Budget Notes - Saffery Champness
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Budget Notes
Budget 2021
Introduction
Measures announced at Budget 2021
Personal taxation
Income tax rates and bands
Income tax allowances
Scottish taxation
Welsh taxation
Capital gains tax rates
ISAs and Junior ISAs
Pensions allowances and IHT nil rate bands
National Living Wage and National Minimum Wage
National Insurance Contributions
Annual Tax on Enveloped Dwellings charges
Restrictions on holdover relief for gifts of business assets
Stamp Duty Land Tax – extension to the nil-rate band
Social Investment Tax Relief
Business taxation
Main rate of corporation tax
Capital allowances
Temporary extension of carry back of trading losses
EU Interest & Royalties Directive
Freeports
Employment taxation
VAT and Indirect taxation
Extension of reduced-rate of VAT in the hospitality sector
HMRC administration and powers
Changes to late filing and late payment penalties
HMRC’s information powers and approach to avoidance
Support for those affected by coronavirus
Coronavirus Job Retention Scheme
Self-Employment Income Support Scheme
The recovery loan scheme
Restart grants
Business rates reliefs
Statutory sick pay rebate scheme
VAT deferral payment scheme
Measures announced at previous Budgets
Non-resident purchasers’ Stamp Duty Land Tax surcharge
Page 1 of 17
[Filepath]
Budget 2021
Introduction
What a difference a year makes – or does it? Last March, Chancellor Rishi Sunak, then new to his job,
delivered a Budget setting out the government’s plans to deal with the coronavirus pandemic. Few would
have predicted then that, by the time of the next Budget, the government would still be focused on dealing
with the effects of the pandemic, which has impacted the country in ways that are unmatched in modern
peacetime.
It is perhaps for this reason that the Chancellor has not taken this opportunity to announce any major
structural changes to the tax system. While there is an acceptance (both among politicians and the general
public) that difficult decisions on taxation will need to be made in order to restore the UK’s public finances,
the government acknowledges that now is not the right time. Some of the key messages in this Budget were
the extension of the government coronavirus support schemes – the Coronavirus Job Retention Scheme will
be extended to the end of September, and self-employed people will be eligible for further grants under the
Coronavirus Self-Employment Income Support Scheme.
We also got some certainty in relation to tax rates over the next few years. In welcome news, the Chancellor
has not announced any increase in the rates of income tax, capital gains tax, National Insurance and
Inheritance Tax. However, while many bands and allowances, including the personal allowance and the
higher rate threshold, had been set to rise over the next few years in line with CPI, these will now be frozen
until 2026. This will raise a significant amount for the government in real terms.
The key revenue-raising measure in this Budget was the announcement of an increase in corporation tax
from 19% to 25% from 1 April 2023 for companies with annual profits of over £250,000. However, this will
come alongside the introduction of a ‘small profits rate’ of 19%, which will apply to companies with annual
profits below £50,000, with marginal relief provisions applying to companies with profits falling between
these two figures. Crucially, the small profits rate will not apply to close investment-holding companies,
which will include many family investment companies and property companies, so these businesses are
likely to see an increase in their tax bill come 2023.
For those with an eye to the future, ‘Tax Day’ will be taking place on 23 March, where the government plan
to release a number of consultations covering their future tax strategy. This is intended to include
consultations on changes to tax payments and administration, but may also feature the government’s plans
for revenue raising in the future - which could include the much-anticipated changes to capital gains tax and
inheritance tax.
Robert Langston
National Tax Partner
Page 2 of 17
[Filepath]Budget 2021
Measures announced at Budget 2021
Personal taxation
Income tax rates and bands
For 2021-22 the higher rate threshold is £50,270, and the personal allowance is £12,570. These will be
fixed until April 2026.
The rates and bands of income tax are set out in the table below. Different thresholds apply in Scotland
this tax year – see below.
Tax rate Taxable income Taxable income
2021-22 2021-22 2020-21
£ £
Starting rate for savings only: 0% 1 – 5,000 1 – 5,000
Basic rate: 1 – 37,700 1 – 37,500
Income other than dividend income: 20%
Dividend income: 7.5%
Higher rate: 37,701 – 150,000 37,501 – 150,000
Income other than dividend income: 40%
Dividend income: 32.5%
Additional rate: Over 150,000 Over 150,000
Income other than dividend income: 45%
Dividend income: 38.1%
Dividends are treated as the top slice of income.
The trust rate of income tax remains at 45%, with the trust dividend rate at 38.1%, where total trust
income exceeds £1,000.
Income tax allowances
There are various tax allowances which are set out in the table below.
