Chancellor, Rishi Sunak revealed the contents of the famous red briefcase on Wednesday outlining the key financials and tax plans. With a looming cash recovery mission from a generous year of pandemic induced government spending, we reveal all the need to knows of this years budget.
The Conservative Government have consistently raised the income tax threshold over many years but once the personal allowance is increased to £12,570 for 2021/22 it will then be frozen for the next 5 years. The basic rate limit will also increase from £50,000 to £50,270, however this will also be frozen for the same period. Technically nothing has changed insofar as income tax is concerned, however increases in the thresholds that were planned and wage increases combined with the freeze will inevitably increase the amount of taxation through income tax.
Corporation tax will rise from 19% to 25%, but businesses have some respite as these changes won’t be implemented until April 2023. Small businesses will receive a small profits rate which will stay at the current rate of 19% for those businesses whose profits do not exceed £50,000. Businesses that earn between £50-£250,000 will be given a tapered rate of corporation tax, so that only businesses with profits exceeding £250,000 will be charged the full rate of corporation tax.
Bounce Back Loan Scheme/Recovery Loan Scheme
The government introduced a bounce back loan scheme back in 2020 which facilitated borrowing for small businesses allowing them to loan between £2000 and 25% of their turnover up to a maximum of £50,000. The scheme offered zero fee’s and interest for the first 12 months with a 2.5% per annum interest rate. The application deadline for this scheme will continue to end on the 31st of March.
The government will implement a new scheme which will encourage lenders to support suffering businesses. The government will provide lenders with an 80 percent guarantee on loans of £25,000 to £10m until the end of 2021 with the new Recovery Loans Scheme.
Self-Employed Income Support Scheme
A fourth payment will be issued that covers February, March and April which will provide 80% of the average monthly profit capped at £2,500. There will also be a fifth payment covering May through until September. There will be a fifth payment, however the rate of this is unknown which has led to speculations of it being reduced.
Arguably one of the biggest announcements was regarding the furlough scheme. The chancellor revealed on Wednesday that the furlough scheme would be extended until September with many pondering whether restrictions really will be lifted on the 21st of June. This will mean that anyone currently utilising the scheme will continue to be paid 80% of their wage from the government with a limit of £2,500 per month.
The scheme will change as employers will have to make contributions of 10% in July and then 20% in the final months of August and September.
Back in July 2020 the government announced a stamp duty holiday lasting until the 31st of March 2021, however on Wednesday Rishi Sunak announced that the government would be extending the holiday until the 30th of June. The holiday which offers a 0% stamp duty on the first £500,000 of property purchases will remain in its current state until the 30th of June but will then phase out. Starting from the 1st of July, the threshold will be reduced to £250,000 up until the end of September, which will see the rates return back to normal again in October.
The government also introduced a limit to how much you can save into a private pension without taxation, introducing a limit of £1,073,100 up until April 2026. The life time allowance had been expected to increase with inflation rates and was predicted to be increased by £5,800. The state pension triple lock will also remain in place and the state pension will see an increase of 2.5% in the next financial year.
NS&I Savings Bonds
The government have also introduced a “green” savings bond. Soon, the public will be able to invest into green projects such as renewable energy and the de-carbonising of transport. This is all part of the target to tackle climate change and to reach net-zero by 2050 whilst also creating green jobs. The bond will be offered through NS&I.
There was a surge in Universal Credit claimants, with 39% of claimants (4.5m) requesting the benefit between the 13th of March and the 14th of January this year. Universal Credit was given a £20 per week uplift and after much campaigning, this was extended for another 6 months.
For a more detailed summary of the Spring Budget 2021 please see the Budget section of our app.