be Business Restart Grant worth up to £18,000 for larger businesses such as pubs, hotels, gyms and restaurants while grants of up to £6,000 will be available to small non-essential retail shops.
The 100% Business Rates holiday will end on June 30 2021 but bills will be discounted by up to 66% for the remaining nine months of 2021-22.
VAT relief for leisure and hospitality businesses will continue with the 5% VAT rate not due to end until September 30 2021. It will then increase to 12.5% from October 1 2021 and run for another six months.
Support for homebuyers
There was good news for homebuyers as the Stamp Duty holiday is extended to June 30 2021. After that the nil rate band will be doubled from £125,000 to £250,000 until the end of September 2021. The Government also announced Government-backed 95% mortgages to help people get on the property ladder.
Corporation Tax
This was the most significant change announced by the Chancellor as the rate of Corporation Tax rises from 19% to 25% from April 2023. This will apply to larger companies with profits over £50,000.
The 19% will remain for companies with a profit of less than £50,000 – said by the Chancellor to be 70% of businesses – meaning they would be “completely unaffected” in his words.
There will be a taper for profits above £50,000 meaning only companies with profits above £250,000 would pay the full 25%, around 10% of companies.
Income Tax and National Insurance
The Income Tax Personal Allowance will remain at £12,500 but will increase to £12,570 in April 2022 and then be frozen until 2026.
The basic rate threshold will stay at £50,000 but will increase to £50,270 in April 2022. Then it will be frozen until 2026. National Insurance remains unchanged.
National Minimum/Living Wage
The National Living Wage will increase by 2.2% from £8.72 per hour to £8.91 per hour from April 1 2021 and will be extended to 23 and 24-year-olds for the first time. The increases are lower for younger workers and are as follows: Aged 21 to 22 the increase is from £8.20ph to £8.36ph; aged 18 to 20 – £6.45ph to £6.56ph; and under 18 – £4.55ph to £4.62ph. The apprentice rate will rise from £4.15ph to £4.30ph.
Any other changes to note?
While Corporation Tax will rise in 2023 the Chancellor has offered an incentive to businesses to invest now. A ‘super deduction’ of up to 130% will be available to encourage investment in new plant and machinery.
That will be especially welcome in the infrastructure sector and it is only meant to be a ‘quick fix’ or a short-term injection to help restart the economy. The super-deduction is not available on used or second-hand assets.
Elsewhere, there’s no change on the likes of Capital Gains Tax nor Inheritance Tax.
As with every Budget the devil is in the detail and more detail will emerge in the coming days.
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