The Chancellor of the Exchequer presented the United Kingdom (UK) Budget 2021 to Parliament on March 03, 2021. The UK Budget 2021 has continued to provide for benefits under several coronavirus support schemes. As stated in the budget statement, GDP in 2020 fell by 9.9%, the largest annual fall in 300 years. It is also stated that, taking into account the measures announced at Budget 2020, which included significant capital investment, total support for the economy amounts to GBP 407 billion this year and next. It is the largest peacetime support package for the economy on record.
As per the Budget 2021, key rates are unchanged – No changes in corporation tax rate (currently 19%); however, it will increase sharply in April 2023, employer and employee NIC rates are also unchanged, Income Tax, Capital Gains Tax rates also remain unchanged, the VAT rates and thresholds remain the same as well.
The highlights of the 2021 budget are as follows:
For Individuals
- With effect from April 2021, the income tax personal allowance will be increased from GBP 12,500 to GBP 12,570 per year. It will remain frozen until April 2026.
- For the year 2021-22, the individual income tax basic rate threshold will be increased from GBP 37,500 to GBP 37,700. Therefore, the individual income tax higher rate threshold (i.e. the Personal Allowance plus the basic rate limit) will increase from GBP 50,000 to GBP 50,270 for 2021-22. It will remain unchanged until April 2026.
- For the year 2021-22, there will be increase in National Insurance contributions (NICs) thresholds per year, as follows. The upper earning limit will remain unchanged until April 2026.
| 2021-22 | 2020-21 | |
| Lower earnings limit | GBP 6,240 | GBP 6,240 |
| Primary threshold | GBP 9,568 | GBP 9,500 |
| Secondary threshold | GBP 8,840 | GBP 8,788 |
| Upper earnings limit | GBP 50,270 | GBP 50,000 |
- Capital Gains Tax Annual Exempt Amount (AEA) will be maintained at the present level until April 2026 i.e. it will remain at GBP 12,300 for individuals etc.
- Working Tax Credit claimants will get GBP 500 one-off payment over the next 6 months.
For Employers
- Introduction of a retrospective income tax exemption for payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen test for the tax year 2020 to 2021. The same will be extended for 2021 to 2022. There will be no Income Tax liability for the employee or employer.
- From April 2021, the national living wage (i.e. minimum wage) will increase from GBP 8.72 to GBP 8.91.
For Companies
- From April 2023, the corporate income tax (CIT) rate will increase to 25% (Currently at 19%) on profits above GBP 250,000. However, the rate for smaller companies having profits under GBP 50,000 will remain at 19%. Also, Companies with profits between GBP 50,000 and GBP 250,000 will be taxed at the main rate of 25% but will be able to claim marginal relief.
- From April 2023, the Diverted Profits Tax rate will rise from 25% to 31% so that it remains an effective deterrent against diverting profits out of the UK.
- With effect from April 2021, for company vehicles, the fuel benefit charges and the van benefit charge will increase in line with CPI (consumer price index).
- As announced in the Budget, the government will provide for an extension of income tax and National Insurance Contribution exemption for COVID-19 related home office expenses until April 05, 2022.
- From April 01, 2021 until March 31, 2023, a company investing in qualifying new plant and machinery assets will get the benefit of a 130% first-year capital allowance.
- New visa-scheme will be introduced for helping start-ups and rapidly growing tech firms to attract talent from overseas.
VAT
- No changes in the VAT registration and deregistration thresholds for a further period of 2 years from April 01, 2022.
- The scope of Making Tax Digital (MTD) for VAT to be extended to all VAT registered businesses with effect from April 01, 2022.
- The UK Budget 2021 preponed the implementation date to May 01, 2020 instead of December 01, 2020 for introducing legislation for a zero rate VAT on e-publications i.e. to make it clear that e-books, e-newspapers, e-magazines, and academic e-journals are entitled to the same VAT treatment as their physical counterparts.
Other measures
- Interest harmonisation and reform of penalties for late submission and late payment of tax –
- The UK government proposed to reform the penalty regime for VAT and Income Tax Self-Assessment (ITSA) to make it fairer and more consistent. The new regime will be points-based and a financial penalty will be levied only when the relevant threshold is reached.
- Under the new regime, penalties will be proportionate to the amount of tax due and how late the tax due is.
- The government will introduce a new approach to interest charges and repayment of interest to align VAT with other tax regimes.
Covid-19 Support Schemes
- An extension of the Coronavirus Job Support Scheme to September 2021 across the UK.
- From April 06, 2021, the UK government will provide a new Recovery Loan Scheme. It will be open to all businesses. It will provide lenders with a guarantee of 80% on eligible loans of between GBP 25,000 and GBP 10 million.
- Small and medium-sized employers in the UK will continue to be able to reclaim up to two weeks of eligible Statutory Sick Pay (SSP) costs per employee from the Government.
- Extension of the apprenticeship hiring incentive in England to September 2021 and an increase of payment to £3,000.