There have been plenty of rumours and leaks in the weeks running up to today’s announcement from the chancellor Rishi Sunak but today we have finally had confirmation of who the winners and losers are in the 2021 budget.
He started the budget announcement by confirming the economy will be 3% smaller in 5 years than it would have been had the crisis not happened. He did say that the expected recovery would take less time than first feared with the economy bouncing back to pre-Covid levels by the middle of 2022.
Budget 2021 winner: furloughed staff and the self-employed eligible for the SEISS grant
This was the announcement that would have the biggest impact on the day to day life of the average worker in the 2021 budget. There was plenty of talk and even an assumption that furlough would be extended into the summer.
Rishi Sunak took that a step further by confirming that companies will be able to furlough eligible workers until the end of September. The government will continue to pay 80% of salaries until the end of June with employers contributing 10% in July and 20% in August and September.
The self-employed grants will also continue until the end of September. A 4th Self-Employed Income Support Scheme (SEISS) grant can be applied for in late April for the period covering February-April. A 5th grant can be applied for in late July but this will be more complex as only those whose turnover has fallen by 30% or more can claim the full 80% grant. Those who have had a turnover drop by less than 30% will only receive a 30% grant.
Budget 2021 winner: hospitality, retail and leisure
It comes as no surprise that the businesses with the most support in the budget for 2021 are those that suffered the most during the lockdown. There will be a total of £5bn in new grants including up to £6,000 per retail premises and £18,000 per hospitality or leisure premises.
For the first 3 months of the financial year, the chancellor also confirmed that the business rates holiday will continue and there will be a two-thirds cut for the 9 months following this. On top of this, the VAT cut to 5% will continue for 6 months, rising to 12.5% for a further 6 months before going back to the standard rate in April 2022. Finally, duty was also frozen on beer, wine and spirits for the second year in a row providing more welcome relief.
The high street has taken the biggest hit of all areas in the economy during the pandemic so it remains to be seen if these measures are enough to help them bounce back. Some may call for more support but overall the budget has been well received by the sector with Kate Nicholls, the Chief Executive of UKHospitality calling the cuts ‘positive’.
Overall a +ve and much better than expected Budget – some challenges ahead with tax tightening but first signs of a longer term plan for recovery. If govt wants to deliver jobs, growth and investment at pace across UK then it needs a robust and resilient hospitality sector— Kate Nicholls (@UKHospKate) March 3, 2021
Budget 2021 winner: the property market
There were two big announcements for the property market. The first was that the stamp duty holiday will continue for properties costing up to £500,000 until the end of June. There will then be a transition period until the end of September with no stamp duty due for properties up to to £250,000 before reverting to the pre-Covid rate.
The second part was the commitment to the government’s so called ‘generation buy’. The new mortgage guarantee scheme means homebuyers can purchase properties with a deposit as low as 5% with the major banks already signed up to take part.
Budget 2021 loser: corporation tax rises
One area that some Conservatives will be upset by is the rise in corporation tax from 19% to 25% from April 2023. Many of his own party had been rallying against the now confirmed increase but Rishi Sunak called the increase “fair and necessary”.
However, this was offset by the introduction of a “small profits rate” which stays at 19% for firms that have less than £50,000 profit per year. For firms having a profit of between £50,000 to £250,000 the rate tapers to 25% meaning only the top 10% of firms will pay the new higher rate.
An additional bonus was the introduction of the novel “super-deduction” for companies who invest in new equipment. It’s something that has never been done before with businesses allowed to claim 130% of new machinery cost back as a tax cut for an initial two years with the hopes to stimulate the economy and create new jobs.
The CBI reacted to the rises with concern with their Director-General Tony Danker saying that “sends a worrying signal to those planning to invest in the UK”.
Budget 2021 loser: income taxpayers and pension savers
The personal allowance and higher rate tax thresholds will increase in line with inflation in April however they will then stay at that rate for 5 years meaning by the end of that period there will a real-terms increase in income tax.
Similarly, individuals with larger pensions will also suffer as the pensions lifetime allowance will be held at £1,073,100 for the same length of time. The British Medical Association (BMA) said that it “amounts to an unfair tax that disproportionately affects doctors” and warned it may cause some doctors to leave the NHS or reduce hours.
Budget 2021 loser: cash
Perhaps a more abstract concept but one of the biggest losers of the budget in 2021 is physical cash as the chancellor increased the maximum contactless spend to £100. This time last year the limit was £30 before being increased to £45 to help reduce transmission of the virus. Now the majority of transactions will be possible without having to input your PIN.
Previously the UK was bound by EU regulations but Sunak has used this new opportunity to raise the limit. Some do have fraud concerns with Ian Johnson of payment business Marqueta saying “Physical cards provide very little security and a fraudster could continue to use their contactless function until they are cancelled.” Others will be concerned about the future of cash itself but the government has promised to legislate to protect its existence. Nonetheless, this increased limit will likely see a decline in the usage of physical cash.
Have you been affected by increases in tax in the 2021 budget? Alston Asquith has offices in London and Hertfordshire and can arrange a call to provide some initial advice.
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