Budget 2021 update

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On 3rd March, the Chancellor delivered the 2021 budget. Here’s our summary of the key measures impacting small limited companies.

Feel free to get in touch if you have any questions.

Key tax rates and allowances

Income tax and NICs

  • The personal allowance will increase on 6th April 2021 from the current £12,500 to £12,570, but will then be frozen until 5th April 2026.
  • Basic rate band increased, from £37,500 to £37,700.
  • The impact of both the increase in personal allowance and in the basic rate band is that the higher rate band will be pushed up from £50,000 currently, to £50,270.
  • The National Insurance Upper Earnings Limit / Upper Secondary Threshold will also increase in line with income tax rates, to £50,270.
  • The NI lower earnings limit of £6,240 will remain
  • The NI primary threshold will increase from £9,500 to £9,568
  • The NI secondary threshold will increase from £8,788 to £8,840. Note that this impacts the tax efficient salary for directors to earn, with that increasing from £732 per month to £736 per month.

Pensions allowances

  • The annual pension contributions allowance of £40,000 remains in place
  • The lifetime pension contributions allowance increases to £1,073,100 until April 2026.

Capital gains

  • The rates stay the same.
  • The annual exemption allowance stays at £12,300 up to April 2026.

Corporation tax

  • As discussed in the corporation tax section below, the rate remains in place until April 2023, at 19%.

Coronavirus Job Retention Scheme (CJRS)

  • The CJRS has been extended to 30th September 2021.
  • Employees employed on 2nd March 2021 are also now eligible.
  • The amounts received by employers will be reduced from 1st July, at 70% (rather than 80%) for the month of July, and then 60% for the months of August and September.
  • Employees will continue to receive at least 80% of their usual wage, up to £2,500, so the shortfall from July onwards must be covered by the employer.
  • Employer NICs and employer pension contributions will continue to not be covered by the grant.

Corporation tax

Here are the main changes that will impact small limited companies:

  1. The corporation tax will remain the same (19%) for the next two years, up April 2023.
  2. From April 2023, there are changes to the corporation tax rate as follows:
    a. The main rate will increase to 25%, but this ‘main rate’ will only apply to companies with chargeable profits of more than £250,000
    b. Companies with profits of up to £50,000 will still pay 19% corporation tax.
    c. Companies with profits between £50k and £250k will pay 25%, but will have marginal relief, meaning that the effective tax rate that they pay will be somewhere between 19% and 25%.
  3. Losses: there’s a temporary extension to the loss carryback period, with companies being able to carry back losses for 3 years rather than the usual 1 year.
    a. This relates to company accounting periods ending in the period 1st April 2020 to 31 March 2022.

What do I need to do?

For the changes in rates, there’s nothing really to do here.

For the losses, CFO360 UK will ensure that your corporation tax computations offset losses in the correct way, which would lead to a repayment of previous corporation tax paid.

Capital allowances

  • There will be a ‘super-deduction’ of 130% of the cost of an item of plant and machinery bought from 1st April 2021 to 31st March 2023. The items must be new, rather than second-hand.
  • This applies only to new items and only to those that would normally be subject to a 18% main rate writing down allowance (or Annual Investment Allowance).
  • For items ordinarily subject to the special writing down allowance of 6%, like cars, there is a special 50% first year allowance.
  • The Annual Investment Allowance was temporarily increased from £200k per year to £1m; this temporary increase has been extended until 31 December 2021. Note that this isn’t likely to impact most small limited companies, who are normally within the £200k anyway.

What do I need to do?

If you’re looking at buying fixed assets in the next few weeks, you’d be better off waiting until 1st April, so that you can claim this ‘super-deduction’.

CFO360 UK will then ensure that the correct capital allowance is claimed in your next corporation tax return.

Research and Development (R&D) tax credits

There is now a cap on tax credits received, equal to £20,000 plus the company’s total (not R&D related) PAYE and NICs payable in the period to which the R&D claim relates.

What do I need to do?

Speak to us – if you’re not clear on whether this impacts you, get in touch and we’ll run you through it.

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