Allowance 2021-22 2020-21
£ £
Personal allowance * 12,570 12,500
Income limit for personal allowance 100,000 100,000
Marriage allowance ** 1,260 1,250
Married couple’s allowance at 10% ***
For people born before 6 April 1935 9,125 9,075
Minimum amount 3,530 3,510
Income limit for married couple’s allowance 30,400 30,200
Blind person’s allowance 2,520 2,500
Page 3 of 17
[Filepath]Budget 2021
Dividend allowance (regardless of level of non-dividend income) 2,000 2,000
Personal savings allowance
For basic rate taxpayers 1,000 1,000
For higher rate taxpayers 500 500
For additional rate taxpayers Nil Nil
*Allowance reduced by £1 for every £2 over limit (where applicable). For those with income over £125,140
in 2021-22 the personal allowance is reduced to nil.
** A spouse or civil partner may transfer up to this amount of their personal allowance to their spouse or
civil partner, provided neither is liable to income tax above the basic rate. Only available to people born
after 6 April 1935. Relief is restricted to 20%.
*** Allowance reduced by £1 for every £2 over limit.
Scottish taxation
The current income tax rates for Scottish taxpayers, chargeable on non-dividend and non-savings income,
are as below.
Tax rate Taxable income Taxable income
2021-22 2020-21
£ £
Starter rate: 19% 0 – 2,097 0 – 2,085
Basic rate: 20% 2,098 – 12,726 2,086 – 12,658
Intermediate rate: 21% 12,727 – 31,092 12,659 – 30,930
Higher rate 41% 31,093– 150,000 30,931– 150,000
Top rate 46% Over 150,000 Over 150,000
Welsh taxation
The Welsh government has announced that it will set the Welsh rates of income tax for 2021-22 at a level
that will keep rates of tax for Welsh taxpayers at the same rate as English and Northern Irish taxpayers.
Capital gains tax rates
The capital gains tax rates remain unchanged and are set out in the table below.
From 6 April 2021 Capital gains tax Capital gains tax on residential
property and carried interest
Basic rate 10% 18%
Higher and additional rate 20% 28%
Trustees 20% 28%
The annual exemption for 2021-22 is £12,300 for individuals and £6,150 for trustees.
Page 4 of 17
[Filepath]Budget 2021
ISAs and Junior ISAs
The annual subscription limit for adult ISAs and Junior ISAs will remain at £20,000 and £9,000 respectively
for 2021-22.
Pensions allowances and IHT nil rate bands
It was announced that the government will introduce legislation to set the pensions Lifetime Allowance
and the Inheritance Tax nil rate bands at their current levels until April 2026.
This means the pensions Lifetime Allowance will remain at £1,073,100, and the Annual Allowance will
remain at £40,000, until the end of the 2025-26 tax year. The Money Purchase Annual Allowance and the
Tapered Annual Allowance will also remain at £4,000 and £240,000 respectively.
For IHT, the nil-rate band will remain at £325,000. The residence nil-rate band will also remain at £175,000,
with the taper continuing to start at £2 million.
National Living Wage and National Minimum Wage
From 1 April 2021, the National Living Wage (NLW) will now apply to workers aged 23 and over.
Hourly rates 2021-22 2020-21
National Living Wage for workers aged over 23 * £8.91 £8.72
National Minimum Wage for workers aged 21-22 * £8.36 £8.20
National Minimum Wage for workers aged 18-20 £6.56 £6.45
National Minimum Wage for workers aged 16-17 £4.62 £4.55
National Minimum Wage for apprentices aged under 19 or £4.30 £4.15
in their first year of apprenticeship
* Before 1 April 2021, the National Living Wage only applied to workers aged 25 and over.
National Insurance Contributions
Rate/limit 2021-22 2020-21
Employee’s Class 1 NIC on earnings between primary 12% 12%
threshold and upper earnings limit
Employer’s Class 1 on earnings above upper earnings limit 2% 2%
Employer’s Class 1 on earnings above secondary threshold 13.8% 13.8%
Primary threshold (weekly) £184 £183
Secondary threshold (weekly) £170 £169
Upper earnings limit (weekly) £967 £962
Self-employed Class 4 on profits between lower and upper 9% 9%
profits limits
Self-employed Class 4 on profits above upper profits limit 2% 2%
Lower profits limit (annual) £9,568 £9,500
Upper profits limit (annual) £50,270 £50,000
Class 2 (per week) £3.05 £3.05
Page 5 of 17
[Filepath]Budget 2021
Annual Tax on Enveloped Dwellings charges
The ATED charge increases in line with CPI each year. The rates for the 2019-20 and 2020-21
chargeable periods are:
Property value Annual charge for the 2021- Annual charge for the 2020-
2022 chargeable period 2021 chargeable period
£500,001 to £1,000,000 £3,700 £3,700
£1,000,001 to £2,000,000 £7,500 £7,500
£2,000,001 to £5,000,000 £25,300 £25,200
£5,000,001 to £10,000,000 £59,100 £58,850
£10,000,001 to £20,000,000 £118,600 £118,050
£20,000,001 and over £237,400 £236,250
Restrictions on holdover relief for gifts of business assets
Where a person gives away a business asset or sells it for less than its market value, they may holdover any
capital gain arising such that it only becomes chargeable when the recipient disposes of the asset. Essentially
the donor is treated as disposing of the asset for their base cost, which then becomes the base cost for the
recipient.
