Budget 2021 – What you need to know and it affects you

by | Mar 5, 2021 | Blog, Budget 2021, Grant, SEISS, Sole Trader | 0 comments

On March 3rd 2021, Chancellor Rishi announced his budget 2021 plans. It was a ‘road to recovery’ set out to help the UK recover from the COVID19 pandemic allowing businesses and individuals to bounce back.

Part of his budget report included emergency support for the economy, along with some longer term planning for how all the emergency support will be paid back.

Lots of announcements were made, and if you’re unsure of what it all means for you, we’ve got you covered! We’ll detail everything you need to know, and how it affects you.

We’ll cover the changes for businesses in our next blog.

COVID-19 Support for individuals and the self employed.

Self employment income support scheme (SEISS)

The Government confirmed during the budget that the fourth SEISS grant will be worth 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total.

It will cover the period from February to April 2021 and can be claimed from late April. Self-employed individuals must have filed a 2019/20 tax return through self assessment by midnight on 2 March 2021 to be eligible for the fourth grant. A “fifth and final” SEISS grant will cover May to September 2021.

Those whose turnover has fallen by 30% or more will receive the full grant worth 80%, capped at £7,500.

Those whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July.

Following the extension of the SEISS into the 2021/22 tax year, grants will now be included as income in the tax year in which they are received. The rule will continue not to apply to any payments made to a partner distributed across the partnership, which is treated as income of the partnership.

A further extension of legislation will be applied to raise a tax charge equivalent to the amount of a SEISS grant to be recovered, where entitlement expired.

If you’re unsure as to how to claim SEISS, you can read our blog all about it.

 

Mortgage guarantee scheme

A new mortgage guarantee scheme will kick in from April 2021, providing a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000. The scheme will be available for new mortgages up to 31 December 2022.

Stamp duty land tax (SDLT)

Due to COVID-19, the Chancellor previously announced a temporary increase to the nil-rate band for residential property before SDLT was due, from £125,000 to £500,000, for the period 8 July 2020 to 31 March 2021. Budget 2021 announced a staged withdrawal of this measure by extending it to 30 June 2021, then introducing a nil-rate band of £250,000 from 1 July 2021 to 30 September 2021.

This will apply to transactions in England and Northern Ireland with an effective date between 1 April 2021 and 30 September 2021.

Personal Taxes (Excl Scotland) – what’s changed in the budget 2021?

Tax free income tax threshold

Personal Allowance – Increasing to £12,570 for 2021-22. This is the amount you can earn before paying any tax. In 2020-2021, the amount you could earn tax free was £12,500.

Note that this will be frozen until the 2025-26 tax year, which means it will not change for the foreseeable future. This will inevitably drag more people into the higher tax brackets as wages increase.

There is no change to the percentage of tax you will pay, however the limit at which you pay tax at 20% will increase to £37,700, and to £50,270 for those who pay the higher rates of tax.

The first £50,270 of your earnings will be taxed at 20% (was £50,000 in 2020-21). The next £99,730 will be taxed at 40%, and then the remaining at 45%. (Please note these figures are before you deduct your tax free personal allowance).

Band2021/22Rate2020/21Rate
Personal AllowanceUp to £12,570NilUp to £12,500Nil
Basic RateOver £12,570 – £50,27020%Over £12,500 to £50,00020%
Higher Rate*Over £50,270 – £150,00040%Over £50,000 to £150,00040%
Additional Rate*Above £150,00045%Above £150,00045%

*The personal allowance is reduced by £1 for every £2 of income from £100,000 to £125,140.

National living wage

The national living wage now applicable to over-23s increases by 2.2% from £8.72 an hour to £8.91 an hour from April 2021.

National insurance for directors

If you’re a director and are taking advantage of the lower salary and higher dividends option (so you pay as little tax as possible), your salary will increase to £736.66 in 2021-22 (£8,840 per year).

2020-21, this was £732.33 (£8,788 per year).

National insurance for self employed (Sole traders)

The threshold for class 4 national insurance contributions (NICs) paid by the self-employed will increase from £9,500 to £9,568 for the 2021/22 tax year.

From April 2021, the upper earnings limit and upper profits limit will increase from £50,000 to £50,270. At the same time, the class 2 NICs rate for the self-employed will remain at £3.05 a week for 2021/22, while the self-employed small profits threshold will rise to £6,515.

Trading losses

At present, an unincorporated business, such as a sole trader or partners in a partnership, can claim to use losses against their net income of the current or previous year, or both years.

For trading losses made in 2020/21 and 2021/22, you will be able to carry back for a period of three years, with losses being carried back against later years first. Some further restrictions apply.

Other Taxes – what’s changed?

Capital gains tax

This remains unchanged, and will be frozen at the current rate until 2025/26.

The current amount of tax free gains you can make per year (known as your annual exempt amount) for individuals and personal representatives is £12,300.

The amount also remains unchanged for trustees of settlements at £6,150, and will be maintained at these levels for each tax year up to and including the 2025/26 tax year.

ISAs

This remains unchanged and all of the subscription limits will remain the same. For ISAs, this will be £20,000 and for Junior ISAs and child trust funds it will be £9,000.

Pension lifetime allowance

The lifetime allowance for pension savings (the total amount you can invest in a pension before being taxed) will remain at £1,073,100 until the 2025/26 tax year.

Marriage allowance

The transferable marriage allowance will increase from £1,250 to £1,260 for 2021/22. This is the amount you can transfer to your spouse, or they can transfer to you. 

Inheritance tax

The individual nil-rate band will continue at £325,000 and the residence nil-rate band will also remain at £175,000. The taper threshold for the residence nil-rate band continues to start at £2m. This is the amount of tax free assets you can have in your estate when you pass away. 

Company van benefit

From 6 April 2021, the company van benefit which arises where a van is made available to an employee for private use will increase to £3,500. This is the amount that is deemed the benefit of having use of the company van, and will be added to their earnings for tax. 

Company car & van fuel benefit

The company car fuel benefit (the amount that is deemed the benefit you receive by having a company car) increases from £24,500 to £24,600 from 6 April 2021. The flat rate charge for the van fuel benefit will increase from £666 to £669 from 6 April 2021.

Duties

All alcohol and sugary drink duties will be frozen in 2021, following the Budget announcement.

Smokers are already paying extra for all tobacco products following rate increases in November 2020.

The freeze in alcohol duties – only the third time this has happened in two decades – was the main surprise from the so-called ‘sin taxes’.

A sin tax is applied to goods deemed harmful to individuals, such as tobacco and alcohol, payable in addition to standard rate VAT at 20%. Sin taxes are usually expected to rise in line with inflation, unless the Chancellor Rishi Sunak decides to freeze or cut them.

There were no changes to tobacco duties or the so-called ‘sugar tax’ – the Soft Drinks Industry Levy – which hasn’t changed since April 2018.

 

Freedom in Numbers - Accounting & Business Support

At Freedom in Numbers we understand that the spring budget 2021 can be quite confusing. We’re doing all we can to help you understand what it all means so you can make the right choices.

We’ve made it our mission to help businesses make the most of the Government support on offer.

If you’re struggling to make sense of your business finances and plan ahead, we’re here to help you too.

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