So, despite a lot of media coverage about potential capital gains tax rate increases and the introduction of wealth taxes, the Chancellor, in his Budget, did the sensible thing and focussed on the economic recovery, rather than hitting an already beleaguered nation with a huge swathe of tax rises.
Support was at the forefront of his speech, to get us through what is, hopefully, the last phase of the coronavirus pandemic. The furlough scheme was extended to 30 September 2021, with a commitment to cover 80% of employee’s wages over that period. The self-employed income support scheme was similarly extended, with a fourth and fifth grant, although with a new test such that businesses where turnover has dropped by less than 30% would only be entitled to a 30% grant, with those others continuing to be entitled to the 80% grant.
Grants of up to £6,000 per property for non-essential retail business are to be provided with those in hospitality and personal care businesses being provided with a grant of up to £18,000 per property, to try to kick start their recovery. Added to that is an extension to the business rates holiday for three months, from 1 April 2021, with a two thirds reduction for the following nine months.
More support was provided to the battered hospitality sector, with an extension to the reduced rate of VAT to 30 September 2021, with a rate of 12.5% then applying until 31 March 2022.
In a widely expected move, Mr Sunak extended the SDLT ‘holiday’ of the £500,000 nil rate band until 30 June, then tapering it down to £250,000 until 30 September, before it returns to its normal £125,000 level. This will be seen as a big relief to the property sector, who were all worrying about the impact of a cliff edge drop in the nil rate band.
And the support kept coming, with fuel and alcohol freezes (the latter having been far more utilised during lockdown than the former!) and a maintenance of the £20 Universal Credit increase for another six months.
The figures for the economy and borrowing were alarming, before the further support was announced, with £355 billion having been borrowed over the last year to provide the £352 billion support provided to date, with a further £234 billion being anticipated in the next fiscal year, to continue the support. These figures are an eye-watering 17% and 10.3% of national income and, it has been conceded by the Chancellor, will take decades to repay. The fact that a 1% increase in inflation and interest rates will cost the country £25 billion extra shows the need to reduce the debt levels as quickly as possible.
So, how is Rishi Sunak planning to achieve that? Not through obvious tax rises as rates of income tax, national insurance and VAT are staying at their current levels. Instead ‘stealth tax’ rises will come into play, with the freezing of the personal allowances/exemptions for income tax, capital gains tax, inheritance tax and pensions allowance, from 2021/22, until 2026. The freeze also applies to the higher rate threshold of £50,270. Less painful than an increase in rates, perhaps, but an effective increase, nevertheless.
The one tax that was announced as rising was corporation tax, but not until 2023. It was expected that this would be the ‘easy’ tax for the Chancellor to increase, but the rise to 25% in one hit was a bit of a surprise. A new small companies’ threshold of £50,000 was announced, where those companies will still continue to pay 19%, whilst those in the band between £50,000 and £250,000 will be at a ‘marginal rate’, such that only the most profitable 10% of companies will be paying the full rate. This results in those ‘marginal profits’ being subject to a rate of 26.5%, so back to the ‘good old days’ for those of us who remember them.
In taking away with one hand, he immediately gave back with another, announcing an extension of loss carry back, for all businesses, from one year to three years, acknowledging the impact the pandemic has had on many businesses. The extended two years’ carry back applies for the profits arising in the tax years 2020/21 and 2021/22 and the additional amounts carried back are capped at £2 million per year. This represents a potential refund for affected businesses of up to £760,000.
But the bigger announcement came in the form of a new ‘Super Deduction’ to get corporates investing again, as the Chancellor sees this as our way to recovery and the generation of future tax receipts. In a move he heralded as being ‘the biggest tax cut ever’, companies (and only companies) will benefit from 130% relief for investment in qualifying plant and machinery and a 50% first year allowance for those that fall in the ‘special rate’ category. This seems to be in addition to the annual investment allowance of £1 million that applies until 31 December 2021, but the interaction of those allowances is yet to be clear.
There were further announcements to kick start the economy, with relaxed rules on migrants to bring in the brightest brains and ‘help to grow’ programmes for management and digital training. There was also the creation of eight Freeports, with the aim of these being lower tax areas, to aid investment, generate jobs and build businesses. The details of these remain to be seen but are an exciting, if experimental, policy.
The net cost of all these measures over the next two years is approaching £66 billion, before it is anticipated there will be an annual surplus. The level of investment and support is a huge gamble for the Government, already drowning in debt. Their hope is that the private sector will grab what is on offer with both hands, helping to first heal, then grow, the economy at a rapid rate.
Everyone must surely hope the same thing, after an incredibly difficult and painful twelve months. With spring almost upon us, Rishi is hoping these announcements will herald the green shoots of recovery for the economy; we should all drink to that.