The Chancellor of the Exchequer, Rishi Sunak, delivered his second Budget on 3 March 2021. The exceptional circumstances of the past year have forced the Chancellor to tread a fine line between revenue raising and continuing to support struggling businesses, individuals, and the fragile economic recovery.
The main fiscal measure to note was the announcement of a 6% rise in the rate of corporation tax, increasing tax on corporate profits above £250,000 to 25% from April 2023. Although the extent of this increase is perhaps greater than expected, it still leaves the UK with the lowest headline corporation tax rate in the G7, amongst the lowest in the G20 and comparable with the likes of the Netherlands and Luxembourg (25% and 24.94% respectively). Combined with a holding company regime which is as attractive as ever, the Chancellor has clearly calculated that this is a necessary move, and one which will not deter investment in the UK.
The Government’s desire to retain a competitive business tax regime in the UK is also apparent in the announcement of a review of the bank surcharge which, combined with the increased corporation tax rate, will make UK banks less competitive globally. The Government recognises this and will announce later this year how it plans to ensure that tax on UK banks’ profits does not increase substantially from its current level.
Measures to mitigate the impact of the tax rise for businesses were also introduced. Most notably, a 130% upfront capital allowances super-deduction which will be available for investment in plant and machinery for two years from April 2021. This is a welcome measure, perhaps even a necessity given that, without it, many businesses would have deferred expenditure until introduction of the higher rate of corporation tax in 2023, stifling investment when the UK economy needs it most.
Additionally, the announcement of an extension of the period over which businesses may carry back trading losses, from one year to three years, will also be appreciated by previously profitable businesses that have recently suffered losses as a result of the pandemic.
Aside from these key changes for businesses, a number of more minor measures were announced, including freezing thresholds and allowances for income tax and national insurance (allowing the Government to stick to its 2019 election manifesto ‘triple tax lock’ promise) and extending the stamp duty ‘holiday’ for residential homebuyers.
Despite the measures outlined above, the Budget did not comprise the raft of bold new tax changes that some had speculated would be included, such as an increase in rates of capital gains tax, closer alignment of national insurance on the self-employed with that payable by employees, a one-off wealth tax and reform of the inheritance tax system. However, in a change to usual practice, the Government will publish a number of tax consultations and calls for evidence on 23 March 2021 (a date being referred to as ‘Tax Day’), when its longer-term tax policy aims will be revealed. It may be that some of these measures, perhaps deemed just too unpalatable in the short term, will be announced then. Looking further into the future, it is also expected that there will be a second Budget in the Autumn, when the Chancellor will know with greater confidence what additional fiscal measures are required.
The principal measures from the Budget are set out in our full briefing. A link to the Government’s Spring Budget 2021 website and full Government documentation can be found here.
Our full briefing is available here.