Spring Budget- Headline Points & Recommendations
No doubt the vast majority of you are aware, the eagerly anticipated Budget was announced by the Chancellor this week. This was a particularly important budget due to the very obvious economic position that our nation finds itself in, but also because the October 2020 budget was cancelled, with many fearing that this ‘super budget’ would contain some potentially damaging changes to taxpayers of all kinds.
The overall headline point for this budget is that all in all, it was not as extreme or damaging as many had feared.
Though the changes that we have outlined below will likely impact you to some extent, the Government have made the decision to keep the ship on an even keel, with no ‘major’ immediate changes until between 2023- 2026 (see below) in relation to many aspects of taxation and allowances that you as the reader will be both interested in, and affected by. We have outlined our overall view on the budget, and what implications it may have on our economy in the future at the bottom of this email, but for those who would prefer to simply understand how this budget impacts you, please see our breakdown below.
It is worth noting that this was a particularly large budget, and so for the sanity of those reading, we have only included the aspects of the budget that impacts the majority of those that we look after. If however there is any aspect of the budget that you’d like to discuss in detail, please contact your team member who will be happy to help:
RELEVANT TO ALL INDIVIDUALS:
Universal Credits- If out of work, double check to see if eligible
· An absolute lifeline for countless households over the course of the past year, and still are an essential benefit for those that still unable to work
· The weekly payment was increased by £20 per week – and it has been confirmed that this increased payment will continue for a further six months
· There were many of those that we look after that had tried to apply for UC but were unsuccessful due to having more than £16,000 in personal savings, of which some of this cash had actually been ring-fenced for tax. We confirmed this at the time but to stress again- the DWP will disregard personal tax savings from the savings calculations, and so if you are out of work and have less than £16,000 in savings you may be entitled to UC
Reduced VAT for Hospitality Sector- FYI
· VAT Rate, which was reduced to 5% for the hospitality sector back in July 2020, has now been extended up until 30th September 2021
· From October 2021 to 31st March 2022, this will increase to 12.5%, with 1st April 2023 then returning to the standard 20% VAT rate
· Businesses operating within this sector will have to make a decision: do they continue to charge full prices and increase their cash reserves/profits, or pass down the saving to the general public to entice us in and boost sales in that way? Either way, positive news for those trading within this sector
Marriage Allowance- Read this if you are a basic rate taxpayer (i.e. taxable PERSONAL income up to £50,000) and your husband/wife/civil partner earns less than the personal allowance (currently at £12,500pa):
· This allowance, though not new, is not well known and so worth bringing to your attention. It allows the lower earner to transfer £1,250 of their personal allowance to the higher earner, who can then receive tax relief on this extra allowance
· The Marriage Allowance could save the household up to around £250 per year and can be backdated back to April 2016– if you know for sure that you qualify, apply online via https://www.gov.uk/apply-marriage-allowance
· If you are unsure if you are eligible for this, get in touch and we can let you know if you are or not. Though this isn’t life changing money, we would be hard pressed to find anybody that would turn down £250-£1000, and so is in our opinion worth exploring
Mortgage Guarantee Scheme- Good news for buyers
· A scheme, Government backed, that should open the gates again from 1st April 2021 to lenders providing 95% mortgages for YOUR MAIN HOME (i.e not second property/investment properties) up to the value of £600,000, which prior to this scheme had all but disappeared
· Since March of last year, many will have noticed (especially first time buyers) that it was increasingly more difficult to secure a mortgage (especially if you had received furlough pay or the SEISS- see important notes below on that), and so this new scheme will hopefully help the huge number of people that at present fail the lender affordability checks
· This scheme is due to end on 31st December 2022, and so you have time to plan as to whether or not you want to utilise this scheme in the first place
· In any case, do not rush to make a decision:
o For first time buyers it may be the only option to get on the property ladder
o BUT if you already own a property then it may not be as straight forward- extra borrowing also means:
§ Increased risk of negative equity should house prices collapse
§ Increased vulnerability to interest rate changes
§ Higher risk of over-extending the household financially
§ In short- it may allow households to own a property that they can only afford at a low interest/high mortgage value
Capital Gains Tax (CGT)- No Change
· One of the heavier speculations that had been floating around for many months was that there would be a significant change to either the rate or structure of CGT.