There are anti-avoidance provisions which may prevent this relief being available if the recipient is not UK
resident, and therefore would not be subject to UK tax on any gain they realise on the disposal of the
business asset gifted. This also applies where the recipient is a company controlled by a person who is not
resident in the UK and is connected with the person making the disposal.
Legislation will be introduced to ensure that holdover relief is not available in the specific circumstance
where a non-UK resident person disposes of a business asset to a company controlled either by themselves,
or by other non-UK resident persons who are connected to them.
The legislation will be effective from 6 April 2021.
Stamp Duty Land Tax – extension to the nil-rate band
The Chancellor has announced that the £500,000 nil-rate band for Stamp Duty Land Tax (SDLT), originally
announced in July 2020 to boost the housing market during the coronavirus pandemic, will not cease on 31
March 2021 and will continue until 30 June 2021. This equates to an SDLT saving of up to £15,000 per
property.
There will then be a “further temporary” period between 1 July 2021 and 30 September 2021 where the nil-
rate band will be £250,000, before the relief expires and the nil-rate band returns to £125,000. Because of
the way that SDLT is calculated there is a much smaller saving during this period – up to £2,500 per property.
It should be noted that:
• The nil-rate band extension applies to residential property only. There is no extension to the nil-rate
band for mixed property or commercial property purchases, where the nil-rate band remains at
£150,000.
• The nil-rate band extension also applies to certain high value residential leases, where SDLT is
applied to the net present value of the rent.
Page 6 of 17
[Filepath]Budget 2021
• The nil-rate band extension potentially applies to any purchaser – not just to individuals buying their
main residence, but to any purchaser who acquires or leases residential property.
• Purchasers who already own a residential property anywhere in the world, and who are buying an
additional property which is subject to the Higher Rates for Additional Dwellings (HRAD) surcharge
will still be charged the 3% SDLT surcharge.
• With effect from 1 April 2021, non-UK resident purchasers will be subject to a 2% surcharge (see
below), and if they are also subject to the HRAD surcharge this will result in a 5% charge on the value
of the nil-rate band.
Please note that SDLT applies to purchases of property in England and Northern Ireland only – in Scotland
and Wales there are devolved taxes with different rates and different rules. In the recent Scottish Budget, it
was confirmed that from 1 April 2021 the nil-rate band for Land and Buildings Transaction Tax (LBTT) will
return to £145,000. Likewise, as announced in the Welsh Budget, the Land Transaction Tax (LTT) nil-rate
band will return to £180,000 from 1 April 2021.
Social Investment Tax Relief
To encourage private investment into companies, societies and charities that conduct business for
community benefit, in 2013 the government introduced Social Investment Tax Relief (SITR), a suite of tax
reliefs for individuals making such investments, similar to the Enterprise Investment Scheme (EIS). These
reliefs were:
• 30% income tax deduction on the invested amount;
• A CGT deferral if gains were reinvested into a qualifying social enterprise; and
• CGT relief from any gains arising from the SITR-qualifying investment on eventual disposal.
The original legislation contained a sunset clause so this scheme would end from April 2021. This has now
been extended in the Budget to April 2023.
In practice, although the tax reliefs sound appealing, in the detail of the rules there are a number of issues
relating to ownership of the entity and extraction of funds which make SITR of limited interest to most, and
traditional charity structures continue to dominate the space. It is disappointing that the government has
not taken the opportunity to rethink SITR to make it a more attractive vehicle for structuring charitable
giving.
Page 7 of 17
[Filepath]Budget 2021
Business taxation
Main rate of corporation tax
The Chancellor’s headline revenue raising measure was an increase in the main rate of corporation tax from
19% to 25% from 1 April 2023. This rate will apply to companies with annual profits exceeding an upper
limit of £250,000
A ‘small profits rate’ of 19% will be introduced so that companies with annual profits below a lower limit of
£50,000 will not be impacted by the change to the main rate. Where a company’s profits fall between the
upper and lower limits, marginal relief provisions will apply to bridge the gap between the two rates.
The above limits will be reduced where a company has ‘associated companies’ in a period. A company will
be associated with another if within the previous 12 months, one company controls the other or both
companies are under the control of the same person or group of persons (which includes individuals and
partnerships as well as companies).
