Chancellor Rishi Sunak has delivered the 2021 budget that carefully balanced the extension of more immediate pandemic support measures with longer term tax increases aimed at reducing the UK’s debt levels.
There were two main objectives in the budget announcement: provide support for households and businesses through the final stages of the pandemic; and to deliver a roadmap on how the government plans to reduce the fiscal deficit over time and pay for the pandemic support measures.
UK Budget 2021 Highlights
Tax Thresholds will be frozen from next year
Income tax and National Insurance thresholds will increase for the 2021-22 tax year in April but will be frozen after that until 2026.
The tax personal allowance will rise from £12,500 to £12,570 next year. Then it will stay at that rate for five years. Similarly, the threshold at which you pay the higher rate of tax will rise from £50,000 to £50,270, where it will also be frozen.
Furlough
The furlough scheme due to end on 30 April, will now continue until the end of September.
Anyone on furlough during that time will continue to receive 80% of their salary from the government, capped at £2,500 per month.
There will be no employer contributions beyond National Insurance Contributions (NICS) and pensions in April, May and June. However, from July, the government will introduce the following employer contributions until the scheme is phased out in September.
Corporation Tax
From April 2023, the rate corporation tax paid on company profits will increase from 19% to a maximum of 25% but will be tapered as detailed below.
Covid self-employed grants (SEIS)
The grants that were introduced at the same time as furlough in the early months of the pandemic have also been extended further. This means:
Self- employed individuals must have filed a 2019-20 self-assessment tax return by midnight 2nd March 2021 to be eligible for the fourth grant. This will be of particular interest to the newly self-employed who were unable to claim the previous grants.
One caveat, the final fifth grant will be subject to a turnover test. People whose turnover has fallen by 30% or more will continue to receive the full grant. People whose turnover has fallen by less than 30% will receive a 30% grant capped at £2,850.
Other Areas:
There were two main objectives in the budget announcement: provide support for households and businesses through the final stages of the pandemic; and to deliver a roadmap on how the government plans to reduce the fiscal deficit over time and pay for the pandemic support measures.
UK Budget 2021 Highlights
Tax Thresholds will be frozen from next year
Income tax and National Insurance thresholds will increase for the 2021-22 tax year in April but will be frozen after that until 2026.
The tax personal allowance will rise from £12,500 to £12,570 next year. Then it will stay at that rate for five years. Similarly, the threshold at which you pay the higher rate of tax will rise from £50,000 to £50,270, where it will also be frozen.
Furlough
The furlough scheme due to end on 30 April, will now continue until the end of September.
Anyone on furlough during that time will continue to receive 80% of their salary from the government, capped at £2,500 per month.
There will be no employer contributions beyond National Insurance Contributions (NICS) and pensions in April, May and June. However, from July, the government will introduce the following employer contributions until the scheme is phased out in September.
- Employers to contribute 10% of wages in July
- Employers to contribute 20% of wages in August and September
Corporation Tax
From April 2023, the rate corporation tax paid on company profits will increase from 19% to a maximum of 25% but will be tapered as detailed below.
- Businesses with profits of £50,000 or less will come under a new small profits category and will continue to pay the current rate of 19%
- Businesses with profits of £250,000 or more will be taxed at 25%
- Businesses with profits between £50,001 and £249,999 will be taxed on a tapered basis at a rate of between 20% and 24%. The bandings have yet to be announced.
Covid self-employed grants (SEIS)
The grants that were introduced at the same time as furlough in the early months of the pandemic have also been extended further. This means:
- A fourth grant overing February to April – worth 80% of average trading profits, up to £7,500
- A fifth grant covering May onwards will be available in July.
Self- employed individuals must have filed a 2019-20 self-assessment tax return by midnight 2nd March 2021 to be eligible for the fourth grant. This will be of particular interest to the newly self-employed who were unable to claim the previous grants.
One caveat, the final fifth grant will be subject to a turnover test. People whose turnover has fallen by 30% or more will continue to receive the full grant. People whose turnover has fallen by less than 30% will receive a 30% grant capped at £2,850.
Other Areas:
- Capital Gains Tax Annual Exemption Allowance of £12,300 is to be maintained at the present level until April 2026
- The inheritance tax nil band rate will remain at existing levels until April 2026
- Individual Savings Account (ISA) annual subscription for 2021-22 will remain unchanged at £20,000
- Alcohol and fuel duty – the government will freeze alcohol and fuel in 2021-22
- VAT threshold – the VAT registration and de-registration thresholds will not change for a further two years from 1 April 2022.
- Housing – the temporary reduction in stamp duty land tax has been extended until 30 June 2021
- Pensions lifetime allowance rates will remain frozen until 2026