· Thankfully, this has not made an appearance in this budget, and so no changes to report on both the structure and rate of tax for capital gains for the time being- a very good result for any of those that own investment properties, have shares in a company (your own or others), or hold any other assets that are looking to be sold in near/mid term future
· With that being said, note that the Government had commissioned a report that should provide guidance on the future of CGT, and the utility of the current system. So, for the time being this is good news- but watch this space as and when that report is published
· CGT annual allowance remains the same, at £12,300, and will continue to be held at this level all the way through to the 2025/26 tax year
Income Tax- No Change (Technically)
· No obvious changes in personal tax rates, but personal allowances and tax brackets have been frozen from the 2022/23 tax year through to 2025/26. This has been aptly named a ‘stealth’ tax as ultimately even though tax rates haven’t officially changed, by not increasing allowances and brackets in line with inflation, it will result in millions of tax payers moving into increased tax brackets in the coming years
· Allowances and tax bands have tended to increase year on year by anywhere between 3%-5% on average, and so by freezing them, any tax payer whose income/profits increase by more than this percentage will find themselves in the next tax bracket
· A statistic that has been floated is that in 1990, only 1 in 15 were high rate tax payers- by 2026, it is expected that 1 in 6 will be within this bracket
· There had been speculation that either or both National Insurance and Income Tax could rise- and so though a freezing of allowances is not positive, it is our opinion that your pocket could have been hit in a more severe way had that speculation come to fruition
RELEVANT TO ALL BUSINESSES:
Bounce Back Loan (BBL)- Coming to an end (but see below)
· Was originally due to end many months ago but was subsequently extended to 31st March 2021. Government have confirmed that this scheme will naturally end as planned on this date
· If you would like to see more information on the BBL- for ease, check out our prior emails that provide full detail here: https://www.blue-skies.tv/blue-skies-blog/chancellors-financial-announcement-headline-points
· If you have already applied for the full 25% of turnover loan that you are eligible for, see the below Recovery Loan Scheme
The Recovery Loan Scheme- With luck, another easy to access business loan
· Full details have yet to be released, but this loan, for businesses of all sizes, will be open from 6th April 2021
· You can apply regardless of if you have applied for the Business Interruption Loan or Bounce Back Loan
· 80% of the loan value is Government backed- meaning that lenders SHOULD be receptive to applicants
· The BBL was 100% Government backed, which resulted in the vast majority of applicants receiving the very strange experience of a ‘computer says yes’ attitude- this is because the banks literally could not lose and made money either way, irrespective of if you repay the loan or not. We expect that this loan, backed by public purse ‘only’ to tune of 80%, may be more difficult to access and applicants may have stricter lending criteria due to the 20% risk that they face
Do you need to replace your car, and also use your car a material amount of the time for work purposes?
· From April 2021, the most attractive tax relief can only be found when purchasing a fully 100% electric car
· Until April 2021, you can purchase an ‘ultra-low emissions’ vehicle (classed as this if car is 50g/km or under) and still have access to this tax relief
· If you need and want a new car, and it is financially feasible to purchase a brand new hybrid or 100% eco-friendly car, then contact us and we can talk you through the potential tax benefits of purchasing a vehicle, and consider this urgently if you want to buy a new car that is under 50g/km as the deadline is 31st March 2021
· Note that in order to qualify for this relief, the car can be bought out-right or via finance, but MUST BE BRAND NEW – which will typically be more costly than purchasing a second or sixth hand car- and so it is not a simple decision. Please contact us if you meet the criteria listed above
RELEVANT TO LIMITED COMPANIES:
Corporation Tax – Increasing, but not as bad as we thought
· Current corporation tax rate of 19% is set to increase to for many businesses up to a (maximum) rate of 25% from 1st April 2023
· The tax increase will only relate to businesses with profits of over £50,000, with those earning profits of less than this amount remaining at the current 19% rate
· The rate of corporation tax payable WILL NOT simply increase from 19% to 25% if your profits are over £50,000- instead, it is calculated on a sliding scale between £50,000 to £250,000 trading profit. Therefore, for businesses with profits lower than £250,000, you will not be paying the maximum corporation tax rate of 25%
