The Chancellor of the Exchequer, Rishi Sunak, delivered his 2021 budget to the House of Commons on 3rd March. As the UK begins to bring the COVID-19 pandemic under control, all eyes were on Westminster for a relief package that will start to repair the UK economy and bring a sense of normality to the country.
We’ve summarised the main points of the Chancellor’s speech to help you understand the impact of the budget on your personal finances and small business.
2021 Budget Overview
Economists are undecided as to when the UK economy will recover to pre-COVID levels. A survey of fiscal experts by the Financial Times unearthed a variety of opinions on when the UK’s GDP will resemble its pre-pandemic state.
The Chancellor, however, appears to be more optimistic and revealed economic projections by the Government, which claim that a recovery could come as soon as the middle of next year.
To assist in the recovery, in his statement to the Commons, Sunak outlined three major courses of action:
- Billions more from the Government to help businesses and households
- A focus on investment as the UK emerges from lockdown
- The need to shore up public finances that have taken a battering throughout the pandemic
What does the 2021 budget mean for businesses?
The past 12 months have seen an unprecedented set of economic interventions by the UK Government, designed to keep afloat struggling businesses and incentivise firms to retain employees and embark upon capital investments.
Most financial support schemes are being extended to September 2021. The Government continues the pattern of offering major tax breaks and rate relief for businesses of all sizes, with the Chancellor beginning to taper off amounts as the schemes draw to a close.
Here are the key points:
- Coronavirus Job Retention Scheme (CJRS) – better known as ‘the furlough scheme’ – is to be extended to September 2021, beyond the initial closure date of 30th April, with several changes made to contribution amounts:
|Period||Government’s Contribution||Employer’s Contribution|
|Up to July||80%||0%|
|August and September 2021||60%||20%|
- Self-employment Income Support Scheme (SEISS) has been extended to September 2021. An extra 600,000 will benefit from this extension, providing that they have filed a tax return. The Government is now allowing workers to submit their 2018-2019 and 2019-2020 self-assessment tax returns as evidence of their income.
- Help to Grow grant – £5,000 towards Government approved productivity software for small businesses.
- VAT on the hospitality industry is to be kept at the current rate of 5% until 30th September and increased to 12.5% until 30th April 2022 when it will return to the usual 20%.
- Business Rates holiday has been extended for all firms occupying retail, leisure and hospitality properties until the end of June 2021. After that, they will be discounted to one-third of the normal charge for the rest of the financial year, up to a maximum of £2m for closed businesses.
- Corporation tax (CT) will rise to 25% in April 2023 for companies with profits of greater than £250,000. The current 19% rate will remain in place for businesses with profits below £50,000. There will then be a marginal tax rate of 26.5% for profits between these two thresholds.
- ‘Super deduction’ tax break for companies investing in plant and machinery – a capital allowance of 130% on qualifying categories of machinery. New purchases made before the announcement do not qualify.
- Recovery Loan Scheme (RLS) will be launched which offers a £10 million upper limit and 80% guaranteed by the Government. It will supersede all other loan schemes offered by the Government during the pandemic (the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS).
- Loss Carry Back scheme for small businesses has been extended to three years, for accounting periods ending between 1st April 2020 and 31st March 2022, allows for an additional refund of £760,000.
- Doubling cash incentives for businesses that hire apprentices between 1st April 2021 and 31st September to £3,000. This is in addition to the £1,000 employers are eligible for when hiring a 16 to 18-year-old apprentice, or any worker under 25 with an Education, Health and Care Plan.
- Restart Grants for shops and other businesses forced to close. £6,000 per premises for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
With ambitious plans to raise total investment in research and development to 2.4% of UK GDP by 2027, the Government also announced a review of R&D tax credits. To ensure that R&D tax reliefs remain competitive and continue to incentivise innovation, the review will be supported by consultation with stakeholders.
What does the 2021 budget mean for individuals?
The budget will affect the lives of millions of individuals and workers across the United Kingdom, many of whom have been profoundly affected by the economic turmoil caused by the pandemic.
Changes are being made to the national minimum wage, income tax, and stamp duty that the Chancellor hopes will have a rejuvenating effect on millions of British workers’ disposable income.
Here’s how the budget will affect everyday workers:
- The national minimum wage will increase to £8.91 p/h from 1st April 2021 (an increase of 2.2%), and from April 2022 will be extended for the first time in its history to 25-year-olds. Here are some age-related specifics:
|Age Range||New Amount||Actual Rise|
|Above school age but under 18||£4.62||£0.07|
|18-20 years old||£6.56||£0.11|
|21-22 years old||£8.36||£0.16|
- Personal income tax allowance is to be frozen at £12,750 for the next five years to April 2026.
- Higher rate tax threshold for these years will be £50,270, and the basic rate limit will be £37,700.
- Stamp duty holiday has been extended to 30th June 2021, with further tapered reductions until 30th September 2021.
- The Government will underwrite 95% mortgages on properties worth up to £600,000 from April 2021 to help combat mortgage lenders’ unwillingness to offer low-deposit mortgages.
- Pension tax threshold (the total amount you can put into a private pension without being taxed on it) will be frozen at £1,073,100 until April 2026.
DS Burge & Co for financial expertise
We’ve summarised the main points of the Chancellor’s speech for you, but as with all budgets, this isn’t the whole story.
If you’d like to get a better understanding of how the 2021 budget impacts your business or your personal finances, please don’t hesitate to get in touch with our team of expert accountants.