This associated company test will also replace the ‘related group companies’ test which applies for certain
other corporation tax purposes such as calculating quarterly instalment payment thresholds. This ‘related
group companies’ test itself replaced the ‘associated companies’ test in 2015 which was the last time there
was a difference in corporation tax rates.
It is worth noting that the small profits rate will not apply to ‘close investment-holding companies’, a
definition which will include many family investment companies.
There will also be a commensurate 6% increase in the rate of Diverted Profits Tax from the current rate of
25%
Capital allowances
Two significant incentives were announced for all companies to encourage investment in new capital
expenditure as follows.
• A ‘super-deduction’ which will allow companies to claim 130% relief on the acquisition of most
new plant and machinery; and
• A 50% first year allowance for expenditure on new special rate assets (which include integral
features such as electric and water systems).
It is important to note that only companies within the charge to corporation tax can qualify for these
incentives – individuals, partnerships etc will not therefore benefit.
These measures apply to acquisitions made in a two-year period beginning on 1 April 2021. Second hand
assets, operating lease assets and cars are excluded from these measures.
In addition, the annual investment allowance will continue to apply to give a 100% to the first £1 million of
qualifying expenditure. The £1 million allowance was scheduled to reduce to £200,000 from 1 January 2021
but an extension to 1 January 2022 was announced by the government in November 2020. We expect that
the annual investment allowance will be particularly relevant for second-hand acquisitions (which are not
eligible for the super-deduction) and special rate assets (as the 100% allowance is more valuable than the
new 50% allowance).
Page 8 of 17
[Filepath]Budget 2021
The draft legislation published also includes supplementary rules to clawback the super-deduction on a
disposal of assets in accounting periods beginning before 1 April 2023 – this will prevent businesses claiming
the super-deduction and then selling assets shortly afterwards. There are also anti-avoidance provisions to
counter certain non-commercial transactions.
Temporary extension of carry back of trading losses
An extension to the loss carry back rules will allow for trading losses incurred by companies, partnerships
and self-employed individuals in the 2020-21 and 2021-22 tax years to be carried back against trading profits
of the previous three years - an extension of two years to the usual 12-month period.
The amount of trading losses that can be carried back to the preceding year remains unlimited but the total
amount that can be carried back by a taxpayer to the extended period will be capped at £2 million.
For corporate groups the £2 million cap will be subject to a group-level limit requiring groups to apportion
the £2 million cap between companies in the group (a formal allocation statement will be required where
any company carries back more than £200,000).
EU Interest & Royalties Directive
The EU Interest & Royalties Directive (IRD) enabled UK taxpayers to make certain payments of interest &
royalties to taxpayers resident in EU member states without deduction of UK income tax at 20%. It was
intended that the IRD would cease to apply to the UK from the end of the Brexit transition period on 31
December 2020.
However, the provisions of the IRD were written into UK legislation and continue to apply after the end of
the transition period.
These rules will be repealed with effect from 1 June 2021 meaning UK resident making interest and royalty
payments to EU residents from this date will be required to deduct and remit 20% income tax to HMRC.
The 20% rate may be reduced under the terms of the UK’s double tax treaty with the territory of residence
of the recipient but, for payments of interest, clearance will be required from HMRC that a reduced treaty
rate may be applied before any such payment is made. Clearance is required even if the company has an
existing clearance under the IRD.
Freeports
One of the Chancellor’s key announcements, albeit widely trailed, was the announcement that new
‘freeports’, which have not existed in the UK since 2012, will be designated.
A ‘freeport’ is chosen by the government as a location where businesses can benefit from tax reliefs to
incentivise investment and boost employment. Currently eight sites have been announced in East Midlands
Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames, and Teesside.
Broadly these are special trade zones that have access to specific tax reliefs and rates. These are as follows:
• Qualifying expenditure on new or unused plant and machinery purchased prior to 30 September
2026 for use in a within a freeport site will qualify for enhanced capital allowances (ECA). This will
provide tax relief for 100% of the expenditure in the same tax period in which it was incurred.
Provisions are included for any ECA that is claimed to be clawed back should the qualifying plant
and machinery purchased be used primarily outside the freeport area within five years from date
of purchase.
Page 9 of 17
[Filepath]Budget 2021
• An enhanced rate of Structures and Buildings Allowance (SBA), available for businesses which
construct or renovate non-residential buildings within the freeport zones and the building is
brought into use by September 2026. This will be on a 10% ‘straight line’ basis so full relief will be
provided over a 10-year period. This compares with the current regime where 3% of costs can be
claimed each year and full relief is provided after 33 years.
• Stamp duty land tax (SDLT) relief will be available on the purchase of land and buildings within the
freeport site, providing it is used for a qualifying commercial purpose. There will be a control
period of three years to ensure it continues to be used for a qualifying purpose. The relief would
be claimed through the SDLT return.
