Budget 2021 - Super Deductions

An interesting Budget 2021 from the Chancellor, yesterday.  The very positive news coming from a focus on business investment as a way to boost capital expenditure, and make the UK a more attractive place to do business and improve business productivity.

With our main business being in capital allowances we were pleased by the increased tax deduction for capital investment in qualifying plant and machinery.

CAPITAL ALLOWANCES
Super Deductions

From 1 April 2021 until 31 March 2023, companies investing in qualifying new main plant and machinery assets will benefit from a 130% first-year capital allowance. HMRC says, “this upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive”.

In addition, investing companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets. As with all aspects of tax and the budget the devil is in the detail and more information can be found here.  Once we have been through the detail we will do a separate briefing on the implications of the new legislation.

Freeports

The Chancellor confirmed  a number of Freeports for England and also that discussions continue between the UK Government and the devolved administrations to ensure the delivery of Freeports in Scotland, Wales and Northern Ireland as soon as possible.

Businesses in these tax sites will be able to benefit from a number of tax reliefs including,

An Enhanced 10% Rate of Structures and Buildings Allowance: for constructing or renovating non-residential structures and buildings. This means firms’ investments will be fully relieved after 10 years compared with the standard 33 1/3 years at the 3% rate available nationwide. This will be made available for corporation tax and income tax purposes. To qualify, the structure or building must be brought into use on or before 30 September 2026.

An Enhanced Capital Allowance of 100%: for companies investing in plant and machinery for use in Freeport sites This will apply to both main and special rate assets, allowing firms to reduce their taxable profits by the full cost of the qualifying investment in the year it is made, and will remain available until 30 September 2026.

Full relief from Stamp Duty Land Tax: on the purchase of land or property within Freeport tax sites in England, once designated. Land or property must be purchased and used for a qualifying commercial purpose. The relief will be available until 30 September 2026.

Full Business Rates relief: in Freeport tax sites in England, once designated. Relief will be available to all new businesses, and certain existing businesses where they expand, until 30 September 2026. Relief will apply for five years from the point at which each beneficiary first receives relief.

OTHER SALIENT TAX ANNOUNCEMENTS

CORPORATION TAX

Corporation tax:  To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000.

The rate for small profits under £50,000 will remain at 19%.

There will be relief for businesses with profits under £250,000 so that they pay less than the main rate.

In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 so that it remains an effective deterrent against diverting profits out of the UK.

STAMP DUTY

Temporary Stamp Duty Land Tax (SDLT) cut:  The government will extend the temporary increase in the residential SDLT Nil Rate Band to £500,000 in England and Northern Ireland until 30 June 2021.  From 1 July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.

VAT

VAT Deferral New Payment Scheme:   Any business that took advantage of the original VAT deferral on VAT returns from 20 March through to the end of June 2020 can now opt to use the VAT Deferral New Payment Scheme to pay that deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021, as originally announced.

VAT reduction for the UK’s tourism and hospitality sector: The government will extend the temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector until 30 September 2021. To help businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.

BUSINESS RATES

Business rates reliefs: The government will continue to provide eligible retail, hospitality and leisure properties in England with 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.
Nurseries will also qualify for relief in the same way as other eligible properties.

When combined with Small Business Rates Relief, this means 750,000 retail, hospitality and leisure properties in England will pay no business rates for 3 months from 1 April 2021, with the vast majority of eligible businesses receiving 75% relief across the year.

LOSSES

Extended loss carry back for businesses:  To help otherwise-viable UK businesses which have been pushed into a loss-making position, the trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.

TAX ADMINISTRATION

Review of tax administration for large businesses:  In recognition of the role that tax administration plays in supporting the UK’s competitiveness and promoting investment, the government will review large businesses’ experiences of UK tax administration, including the degree to which it provides businesses with early certainty where appropriate, ensures the efficient resolution of disputes in accordance with the law, and promotes a collaborative and constructive approach to compliance with the law.

Discussions will be initiated with businesses, advisers and stakeholders over the coming months, to solicit views and build an understanding of the perceived challenges in this area, with a view to considering what improvements can be made as HMRC continues to progress its 10-year Tax Administration Strategy and wider Tax Administration Framework Review.

Tackling promoters of tax avoidance: The government is publishing a summary of responses following the recent consultation ‘Tackling Promoters of Tax Avoidance’.16 This sets out a package of measures to strengthen existing anti-avoidance regimes and tighten the rules designed to tackle promoters and enablers of tax avoidance schemes.

Preventing abuse of the Research and Development (R&D) relief for small and medium-sized enterprises (SMEs):  For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability, in order to deter abuse.

About author

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Lois Stirling
Tax Adviser