Blogs/Vlogs

Crash, bang, wallop, what a Budget

Tomorrow we’ll release a full booklet detailing all the budget announcements, but as has become tradition at UHY East we’ve pulled together our top five announcements in this same day blog:

1. Support Measures

Leaked in advance, but we couldn’t not start here given these measures are now anticipated to run to in excess of £100bn, seeing levels of borrowing only comparable to the two world wars and, by the Chancellor’s own admission this lunchtime, likely to be being paid off for decades to come. It’s quite a thought that my school age children’s children are likely to still be paying for this.

Nonetheless, the OBR forecasts anticipated peak unemployment at over 11% last year and now anticipate a peak of 6.5% and the support has been a lifeline to those who’ve needed it.

Both CJRS (furlough) and SEISS (self employed support) are extended to September 2021. SEISS is now open to those persons becoming self employed during 2019/20, an estimated further 3m people.

We’ll be publishing lots of detail on this in coming weeks, I’m sure.

2. Super Deductions

When the Chancellor announced a 130% ‘super deduction’ for those businesses investing in plant and machinery I very nearly directed my tweet at our farming clients. It’s a good job I didn’t as the small print reveals it is available to companies (corporation tax) only.

With Annual Investment Allowance kept at £1m for an extra year (until 31 December 2021) already, with CT rates changing, and with a super deduction window April 2021 to Mar 2023 subject to pro-rating where period ends straddle those dates, companies considering sizeable investment in plant and machinery need to carefully plan the timing of that spend. The prize for getting it right will be significant tax relief.

3. Loss Relief

Another crucial business measure, losses in years ending 1 April 2020 to 31 March 2022 (companies) / tax year 2020/21 and 2021/22 (unincorporated businesses) will be permitted to be carried back up to three years.

This policy is a straightforward copy and paste from the last recession in the late noughties, and to be fair it worked really well. It would be easy to mock the government for re-using old policies, but why reinvent the wheel.

Businesses badly impacted by the pandemic could well see cash recoveries by carrying back losses into earlier periods in which tax was paid and we know from experience that there is merit to both considering your profit and loss profile (even changing year end to maximise relief) and to accelerating filing of returns which contain losses to accelerate any cash refund that may be available.

With main rate corporation tax set to increase to 25% (imagine there being so many announcements that that didn’t make our top 5) in 2023, there’s also a balance to strike between carrying back losses (quicker cash) and carrying forward losses (potentially higher overall relief).

4. Freezing of Allowances

There was a theme in today’s speech, as well as in the previous week of leaks and pre-announcements designed to PR manage the whole event, that whilst there was support and stimulation for a population and economy which needs it, a day of reckoning has to come and that support has, at some point, to be paid for.

The Chancellor stayed pretty light on tax increases in this budget, but he did announce a string of real terms tax increases by freezing various allowances and thresholds:

  • Personal allowance frozen at £12,570 until April 2026
  • CGT annual exemption at £12,300 until April 2026
  • Inheritance tax allowances (all until April 2026):
  • Nil rate band at £325,000
  • Residence nil rate band at £175,000
  • Means testing threshold at £2m
  • Pensions lifetime allowance at £1.073m until April 2026
  • VAT registration threshold at £85,000 until April 2024

For a Conservative government which has spent a decade increasing allowances at an ahead of inflation rate in order to lift the lower paid out of tax altogether this is a significant change of direction, and probably reflects the manifesto pledge of the triple tax lock (VAT, Income Tax and NI) although it’s hard to imagine that won’t come under pressure perhaps as soon as the Autumn 2021 budget.

Whilst the personal allowance is likely to have the widest impact, it is the inheritance tax allowance which is most stark in my eyes, as it has already been frozen since April 2009 which will mean 17 years of house price inflation against a static tax free allowance.

5. VAT and Income Tax Penalty Regimes

New regimes of late filing and late payment penalties were not mentioned in the speech or the build-up, but were tucked discretely into the mountain of paperwork published alongside today’s soapboxing. 

Effective April 2022 (VAT), April 2023 (MTD for income tax) and April 2024 (income tax generally) the penalty regime moves from a fixed rate regime into a points based one, where points are amassed for failures by taxpayers and, unlike in Bruce Forsyth’s day, points make financial penalties. 

This penalty regime makes our top 5 not on its own merit, but rather because its raison d’etre is to start amending our tax framework to make it more suitable for quarterly tax filings, giving me an excuse to note that Making Tax Digital is very much back on the agenda:

  • MTD for VAT being extended to small businesses from April 2022, MTD for income tax expected to be put into effect from April 2023

The late payment regime is rather more offensive in it’s own right and taxpayers can now look forward to:

  • No late payment penalty for the first 15 days
  • A 2% penalty after 15 days
  • Another 2% after 30 days
  • And then 4% per year penalties on a daily basis from day 31 onwards

Defining 4% per year on a daily basis as a penalty is ludicrous, as it is quite clearly an interest charge. However HMRC can’t call it an interest charge because, and brace yourself for this, they’ll be charging late payment interest as 2.5% above base rate on the same debt at the same time.

In other words, pay your tax late in future years and you can expect to incur both a standing penalty of similar magnitude to the current regime with an interest charge approaching 7% as a sting in the tail.

And all slipped into law with no consultation.

Post-Budget webinar: How will the Budget affect you?

Some years it’s a struggle to fill this blog, but today I’ve doubled my target word count and still left plenty out. Some further detail feature in our budget booklets, but for some further insight why not watch our recorded webinar from Friday 5 March here

“The webinar was very good and to the point, thank you!” 

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