• New businesses or existing businesses relocating to within a freeport area will qualify for full
Business Rates relief. Partial relief will also be available for certain existing businesses in freeports
that undergo expansion. The relief would be available for five years from the point it first receives
relief, conditional on it starting before 30 September 2026.
• Finally, there is an intention to introduce employer NIC relief for eligible workers in freeport sites.
This is currently intended to apply from April 2022. It would be available initially for four years
(until 2026) but following a review of the relief and how it is benefiting the area it could be
extended for a further five years, until April 2031. As detailed in the HMRC bidding prospectus, this
would apply a zero employer NIC rate to the first £25,000 of salary per annum for each new
employee that spends at least 60% of their working time within the freeport, for the first three
years of their employment. The government will look to ensure access to the relief is prohibited for
employers who are deliberately manipulating it to qualify, for example replacing old staff in order
to benefit from it.
From a customs perspective, there will be tariff benefits for businesses bringing goods into certain areas of
a Freeport. Whilst there were no specific details in the Budget documents, the government proposed the
following benefits in the freeport consultation issued in October last year:
• Duty suspension – no customs duties, import VAT or excise will need to be paid on goods brought
into a freeport from overseas until they leave the freeport and enter the UK’s domestic market.
• Duty inversion – where the duty on a finished product is lower than that on the component parts,
a company could benefit by importing components duty free, manufacture the final product in the
freeport, and then pay the duty at the rate of the finished product when released into UK’s
domestic market.
• Duty exemption for re-exports – a company could import components duty free to process into a
finished product in the freeport, and then pay no tariffs on the components when the final product
is re-exported.
• Simplified customs procedures – the government intends to simplify import procedures and
declaration requirements to enable businesses to easily access freeports
It is also worth noting that freeports will be run by authorised operators who will be primarily responsible
for security and keeping records of goods on the site and in certain circumstances will be jointly and severally
liable with a declarant for any import duty liability arising from breaches.
The above tariff benefits offer an opportunity for businesses with international supply chains to consider
cost savings, especially following the post Brexit challenges of moving goods to and from the EU.
Page 10 of 17
[Filepath]Budget 2021
Employment taxation
The Budget featured updates on a variety of tax topics of interest to employers and employees:
• Cycle to Work schemes, which are typically provided in conjunction with a salary sacrifice
arrangement, stipulate that the bike must be used for journeys to work. Due to the pandemic the
tax exemption will continue to benefit those participants who joined the scheme on or before 20
December 2020, even where they haven’t been able to cycle to work. New participants will not be
eligible. This exemption for existing participants will end on 5 April 2022.
• Any existing and new participants can remain in or join an Enterprise Management Incentives (EMI)
tax advantaged scheme regardless of whether their working time falls below the statutory working
time requirements for EMI, where this is due to furlough or reduced hours. This is due to end on 5
April 2022.
• The income tax and NIC exemption has been extended into the 2021-22 tax year for employers who
provide, or reimburse employees for the cost of, any coronavirus antigen tests.
• The income tax and NIC exemption has been extended on purchases made by employees for home-
office equipment. Employers are not required to report the reimbursed expense which would
normally have to be reported. This exemption is due to end on 5 April 2022.
• From 6 April 2021 the flat-rate van benefit charge will increase to £3,500, the multiplier for the car
fuel benefit will increase to £24,600, and the flat-rate van fuel benefit charge will increase to £669.
• The off-payroll working rules, also known as IR35, will be introduced as planned from 6 April 2021.
Clarification has also been provided regarding the treatment of intermediaries, to ensure the anti
avoidance rules do not tax payments already subject to PAYE within the new regime.
• The new incentive grants for apprentices of any age will be raised to £3,000 per new hire, from 1
April 2021 to 30 September 2021. This is on top of the £1,000 payment already provided for new
apprentices aged 16 to 18 and those under 25 with an Education, Health and Care Plan, meaning
that some employers could receive £4,000 in total.
• The receipt of Statutory Parental Bereavement Pay will not count as a variation under the Optional
Remuneration rules during the transitional period.
Page 11 of 17
[Filepath]Budget 2021
VAT and Indirect Taxes
Extension of reduced-rate of VAT in the hospitality sector
The temporary reduced rate of VAT in the hospitality sector is to be extended as follows:
• 5% until 30 September 2021; then
• 12.5% from 1 October 2021 to 31 March 2022.
The applicable rate of VAT was due to increase to 20% on 1 April 2021. However, due to the continued
difficulty the sector faces the reduced rate has been extended and the supplies listed below will not be
subject to VAT at the standard rate of 20% until at least 1 April 2022:
• Hotel and holiday accommodation including caravan sites and holiday parks;
• Catering, including meals and non-alcoholic drinks eaten in, hot takeaway foods and hot takeaway
drinks;
• Visitor attractions, including shows, theatres, circuses, fairs, amusement parks, concerts,
museums, zoos, safari parks, cinemas, exhibitions, similar cultural events and facilities where the
cultural exemption does not apply.