· Details have not yet been confirmed as to what the tapered amounts will be, but for the time being though the headline point sounds ominous, it doesn’t appear to be as bad for Limited Companies as many had feared
Job Retention Scheme- Extended to 30th September 2021
· As had been expected, the furlough scheme has been extended, with the level of grant remaining the same until 30th June 2021- therefore 80% of salary can continue to be claimed as flexible furlough if it is the case that you are not providing services to your company
· Furlough grants will then reduce to:
o For the month of July 2021- reduction to 70%
o For August and September 2021- reduction to 60%
· IMPORTANT- please be aware that claiming furlough could potentially carry negative implications on any near/mid-future mortgage applications. We would therefore recommend that if you are planning to apply for a mortgage within the next year, contact your mortgage advisor to get their advice as to if claiming furlough will impact you
· Please remember that when furloughed, you CANNOT provide services to your company. We STRONGLY expect an increase in HMRC investigations in the coming years, so please ensure that you do not advise us to claim furlough on your behalf if you have provided services of any kind
‘Super Deduction’ Capital Allowances- Will save you money should you need to purchase equipment
· At present, should you purchase kit/equipment for your business, we claim this under the Annual Investment Allowance (AIA) and this gives you tax relief of 19p on the £1
· The new scheme commencing from April 2021 and due to end in 2023, allows instead for these expenses to be eligible for a ‘super deduction’- which in your pocket means that purchasing the same kit/equipment will instead give you 25p tax relief- an increased tax saving of 6% . On a kit purchase of £10,000, this will save your business £600
· Therefore- if you are planning to purchase any capital equipment- WAIT UNTIL APRIL 2021 TO DO SO
Are there any actions that I need to take immediately for either myself or my company?
· In short, no. We will be in contact with you should we believe it is the best strategy for you to either inject money back into your company, or take more money out of the account by the 5th April 2021
· This budget has not increased personal tax rates on dividends, changed the £2,000 tax free dividend allowance, or made any major changes to national insurance obligations for directors- therefore no immediate changes need to be made to your trading structure. We will be of course monitoring this very closely given the change to corporation tax rates and final confirmation now given that IR35 changes are finally being introduced from April 2021, and so if any changes should be made to your set up, we will be in touch
RELEVANT TO SOLE TRADERS & PARTNERSHIPS:
Self Employment Income Support Scheme (SEISS)
· Some good news FINALLY for those businesses that slipped through the cracks for the past year due to timing issues: as long as your Tax Return was filed by 3rd March 2021, your trading profits were under £50,000 in 2019/20, and you meet the current claiming criteria, you will now also be entitled to the fourth and fifth grant
The grant details are as follows:
Months Covered Calculated Based On When to Claim
Fourth Grant February to April 2021 80% of average profits- at maximum pay out of £7,500 Mid/Late April 2021- you will be informed by HMRC
Fifth Grant May to September 2021 **80% of average profits at max of £7,500 or 30% of average profits at max of £2,850** Late July 2021
**How much you receive for the fifth grant will be determined by how much your turnover has reduced in the 2020/21 tax year compared to the previous year/(s) – a reduction of more than 30% will entitle you to the higher 80%, with the 30% reserved for those with a turnover reduction of less than 30%**
· PLEASE NOTE THE CRITERIA THAT MUST BE MET TO LEGITIMATELY CLAIM:
o You must still be actively trading in 2021 (or would have been trading if it were not for COVID), and intend to continue trading this year
o You must declare that you have suffered a ‘significant’ drop in trading profits (note how vague/subjective this is) and this has been due to either reduced activity, reduced capacity or the inability to trade
· Please remember that when you receive the SEISS grant, it will be declared on your Tax Return and will automatically (and very easily) be cross referenced against your trading profits for the year. We would STRONGLY recommend that you make detailed daily or weekly notes to support your claim that you meet the criteria above; we expect that SEISS investigations will be a common occurrence for the years to come, and so the more evidence that you have to support your claim that you have been impacted by reduced demand due to COVID, the better.
