UK Tax Budget 2021
With the recent announcement of the updated budget for 2021 here are the key takeaways regarding the tax budget for 2021.
Personal Tax budget for 2021
The Personal Allowance will increase to £12,570 and the basic rate limit to £37,700 for 2021/2022 tax year.
The higher rate threshold (the Personal Allowance added to the basic rate limit) will increase to £50,270 for 2021/2022 tax year.
The Personal Allowance, basic rate limit and higher rate threshold will remain frozen at these amounts for the next five years – until 5 April 2026.
Capital Gains Tax
The current Capital Gains Tax annual exempt amount will remain at its present level of £12,300 for individuals (and personal representatives), and £6,150 for trustees for the tax years until 2025/2026.
This will take effect from 6 April 2021.
The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
This means qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
This will have effect from 6 April 2021 to 5 April 2026.
As announced at the Tax Budget for 2021, legislation will be introduced in Finance Bill 2021 to remove the annual link to the Consumer Price Index increase for the next 5 fiscal years.
This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021 to 2022, to 2025 to 2026.
The main rate of corporation tax is set at 19% until the financial year ending 31 March 2023.
The main rate of corporation tax will be set at 25% for the financial year beginning 1 April 2023.
The Chancellor announced in the Budget a small profits rate of 19% for financial year from 1 April 2023. The small profits rate will apply to profits of £50,000 or less.
Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25% but will be able to claim marginal relief.
These thresholds are proportionately reduced for the number of associated companies and for short accounting periods.
Temporary Extension of Carry Back of Trading Losses
There is a temporary extension to extend the period over which incorporated and unincorporated businesses may carry-back trading losses from one year to three years.
This extension will apply to a maximum £2,000,000 of unused trading losses made in each of the tax years 2020/21 and 2021/22 by unincorporated businesses.
The £2,000,000 maximum applies separately to unused trading losses made by companies, after carry-back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and a separate maximum of £2,000,000 for periods ending between 1 April 2021 and 31 March 2022.
The £2,000,000 cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of £200,000 to apportion the cap between its companies.
Further detail on the group limit will be published in due course.
Super-deduction and 50% first-year allowances
This measure will temporarily introduce increased reliefs for expenditure on plant and machinery for companies.
For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
- A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances.
- a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
Annual Investment Allowance (AIA) Extension
As announced on 12 November 2020, it was confirmed that the temporary £1,000,000 limit for the AIA will be extended by one year.
This change will have effect from 1 January 2021 to 31 December 2021.
The Chancellor announced that the VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.
Therefore, legislation will continue as follows:
- the taxable turnover threshold which determines whether a person must be registered for VAT will remain at £85,000
- the taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000
The further 2 year period ends on 31 March 2024.