HMRC’s commentary on the extension does not suggest anti-forestalling provisions will be applied when the
rate increases from 1 October 2021 and then again from 1 April 2022. This is consistent with how the reduced
rate was implemented last July and the absence of such provisions provides businesses with the opportunity
to fix a time of supply when the rate is still at 5% by issuing VAT invoices earlier than perhaps would have
normally been the case.
Interestingly, the introduction of a new reduced rate of VAT of 12.5% would not have been possible whilst
the UK was still a part of the EU VAT system.
Page 12 of 17
[Filepath]Budget 2021
HMRC administration and powers
Changes to late filing and late payment penalties
The government has been consulting on potential changes to the late filing and payment penalty regimes
for some time under the broader banner of its Making Tax Digital (MTD) programme. The Budget has
confirmed that changes to both regimes will be phased in from April 2022, and will cover both VAT (replacing
the existing Default Surcharge regime) and income tax Self Assessment (ITSA). The overall objective of the
changes is to ensure that those who repeatedly file returns or pay tax late are penalised, but taxpayers who
are generally compliant, but miss an occasional return or payment deadline, are not.
Whilst this is a welcome objective, it represents a significant change from the current, long-established,
penalty system, and taxpayers will need to take care not to fall foul of the new regime inadvertently. The
Budget documentation shows that HMRC are expecting the changes to raise revenue in the short to medium
term, although there will be a ‘light touch’ approach as the changes are introduced.
Late filing penalties
The changes will see a shift to a points-based regime, under which taxpayers will receive points for every
late filing. Points will accrue separately for different taxes (ie for income tax and VAT), and will expire once
the taxpayer has met their submission deadlines for a set period. A penalty will become chargeable once the
relevant points threshold has been breached, with additional penalties if the taxpayer misses further filing
obligations. Where a penalty is charged, it will be at a fixed rate of £200. Probably the greatest risk for
inadvertent penalties here will be where taxpayers who fall within the MTD ITSA regime do not submit the
required quarterly reports, particularly in early years as they become familiar with the new requirements.
Preparing early for MTD reporting will help reduce the risk.
Late payment penalties
Here, the existing regimes across ITSA and VAT will be replaced by a standardised regime which will consist
of two charges. The first will arise 30 days after the due date for the payment of tax, and will be set at 4% of
the outstanding tax. This will be reduced to 2% where the taxpayer has paid the tax or agreed a Time To Pay
(TTP) arrangement with HMRC before the end of that 30 day period, and completely eliminated where the
payment was made, or TTP agreed, within 15 days of the original due date. The second charge (also at 4%)
will start to accrue on a daily basis from 31 days from the original payment date, and will run until payment
is made or TTP agreed.
The 15 day window to take action to avoid any penalty being charged is a narrow one, and it is here that we
are likely to see most of the additional revenue raised as the new system beds in. Taxpayers who do
inadvertently miss a payment will need to work with their tax agent to ensure that either the tax is paid or
TTP arranged as quickly as possible.
Timetable for changes
The changes will be rolled out over three years from April 2022, in line with the introduction of new
obligations under MTD:
• VAT (in line with the extension of MTD reporting to all VAT-registered businesses): the new rules will
apply from the start of the first accounting period beginning on or after 1 April 2022.
Page 13 of 17
[Filepath]Budget 2021
• Businesses within MTD ITSA (broadly, individuals and partnerships with business and/or rental
income exceeding £10,000): the new rules will apply from the start of the first accounting period
beginning on or after 6 April 2023.
• Other ITSA taxpayers: the new rules will apply from 6 April 2024.
HMRC’s information powers and approach to avoidance
The Budget contains a range of measures which, taken together, reinforce HMRC’s ability to acquire
information to check taxpayers’ tax positions and to take action to prevent the use of tax avoidance schemes.
These include:
• The introduction of a new Financial Institution Notice which will require banks and other financial
institutions to provide information on a particular taxpayer, without any need for HMRC to seek
approval from the tax tribunal;
• Consultation on the implementation of OECD rules which will require digital platforms used for the
provision of services to send information about their sellers’ income to HMRC, as well as to the seller
themselves. These rules are targeted at the gig economy where sellers obtain work via digital
platforms;
• Whilst digital platforms used to sell goods are not currently included, the government notes that the
rules could be extended to cover these in due course, although only after additional consultation.
