After Boris Johnson announced his roadmap out of lockdown on 22 February, details surrounding the continuity of Covid support measures was vague. Given restrictions are expected to last until at least June, expectation was high for a positive budget promoting growth in the UK markets.
Lydia Southern (Tax Manager) and Leila Ghazzali (Trainee Solicitor) explore the provisions announced and how they may affect you.
The Coronavirus Job Retention Scheme has been the most widely used provision over the past year, at its peak in May 2020, seeing 8.9m employees supported during the pandemic. Since then, numbers have declined, but reliance on it remains substantial and so it’s welcoming to see the chancellor extend the provision to the end of September 2021.
Extended several times already, the current scheme sees the Government contributing 80 per cent of a furloughed employee’s full wage, up to £2,500 a month, with employers contributing National Insurance and pension contributions, including for hours not worked.
On income tax, the threshold for paying the basic rate will rise to £12,570 next year and will remain in place until 2026. For higher-rate payers, the threshold will be £50,270 and will also remain in place until 2026. Whilst this provision was promoted as nobody having less money in their pocket over the next six years as they do now, it does not of course considers the value of that money. The purpose of the provision is to increase Tax take in line with continued increases in inflation, seeing the same money in your pocket but perhaps lower spending power.
For the Self-Employed
The Self-Employment Income Support Scheme (SEISS) has been extended to the end of September, allowing workers who meet the criteria to claim 80 per cent of average monthly profits, capped at £2,500. In addition, 600,000 more self-employed people will be eligible for help as access to grants is widened. This will be positive news for those without access to the furlough scheme.
However, provisions for those self-employed through their own PSC were again not forthcoming. The only help that they can continue to rely on as we endure hopefully the last few months of lockdown is the furlough scheme in which they will be entitled to 80% of their employment income. In most instances this is not enough as the usual PSC structures see contractors receiving dividends rather than employment income. For those paid primarily in dividends these announcements will be of little comfort and no doubt the source of continued frustration and anxiety for many.
The Chancellor has previously warned that receiving the same help as employed workers could mean self-employed workers will have to pay more in the future, possibly in the form of higher tax rates. However, this was not discussed in today’s budget, perhaps due to the continued pressure from groups such as #excludedUK who continue to raise awareness of the lack of substantive support for the self-employed.
For Business Owners
The budget announcement showed that the government remains committed to ensuring that businesses can prosper as we leave the pandemic behind, whilst making the UK attractive for business investments and growth.
The headline grabbing provision will no doubt be the increase in Corporation Tax (CT) to 25% in 2023, which is quite the increase from 19%, with a planned reduction to 17%.
There will, however, be a Small Profits Rate to ensure that only businesses with profits over £250,000 will be taxed at the 25% rate. Profits over the small profits threshold of £50,000 will be tapered up to £250,000.
This increase in CT, for those over the £50,000 exemption, will be important as an additional layer of tax for PSC’s. Careful planning may therefore be required for higher earning contractors operating PSC’s.
The speculation that Capital Gains Tax (CGT) reforms would be put in place has been put to bed for now, allowing contractors more time to consider whether or not they still require their PSC or whether they would like to liquidate their company by way of Members’ Voluntary Liquidation (MVL) as we approach the implementation of the Off-Payroll reforms. It should, however, be noted that similarly to the income tax personal allowance, the capital gains tax annual allowance will also remain the same until April 2026.
Ahead of the Budget this week, The Chancellor announced that pubs, restaurants, shops and other businesses hit hardest by the coronavirus pandemic will be boosted by a £5 billion grant scheme to help them reopen as the lockdown is eased. The “restart grants” will be worth up to £6,000 per premises to help non-essential retailers reopen and trade safely, with 450,000 shops expected to be eligible.
About 230,000 hospitality companies, hotels, gyms, as well as personal care and leisure firms, are estimated to be eligible for up to £18,000 per premises as they are due to open later under the plans for easing lockdown.
Businesses will also be given until the end of March to access the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme. These had been due to close at the end of January. Businesses can apply for loans worth up to £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.
The Chancellor also ensured further Tax bill assistance for Businesses. Businesses that cannot afford their tax bills can ask HMRC for a “time to pay” arrangement so any debt collection is suspended. Similarly, businesses who are struggling to pay their rents are protected from eviction until the end of March 2021 with the rent support scheme being extended.
Lastly, The Chancellor extended the Coronavirus business interruption loan scheme. This scheme was set up to allow business the ability to get loans and overdrafts of up to £5million for up to six years with the government guaranteeing to the value of 80%.
For entities in the contingent supply chain
As expected there have been no delays or changes to the Off-Payroll implementation and therefore we should ensure that in the next month necessary processes are in place to manage the legislation. With a pledge to invest a further £180 million in technology and resources for HMRC to tackle tax avoidance and tax evasion, it is evident that frequency of enquiry will ramp.
High on the hitlist will inevitably be IR35 compliance and it will be essential that every entity in the supply chain is operating in a clear and structured way.
Of note is an amendment to section 61V (and Regulation 22) of the legislation which holds liability on parties providing fraudulent information in the chain. This will provide some relief for end-clients and may see some easing of blanket assessments accordingly. Watch this space.
This year the government intends to announce some consultations separately from the Budget, and will publish a Command Paper, ‘Tax policies and consultations (Spring 2021)’ on 23 March 2021. This will be important to look out for and could be extensive.
Finally, we see a reduction in the penalties that may be charged to people receiving Follower Notices as a result of using tax avoidance schemes, from 50% to 30% of the tax under dispute. This is perhaps small recognition of HMRC’s wide application of powers and a tiny yet important progress point in the preservation of the taxpayers right to access a court.
Should you wish to discuss any of the provisions above with the team please visit https://wttconsulting.co.uk/meet-the-team/ where you will be able to contact our experts directly.