The United Kingdom (UK) economy, like many others, took a strong blow in the past twelve months due to the global pandemic. Many countries are facing public debts that have not occurred for several decades. During this time, the UK economic saw a drastic fall in their Gross Domestic Product by a whopping 10%.
Now is the time for the Chancellor to try steering the economy back in favour of private and corporate firms. On the 3rd of March, 2021, the UK’s Chancellor, Rishi Sunak, read out the year’s budget. This post will explain the revealed 2021 budget and how it affects the self-employed and business owners.
Business Allowances And Taxes
This part of his budget focuses on all corporate taxes, VATs, business investment and loss relieves, annual investment allowance, and apprenticeships. Here is the budget.
For new and old businesses, the threshold for registering for VAT remains unchanged. The current £85,000 threshold holds until the 31st of March, 2024, before any further review. The 5% reduced VAT will also hold, but until the final days of September for the tourism and hospitality industries.
However, the Chancellor, Rishi Sunak, stated that it would rise to about 12.5% in the next six months. Also, there will be further increment until it gets to the full 20% rate by April of 2022.
Corporate Tax Rate
To balance the government’s massive spending on coronations, Chancellor Rishi Sunak stated that all corporate tax rates would remain unchanged at 19% for business profits capped at £50,000. Furthermore, there will be higher rates for businesses earning more profits. Meaning a tapered increment to a rate of 25% for business profits scaling over the £250,000 mark from April of 2023.
Incentives for Apprenticeship
There will be a double to the rate for apprentices. And the incentive hiring of apprentices in England extends to September 2021, having a double payment increment to £3,000. The Chancellor announced a new scheme, the “Flexi-Apprenticeship,” that will allow apprentices (of any age) to work under multiple sectors in the United Kingdom.
Annual Investment Allowance
Late last year, the government had announced an extension to the Annual Investment Allowance temporary £1 million coups until the end of 2021 – the Chancellor did not comment on that.
Personal Tax, Allowance, and Savings
This has to do with individual funds and how the new government policy affects them.
Thresholds and Income Tax Rates
Chancellor Rishi Sunak said during his announcement that the personal tax allowance budget will increase from April 2021 to about £12,570 and will remain that way till 2026. The higher rate threshold will also see an increment to £50,270 and stay that way till 2026. For the year 2021 and 2022, here are some of the newly implemented National Insurance Thresholds;
- Upper-Profit Limit increases to £50,270.
- Primary threshold increment for Nation Insurance and employee’s class to £9,658
- The lower-Profit limit for the self-employed increases to £9,568
- Class 2 National Insurance for small profits increases to £6,515
The national minimum wage will see an increment to £8.91 per hour, according to Chancellor Rishi Sunak’s statement.
Pensions Lifetime Allowance
All retired persons lifetime allowance pension will remain maintained at the level of £1,073,100 until 2026. This means you will not be taxed until you save up to the stated amount in a private pension account.
For personal growth and development, Chancellor Sunak made no statement regarding the adult and junior ISA annual subscription limit that remains unchanged for 2021/22. The adult ISA stays at £20,000, and the junior ISAs and Child Trust Fund remains at £9,000.
Working Tax and Universal Credit
An extension will occur to the temporary additional £20 Universal Credit Uplift for the next six months. The government also announced a new £500 one-time-payment for eligible working tax credit applicants.
This part of the budget has to do with all things related to land and building tax.
Mortgage Guarantee Scheme
The scheme becomes available for new mortgages on the 31st of December, 2022. However, the full introduction of the guarantee scheme will occur in April of 2022. This mortgage guarantee scheme offers an assurance of £600,000 for lenders in the UK with a 5% deposit on their homes.
With the implementation of the new scheme, all home or land buyers can fix any initial mortgage rate for at least five years.
Stamp Duty Land Tax
Chancellor Rishi Sunak made a statement that from the 1st of July, 2021, to the 30th of September 2021, there would be a reduction to the £250,000 Nil Rate Band. However, by the 1st of October, 2021, it is expected to return to £125,000. He also commented that there would be a continuation of the stamp duty £500,000 Nil Rate Band until the end of June 2021.
COVID-19 Support for All Businesses
Chancellor Rishi Sunak announced the extension of several existing measures to help business affected by the coronavirus. Here are some of the extensions.
Extension To Furlough Scheme
The Chancellor’s budget revealed that there would be an extension to the Coronavirus Job Retention Scheme (or furlough scheme). This extension will remain valid until the end of September 2021. All workers under the scheme will continue receiving 80% of their usual salary for unworked hours.
Furthermore, all employers will contribute 10% of the total furlough payment for worker’s salary for July. Their contribution will increase to about 20% by August and September but with a monthly limit of £2,500.
The Self-Employed Income Support Scheme (SEISS)
The fourth grant under the SEISS will become available to persons who began their self-employment scheme in the 2019/20 tax year. All eligible persons can now claim their fourth round of the SEISS program capped at £7,500 for three months at 80%. To become eligible for this grant, new entrants must have a 2019/20 self-assessment tax return by the 2nd of March, 2021.
The fourth grant from the SEISS will become available in April. And for May, June, and July coverage, a fifth grant implementation is likely to happen. Reduced grants will occur if your turnover gets below 30%. In contrast, you get the full 80% grant if your turnover gets reduced by 30% or more.
Loan Recovery Scheme
This recovery scheme will become available for all businesses (including the ones under the current COVID-19 support) by the 6th of April, 2021. The recovery scheme will offer loans between £25,000 and £10 million to lenders with an assurance of about 80%. All other loan schemes will close as planned by the 31st of March, 2021 (including the Coronavirus Business Interruption Loan Scheme).
For now, Chancellor Rishi Sunak and the UK’s economic governing body will continue to stick by the budget to ensure stability in the country’s finance. No further updates regarding the released UK’s March 2021 budget.