As widely trailed, Rishi Sunak's second Budget served two main purposes: providing continued financial assistance to individuals and businesses affected by COVID-19 and announcing how the support package would be paid for. Not surprisingly, the immediate focus is on mitigating the economic impact of the pandemic – protecting livelihoods and ensuring the survival of businesses. Revenue-raising and economy-building measures to fix the public finances will be introduced in due course.
A summary of the main business tax announcements is included below. If you would like to discuss the impact of any of the changes, please get in touch with a member of the tax team or your usual Taylor Wessing contact.
COVID-19 support for businesses
As expected, existing measures have been extended, and new measures introduced, to support businesses through the pandemic. (It's worth noting, however, that HMRC is also establishing a Taxpayer Protection Taskforce to combat fraud within COVID-19 support packages.)
- Coronavirus Job Retention Scheme: the furlough scheme will continue until September 2021, but with employers contributing towards the cost of unworked hours (10% in July; 20% in August and September).
- Self-Employed Income Support Scheme: a fourth and (final) fifth grant have been announced, covering February to April 2021 and May to September 2021, respectively. The requirement for a 2019-20 tax return to have been filed will extend eligibility to many newly self-employed.
- Recovery Loan Scheme: open to all businesses, the scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 – £10 million.
- Restart Grants: up to £6,000 per premises (for non-essential retail) and £18,000 (for other sectors, including hospitality and leisure) will be available to support the safe reopening of businesses post-COVID-19.
- VAT reduction for tourism and hospitality: the temporary 5% VAT rate for goods and services supplied by the tourism and hospitality sectors will be extended until the end of September 2021, rising to 12.5% for six months, before returning to the standard 20% rate on 1 April 2022.
- Temporary extension to carry back of trading losses: the current one-year trading loss carry back will be extended to three years for losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022. Trading losses carried back to the preceding year will remain unlimited; a maximum of £2 million (per year) of unused losses will then be available for carry back against profits of the same trade to the earlier two years. The £2 million cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of £200,000 to apportion the cap between its companies. The temporary extension to trading loss carry back will similarly apply to unincorporated businesses.
- Extension of Stamp Duty Land Tax (SDLT) 'holiday': the temporary £500,000 SDLT nil rate band for residential property will be extended to 30 June 2021; from July to September 2021 it will reduce to £250,000, returning to its usual level of £125,000 on 1 October 2021.
Revenue-raising and economy-building measures
Although fairly light on business tax announcements, the Budget did contain several measures intended to generate revenue and kickstart the economy post-COVID-19:
- Corporation tax: from April 2023, the main rate of corporation tax will increase to 25% on profits over £250,000. A Small Profits Rate will be created for businesses with profits of £50,000 or less, maintained at the current corporation tax rate of 19%. Businesses with profits between £50,000 and £250,000 will be taxed at the main rate but may claim marginal relief.
- Diverted Profits Tax (DPT): from April 2023, the rate of DPT will rise to 31% to maintain the 6% differential with the main rate of corporation tax.
- Allowances and thresholds: although the Chancellor honoured the government's manifesto pledge of not raising income tax, NICs or VAT, he will freeze the income tax personal allowance (£12,570) and higher rate threshold (£50,270) at their April 2021 levels until April 2026. The IHT nil rate band (£325,000), CGT annual exempt amount (£12,300) and pensions lifetime allowance (£1,073,100) will remain at their current levels until April 2026. The VAT registration threshold (£85,000) and deregistration threshold (£83,000) will remain unchanged until April 2024.
- Interest and Royalties Directive: from 1 June 2021, following the repeal of the domestic legislation giving effect to the EU Interest and Royalties Directive, UK withholding tax will apply to intra-group interest and royalty payments made to EU companies (subject to the terms of any relevant double tax treaties).
- Super-deduction: between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from a 130% first year capital allowance; a 50% first-year allowance will also be available for special rate assets (including long life assets).
- Freeports: the government will legislate for 'tax sites' to be created in the eight new Freeports in Great Britain, enabling businesses in these tax sites to benefit from various tax reliefs, including: a 10% rate of Structures and Buildings Allowance, capital allowance of 100% for companies investing in plant and machinery (both main and special rate assets); full relief for SDLT on purchase of land or property; full Business Rates relief and employer NICs relief.
- Future Fund Breakthrough: building on the success of Future Fund, the government is introducing a new direct co-investment product to support the scale-up of the most innovative, R&D intensive businesses.
- R&D tax reliefs: the government is reviewing all elements of the two R&D tax relief schemes (Research and Development Expenditure Credit and the SME Scheme) to ensure the reliefs are fit for purpose and the UK remains a competitive location for pioneering research.
- Enterprise Management Incentives (EMI): a call for evidence has been published on whether and how to expand the current EMI scheme to ensure it offers effective support for high growth companies seeking to recruit and retain the talent they need to scale-up.
While not the most exciting of Budgets, further tax policy announcements are to be made on 'Tax Day' (23 March 2021). The government has promised documents and consultations on 'important but less high profile measures' that do not require legislation in the next Finance Bill (including, perhaps, a review of CGT?). A second Budget is also expected in the Autumn, which may well contain greater business tax content. Watch this space.