· IMPORTANT- please be aware that claiming SEISS could potentially carry negative implications on any near/mid-future mortgage applications. We would therefore recommend that if you are planning to apply for a mortgage within the next year, contact your mortgage advisor to get their advice as to if claiming the SEISS grant will impact you
!!!!!!!!!!!!BE ABSOLUTELY AWARE THAT SCAMMERS ARE ACTIVELY TRYING TO STEAL YOUR MONEY!!!!!!!!!!
· As you can see from the multiple exclamation marks and capital letters, this is a very, VERY big deal
· We have received significantly higher numbers of those we look after contacting us to advise us of a potential scam (thank you all that have done this so far), and the scams are becoming ever more believable, intimidating and sophisticated. Our advice to you is to ALWAYS CONTACT US IF YOU RECEIVE ANYTHING LIKE THIS, and we will look into it for you
· No matter how believable it seems, there is nothing at all wrong with you simply saying: ‘Thanks for your call- I will speak to my accountant and either they or I will be in touch with you- what is the best number to call back on, and who am I talking to?’
· Please stress this to your family (especially the elderly, who are unfortunately more vulnerable), friends and colleagues
The government have published “examples of HMRC related phishing e-mails and bogus contact”. This can be found on their web page - https://www.gov.uk/government/publications/phishing-and-bogus-emails-hm-revenue-and-customs-examples/phishing-emails-and-bogus-contact-hm-revenue-and-customs-examples
Summary
The Chancellor has appeared to take a more risk averse approach (which co-incidentally will also go down well with voters) to this budget. Though any significant changes immediately made to taxation (for instance the heavily speculated upon change to capital gains tax, or immediate changes to personal and corporation tax) would have increased the Government’s purse somewhat and helped somewhat to balance the books, it was feared that any savings made from this approach could be massively negated by any associated negative ripple effect that would carry throughout the whole economy, thereby hampering the economic recovery process.
The approach taken by the Government for the approaching few years appears to be in alignment with their overall financial approach of the pandemic; being to continue injecting truly staggering amounts of money to support the economy (which has clearly been, and will continue to be, a real life saver for millions of households), without making any significant changes to taxation so as to increase our chances of a swift economic bounce-back. The lack of major tax changes made is clearly welcomed by all that would have been impacted by them, (it could have resulted in many tax-payers being very much worse off from as early as the next tax year), but as we have stressed since March of last year, this must be paid for eventually. The questions, then, that are yet to be answered are at what point will a significant change to taxation or austerity measures be made, and who will most feel the pinch the most in their pocket? It is something that we will continue to monitor closely, and you will of course be the first to know our thoughts on this, as well as our advice as to how best to limit your exposure to any future Government changes.
At present, it has never been so cheap to borrow money due to historically low interest rates, and this has allowed the Government to be incredibly flexible with the schemes and measures introduced to support the economy, such as deferrals of VAT and TAX, and extending the already favourable Bounce Back Loan terms to name only a few. As a result however this means that our economy, which is being propped up by the Government, is in an incredibly vulnerable position (which has already been acknowledged by the Chancellor); if interest rates rise, the cost of our borrowing increases further, which in turn increases the deficit- currently estimated at £2 trillion. If and when this happens, we expect that regardless of how politically unfavourable it is, painful decisions will need to be made that will impact every household, regardless of income and trading status.
Though the future still remains incredibly uncertain in so many ways, remember that we are here to support you in any way that we can. Many of those that we look after have taken us up on our offer of providing free, casual advice to friends, family or colleagues that have needed a helping hand during this still very challenging time, and we feel very fortunate and grateful to have had the ability to have done so. To stress again, if there is anything that we can do to help- please let us know. In the meantime, if you do want to forward this email across to anybody that you feel may benefit from doing so, by all means do so, and we’ll leave the link to our blog with all old prior advice emails here also :https://www.blue-skies.tv/blue-skies-blog.
As always, we are here to help and provide you with advice specifically relating to your business and household, and so drop us a line should you have any questions or concerns about anything that has been raised in the email above. Though we are now starting to finally see the light at the end of the tunnel in terms of return to ‘normality’, the financial hit that so many households and businesses have taken in the past year is not to be underestimated, and the fall-out from that will continue far after we are able to enjoy our first meal in a restaurant again- and so please do get in touch with us to chat through any concerns you have at all- regardless of how silly or irrelevant they are.
Best Wishes
Team Blue Skies