Reporting under the new rules is expected from January 2024;
• Additional measures aimed at strengthening HMRC’s powers to deal with those advisers who
promote aggressive tax avoidance schemes; and
• Consultation on the implementation of the OECD’s Mandatory Disclosure Rules, which will replace
existing EU DAC6 rules requiring information on certain cross-border arrangements to be reported.
These measures build on those previously introduced both within the UK and internationally, including the
FATCA and CRS rules which see information shared between international jurisdictions. We are already
seeing this leading to enquiries, and we expect this to be an increasing trend as HMRC look to interrogate
the data they receive from both overseas tax authorities and from third parties in the UK. Looking to the
future, the extension of the Making Tax Digital programme to income and then corporation tax will provide
HMRC with still more taxpayer data, with future work likely to focus on improving data flows from third
parties such as banks into HMRC’s systems to allow at least some elements of a tax return to be pre-
populated – and to allow HMRC to see an individual’s financial position with increasing accuracy.
Page 14 of 17
[Filepath]Budget 2021
Support for those affected by coronavirus
There were a number of measures announced by the Chancellor to support businesses and individuals who
have been affected by coronavirus.
Coronavirus Job Retention Scheme
The scheme has been extended for a further five months from the end of April until the end of September
2021. The rates of the reclaim for furloughed employees will remain as before (80% of pay for unworked
hours) but there will be gradual changes to the employer funding requirements:
• April to June – the employer will fund employer NIC and pension costs, as is the case now;
• July – the employer will fund employer NIC and pension costs, plus 10% of employee furlough pay;
• August to September – the employer will fund employer NIC and pension costs, plus 20% of
employee furlough pay.
Self-Employment Income Support Scheme
There will be a fourth grant covering the February to April period which can be claimed in late April 2021. A
2019-20 self-assessment tax return must have been filed to be eligible for the grant, which will now open
the new grants to those newly self-employed who may have missed out on earlier grants. The grant due will
be assessed on 80% of 3 months’ average trading profits, capped at £7,500.
There will be a fifth (and final) grant covering the May to September period, which can be claimed from late
July 2021. The value of the grant will be based on a turnover test:
• Where turnover has fallen by 30% of more - grant assessed as per the fourth grant at 80%;
• Where turnover has fallen by less than 30% - 30% grant, capped at £2,850.
The recovery loan scheme
The scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million.
The scheme will be open to most UK businesses (excluding banks and building societies, insurers, public
sector bodies and state funded schools) including those who have already received support under the
existing COVID-19 guaranteed loan schemes.
Restart grants
From April the government will provide restart grants in England of up to £6,000 per premises for non-
essential retail businesses and up to £18,000 per premises for hospitality, leisure and similar businesses,
depending on their rateable value.
The grants will be administered by local authorities, with a further £425 million available for those businesses
not eligible but which have still been affected by coronavirus restrictions.
Business rates reliefs
Further reliefs were announced for eligible retail, hospitality and leisure properties in England.
• 1 April 2021 – 30 June 2021 - 100% relief
• 1 July 2021 – 31 March 2022 - 66% relief, capped at £2m per business for properties that were
required to be shut on 5 January 2021, or £105,000 per business for other eligible properties.
Page 15 of 17
[Filepath]Budget 2021
Additionally, new legislation will be implemented so that business rates relief repayments will be deductible
for corporation tax and income tax purposes.
Statutory sick pay (SSP) rebate scheme
Small and medium employers will continue to be able to reclaim up to two weeks of SSP costs per employee.
While this is a temporary measure, no closure date for this scheme has yet been announced.
VAT deferral payment scheme
Legislation is to be included in the Finance Bill will covers the implementation of the VAT deferral payment
scheme and HMRC’s administration of it.
It had previously been announced that liabilities deferred during the first lockdown (for payments due
between 20 March and to 30 June 2020) could be paid in instalments and the opt in process for this began
on 23 February 2021.
The new measure gives businesses the chance to pay their deferred VAT liability over a maximum of 11
instalments. The opting in process closes on 21 June 2021, by which time the outstanding balance will need
to be paid over 8 instalments. The first instalment payment is made as part of that opting in process and
thereafter equal monthly payments will need to be made typically by Direct Debit unless other specific
payment arrangements are made with HMRC.
The legislation will include provisions for a 5% penalty in the event none of the below has occurred by 30
June 2021:
• deferred VAT liability paid in full
• opting into the new payment scheme completed by 21 June 2021
• alternative payment arrangements made with HMRC by 30 June 2021
This 5% penalty is specific to the deferred VAT scheme with the usual default surcharge penalty regime
applying to all other instances of late VAT filings and/or payments.
Page 16 of 17
[Filepath]Budget 2021
Measures announced at previous Budgets
Non-resident purchasers Stamp Duty Land Tax surcharge
One matter which was not raised at the Budget was the proposed 2% SDLT surcharge for purchases of
residential property in England and Northern Ireland by non-UK residents and we therefore expect that this
will come into force as previously announced on 1 April 2021.
