The following is a summary of the Spring 2021 Budget from March for the self-employed, those in partnerships, or owners of limited companies, with information for both individuals and employers.
Income Tax, Capital Gains Tax and Inheritance Tax
All rates and allowances will be set at the 2021/22 levels until 2026. This includes the rates of tax, personal allowances, pension allowances etc.
For more information, please refer to the HM Revenue and Customs (HMRC) list of tax rates and allowances:
Spring 2021 Budget – Self-Employed /Partnerships
SEISS 4th Grant
- Covers the period February to April 2021 and is set at 80% of 3 months average profit, capped at £7,500.
- Profits must be below £50,000 and no more than 50% of your total taxable income.
- Eligibility now includes the 2019/20 tax return and the average profit is taken from viewing all four tax years from 2016/17 to 2019/20, or fewer if only became self-employed during this period.
- The tax return for 2019/20 must have been filed by 2nd March 2021 and you must also have traded during 2020/21.
- Must be able to declare that you continue to trade but impacted by reduced demand due to Covid 19 or are temporarily unable to trade and believe there is a significant deduction in trading profits due to Covid 19.
- Can make the claim from late April to 31st May 2021 and HMRC will notify you if eligible.
SEISS 5th Grant
- It will effectively cover the period for May to September 2021 but will only be based on 3 months average profits.
- To get the full 80% of 3 months average profit, you must declare your turnover has decreased by 30% or more in the period April 2020 to March 2021.
- For those with a lower decrease in their profits, you will only be able to claim 30% of 3 months average profit.
- Grants are capped at £7,500 for those able to claim 80% and £2,850 for those able to claim 30%.
- The claim is expected to be able to be made from late July 2021.
SEISS Grants – How they are Taxed
- SEISS grants are subject to tax and national insurance.
- They will be shown separately on your tax return to the rest of your self-employed/partnership figures.
- The SEISS grants are all going to be taxed on a receipts basis – this is regardless of how your accounting periods fall.
- Grants 1 to 3 will be taxed in the 2020/21 tax return.
- Grants 4 and 5 will be taxed in the 2021/22 tax return.
- If your accounting period normally ends on 31st March, 5th April or even 28th February, this is not a problem.
- If your accounting period ends, say on 30th April 2020, the full year’s profits will be taxed in the 2020/21 tax return plus all of the SEISS 1 to 3 grants that you have received.
SEISS Grants – Were you Entitled to the Grants?
- All SEISS grants were claimed by the sole trader/partner personally.
- If HMRC believes you are not eligible for all/some of those grants, they will be contacting you.
- Any proof you may have to back up your claim you need to make sure you keep.
- You may also want to write some notes now to ensure you do not forget what was going on during the periods the grants relate to, i.e. suppliers closed, shortages of materials, staff off ill, clients not wanting you to work at their premises, temporarily closed etc.
- If HMRC determines you had no right to the grants, you will be charged 100% tax on the grant in a later tax return to the one you claimed it in.
Spring 2021 Budget – Limited Companies
- The main rate of corporation tax increases to 25% from 1st April 2023 for profits of over £250,000.
- The rate for those with profits under £50,000 will remain at 19%.
- This means for every £1 your company profit exceeds £50,000; you will be taxed at the marginal rate of 26.5%.
- Please note this means the associated company rules will become very important – for every limited company you are associated with, the upper and lower corporation tax rate limits will decrease.
- e.g. you are two limited companies that you control – the lower rate becomes £50,000 divided by 2 = £25,000 and the top limit becomes £250,000 divided by 2 = £125,000.
- A company is associated with another company where one company has control over the other, or both companies are under the control of the same person or group of persons.
- A super deduction of 130% is allowable on purchases of new plant and machinery from 1st April 2021.
- This includes laptops and vans, but not cars.
- Any contract entered into to purchase the plant and machinery must not be dated before 3rd March 2021 to be eligible.
- If the new plant and machinery qualify for 6% writing down allowances, there is now a first-year allowance of 50%.
- There is a temporary extension to the carry back of losses against profits to get a repayment of corporation tax.
- Trade losses carried back can be extended from one year to 3 years, with losses carried back against the later years first.
- This comes into effect for companies with accounting periods ending between 1st April 2020 to 31st March 2022.
Please note the super deductions and extended loss relief are designed to get you to spend on capital equipment now and use your losses as soon as possible, which may mean more of your profits will be taxed at the higher rate coming in 2023.
Spring 2021 Budget – Employers
Coronavirus Job Retention Scheme (CJRS)
- The scheme has been extended to 30th September 2021.
- The level of the grant available remains 80% of gross eligible wages until 30th June 2021; then, the claim will be a maximum of 70% in July and 60% in August and September. The employee continues to receive a minimum of 80% (capped £2,500) throughout.
- The CJRS claims are capped at £2,500 to the end of June, £2,187.50 for July and £1,875 for August and September.
- To qualify for CJRS up to 30th April 2021, the employee must have been on the payroll and reported via RTI between 20th March and 30th October 2020.
- From 1st May 2021 onwards, you can claim for employees who must have been on the payroll and reported via RTI between 20th March 2020 and 2nd March 2021.
Spring 2021 Budget – VAT
- The VAT rate remains at 20% and the registration threshold at £85,000.
- There are reduced VAT rates for those in the hospitality, holiday accommodation and attractions sectors.
VAT Deferral New Payment Scheme
- VAT registered businesses had previously had the option to defer any VAT payments that fell due between 20th March and 30th June 2020.
- Businesses who used this option must pay the deferred VAT by 31st March 2021.
- The new payment scheme allows businesses to spread the payment of the deferred VAT over up to 11 months interest-free by direct debit.
- You must set-up the payment plan yourself via your Government Gateway account, and the earlier you do it, the longer you have to make the payments.
- If you are on the annual account scheme, you will have to wait until the portal opens for you to set up your plan.
Last updated: 26.03.2021
Whilst the information in this document is correct; you should always obtain individual advice from a qualified accountant.