News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
This summary outlines the principal tax measures announced in the Budget on 3 March 2021. Except where stated, the changes take effect for the 2021/22 tax year.
The personal allowance for 2021/22 will be increased from £12,500 to £12,570 and will then be frozen at this level for five years. The 20% band will be increased from £37,500 to £37,700, meaning that the higher rate threshold (the 20% band plus the personal allowance) will be £50,270 in 2021/22. It too will then be frozen for five years.
Although the Times pointed out that a million more people would become higher rate taxpayers over the next five years, the Daily Telegraph welcomed the freezing of allowances, given that 44% of the 54 million adults in Britain pay no income tax at all at present, according to the Institute of Fiscal Studies.
For national insurance, the primary threshold is increased from £9,500 to £9,568 a year. The secondary threshold (the level above which employers pay contributions) is increased from £8,788 to £8,840 a year.
The annual ISA limit remains at £20,000. The Financial Times says that forgoing a routine inflation-based increase to ISA allowance is in essence a tax increase, as investors can shield less money in tax-advantaged accounts.
There is usually speculation before a Budget that those saving into a pension scheme will be punished, but since the reduction of the annual allowance to £40,000 (2014) and the lifetime allowance to £1 million (2016), as well as the restrictions on contributions for high income individuals (also 2016), pension savers have been largely left alone.
Since the lifetime allowance was increased to £1 million, it has been increased annually to take account of inflation. The allowance was £1,073,100 for 2020/21. It will remain at this level until 2026.
However, there has been disquiet at the policy of freezing the lifetime allowance. A saver with a pension pot of £800,000 today will, assuming an annual return of 3%, breach the lifetime allowance in ten years even if no further contributions are made.
The corporation tax rate, currently 19%, will increase to 25% from 2023 – which of course gives the Government room for manoeuvre should public finances improve. Small companies (those with profits up to £50,000) will continue to benefit from a rate of 19%, and there will be a tapering system for companies with profits between £50,000 and £250,000. The last Chancellor to increase the rate of corporation tax was Denis Healey, who lifted it from 40% to 52% in 1974.
Companies and unincorporated businesses making losses in 2020/21 and 2021/22 will be able to carry those losses back three years, subject to a maximum of £2 million per loss-making year.
From April 2021 to March 2023, companies incurring expenditure on qualifying plant and machinery will be able to claim a “super deduction” of 130%.
The CGT annual exempt amount remains at £12,300 until 2026. Inheritance tax
The IHT threshold remains at £325,000, the level at which it has been frozen since 2009. Had it risen in line with inflation, it would now stand at £450,000. The Financial Times says that “a tax intended for the very wealthy has become a tax on Middle England.”
The VAT registration threshold will remain at £85,000 until 31 March 2024.
The 5% reduced rate on hospitality, holiday accommodation and tourist attractions, which was to expire on 31 March 2021, has been extended to 30 September 2021 and will increase to an interim rate of 12.5% until 31 March 2022.
Making Tax Digital (MTD) is currently obligatory for businesses with an annual taxable turnover of over £85,000. From 1 April 2022, all VAT-registered businesses will have to submit VAT returns using MTD compatible software. HMRC’s Policy Paper says that a total of 1.1 businesses currently trading below £85,000 will be affected.
Currently there is a default surcharge system which automatically levies penalties on taxpayers who submit their VAT returns late or make an underpayment. Sometimes this results in surcharges which appear excessive in proportion to the offence committed. A Tribunal in the case Enersys Holdings in 2015 overturned a surcharge of £131,881 for a return which was a day late. A Policy Paper has now confirmed that a new system, based on points for each offence, will apply from April 2022.
I qualified as a Chartered Accountant in 1997 with Malthouse & Company, a practice in Liverpool City Centre, and moved on in 1999 to work in property management. In January 2004 I started my own practice, initially in Birkenhead but then in York from 2008, specialising in VAT.
Many of my clients have been with me since the mid-2000s and value the personal and prompt service I offer, whether they need in house VAT training, a visit to discuss VAT issues or ad hoc advice over the telephone or by email. Any telephone advice I give is followed up within a short time by an emailed summary.
Unusually for a sole practitioner, my practice has an international aspect. I prepare UK VAT returns for businesses located in the USA and Turkey and often give UK businesses advice on supplying and purchasing goods or services to and from other countries. Since 2013 I have had a regular engagement to speak on European VAT issues at a course in Amsterdam, and I have also spoken on numerous occasions in Malta.
I have strong technical VAT knowledge in the fields of property and partial exemption and am a member of the VAT and Duties Sub-Committee of the ICAEW’s Tax Faculty.
Peter Hughes, M.A., F.C.A.
11 Sails Drive,
Heslington,
York
YO10 3LR
Tel 01904 421570;
Mobile: 07801 810694
P.D. Hughes Consultancy Services Ltd
Company No 06841251 (Registered in England & Wales)
peter@pdhughesconsultancy.co.uk
www.pdhughesconsultancy.co.uk
8 March, 2021