The rules, which were published in July 2020, are somewhat controversial in their scope – the effect is to
increase the SDLT by 2% on:
• the acquisition of freehold residential property;
• the 15% ‘super rate’ of tax for certain high value ‘enveloped dwellings’, which will increase to 17%;
• the net present value of the rent of residential leases.
The last of these is likely to cause some confusion, as it effectively removes the nil-rate band – with effect
from 1 April 2021 all leases granted to non-residents will give rise to an SDLT filing obligation and a charge,
however small.
One of the features of the new rules is that the test of being a non-resident individual is different to the
Statutory Residence Test for income tax and CGT. For SDLT purposes a person is a non-UK resident if they
spent fewer than 183 out of 365 midnights in the UK, which is assessed over a two year ‘look back and look
forwards’ period. It is therefore relatively easy to construct situations of perceived unfairness in the rules,
where a person might be considered to be resident in the UK for income tax (for example by spending say
120 days in the UK under the ‘sufficient ties’ test) and yet be liable to the non-resident SDLT charge.
There are other anomalies in the rules, such as the application to UK companies requiring two residence
tests – the normal corporation tax test, and also a test to catch UK close companies with non-UK resident
shareholders. In the latter case it is in theory possible to have a family company where only one minority
shareholder is outside the UK, but the company would be considered to be non-resident for SDLT purposes.
Page 17 of 17
[Filepath]Contributors
Robert Langston Adam Kay
National tax partner Partner
E: robert.langston@saffery.com E: adam.kay@saffery.com
Zena Hanks Robert Mace
Partner Partner
E: zena.hanks@saffery.com E: robert.mace@saffery.com
Barbara Marchant Sean McGinness
Partner Partner
E: barbara.marchant@saffery.com E: sean.mcginness@saffery.com
Angela Ferguson Alison Hobbs
Director Director
E: angela.ferguson@saffery.com E: alison.hobbs@saffery.comContact us
Bournemouth Harrogate
Midland House, 2 Poole Road, Mitre House, North Park Road,
Bournemouth BH2 5QY Harrogate HG1 5RX
T: +44 (0)1202 204744 T: +44 (0)1423 568012
Bristol High Wycombe
St Catherine’s Court, Berkeley Place, St John’s Court, Easton Street,
Clifton, Bristol BS8 1BQ High Wycombe HP11 1JX
T: +44 (0)117 915 1617 T: +44 (0)1494 464666
Dubai Inverness
812-A, Level 8, Liberty House, Kintail House, Beechwood Park,
DIFC, Dubai, United Arab Emirates Inverness IV2 3BW
T: +971 (0)54 721 3888 T: +44 (0)1463 246300
Dublin London
99 St Stephen’s Green, 71 Queen Victoria Street,
Dublin 2, DO2 V278, Ireland London EC4V 4BE
T: +353 (0)1 525 5440 T: +44 (0)20 7841 4000
Edinburgh
Manchester
Edinburgh Quay, 133 Fountainbridge,
City Tower, Piccadilly Plaza,
Edinburgh EH3 9BA
Manchester M1 4BT
T: +44 (0)131 221 2777
T: +44 (0)161 200 8383
Geneva
Peterborough
Boulevard Georges-Favon 18,
Unex House,
1204 Geneva, Switzerland
Bourges Boulevard,
T: +41 (0)22 319 0970
Peterborough PE1 1NG
T: +44 (0)1733 353300
Guernsey
PO Box 141, La Tonnelle House,
Zurich
Les Banques, St Sampson,
Olgastrasse 10,
Guernsey GY1 3HS
8001 Zurich, Switzerland
T: +44 (0)1481 721374
T: +41 (0)43 343 9328
Saffery Champness’ Budget Notes are published on a general basis for information only and no liability is accepted for errors of fact or opinion
they may contain. Professional advice should always be obtained before applying the information to particular circumstances. It does not
constitute, and should not be construed as, investment advice nor a recommendation to subscribe to, purchase, sell or otherwise transact in
any security or financial instrument. Professional advice should always be obtained before applying the information to particular circumstances.
J8852. © Saffery Champness LLP March 2021.
Saffery Champness LLP is a limited liability partnership registered in England and Wales under number OC415438 with its registered office at 71
Queen Victoria Street, London EC4V 4BE. The term “partner” is used to refer to a member of Saffery Champness LLP. Saffery Champness LLP
is regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.
Saffery Champness LLP is a member of Nexia International, a leading, global network of independent accounting and consulting firms that are
members of Nexia International Limited. Nexia International Limited, a company registered in the Isle of Man, does not provide services to
clients. Please see the Member firm disclaimer for further details.www.saffery.com
You can also read
