The UK Chancellor delivered the UK budget on 3 March 2021 to set out the road to economic recovery. All countries have had to adapt to the consequences of COVID-19 and its impact on their economies. The UK adopted a three-stage plan: Phase one focused on stopped the spread of the virus and introduced the renowned ‘stay at home’ campaign; Phase two focused on economic support to generate jobs in order to ‘get back to work’. Phase 3 is now focusing on economic recovery by protecting jobs and livelihoods.

As the pandemic hit last year, the UK entered its first recession in 11 years. The GDP for 2020 as a whole fell by 9.9% which is the largest annual fall in 300 years. As a result, the UK was stretched financially and undertook significant borrowings to support its citizens. Taking into account the support for individuals, businesses and public services and capital investment, the total support for the economy for this year and next year will hit a record-breaking £407 billion. Speculation was rife as to the potential measures to be included in Budget 2021 and the press predicted all sorts of tax rises to counteract the financial supported provided by the UK. We set out below a summary of the key measures presented – the good, the bad and the ugly.

Property

Property investors will be pleased to hear that the Stamp Duty Land Tax (“SDLT”) holiday for properties of £500,000 or less will be extended until 30 June 2021. The original deadline was 31 March 2021 but completing contracts on the purchase of properties was difficult whilst the UK remained in lockdown. It is noteworthy that there is an existing 3% SDLT surcharge on the acquisition of a second property (relevant for those who own a property anywhere else in the world). An additional SDLT surcharge of 2% for non-UK residents buying UK residential property will take effect from 1 April 2021. Surprisingly, the Chancellor announced that there will be a tapered SDLT extension until the end of September 2021 – this means that there will be a SDLT holiday for properties of £250,000 or less during this transitional period. Property investors ought to act quickly to make use of these benefits whilst they last.

We also note that the recent rumours concerning potential changes to the taxation of UK Capital Gains Tax (“CGT”) were unfounded and no significant changes in this area were announced (other than the freezing of the CGT capital allowance at £12,300 per person until April 2026).

Individuals

The UK personal allowance will increase to £12,570 next year but will be frozen at this level until 5 April 2026 (as will the higher rate tax threshold of £50,270). The thresholds usually increase each year in line with the Consumer Price Index. Freezing these levels means that more taxpayers are likely to find themselves in the higher rate tax brackets over the five-year period as their income increases.

It is also worth noting that there will be an extension to 5 April 2023 for the Social Investment Tax Relief (“SITR”). SITR encourages taxpayers to invest in charities, community businesses and eligible social enterprises. It offers investors a 30% tax relief on qualifying investments and provides the enterprises with much-needed capital during these challenging times.

The self-employed will be pleased to hear that a fourth grant will be available under the Self-Employed Income Support Scheme (“SEISS”) to assist those whose incomes were negatively impacted as a result of COVID-19. This grant will take into account those who became self-employed during the tax year ended 5 April 2020. This ought to provide support for an additional 600,000 individuals who were previously overlooked.

UK Businesses

UK business will be unsurprised but disappointed to hear that the UK corporation tax will rise. The UK was previously heralded as ‘open to business’ due to its competitive position of having the lowest corporation tax rate in the G7 (currently 19%). However, the increase will be in 2023 once the economy has regained its pre-pandemic peak. The corporation tax rate post 2023 will be 25% but only for businesses with profits from £250,000. Conversely, companies with profits of £50,000 or less will apply a Small Profits Rate at 19%. A taper will apply for those companies with profits between £50,000 and £250,000. The government intends for the corporation tax rise to only impact on the ‘larger, more profitable companies’.

The business rates holiday will also continue to 30 June 2021 and it will be partially available for the remaining 9 months of the tax year (where it will be discounted by 2/3).

Business with employees on furlough will be pleased to hear that the Coronavirus Job Retention Scheme (“CJRS”) will be extended to the end of September 2021. Sceptics may question the discrepancy between the furlough scheme end date of September 2021 and the UK government’s plan to end lockdown by June 2021.

Super-deduction tax

The UK also announced a new ‘super-deduction’ tax incentive to promote investment into the UK from 1 April 2021 until 31 March 2023. This is relevant for companies investing in qualifying plant and machinery and they will benefit from a 130% first-year capital allowance. Essentially, this means that for every £1 invested in eligible plant and machinery, companies will enjoy a tax cut of up to 25p. They will also benefit from a 50% first-year allowance (SR allowance) for qualifying special rate assets. This will give a boost to manufacturing, construction and utilities firms.

Hospitality Sector

The UK previously announced temporary VAT cuts to boost the economy and support businesses and jobs in the hospitality sector. The reduced 5% rate of VAT applies to supplies of food and non-alcoholic drinks from restaurants, pubs and bars in the UK and to supplies of accommodation and admission to attractions across the UK. This reduced rate will continue until 30 September 2021 and a new reduced VAT of 12.5% will apply between 1 October 2021 and 31 March 2022. The UK standard rate of VAT at 20% will apply thereafter. Businesses will appreciate these reductions but may encounter difficulties with the administration of this due to the number of rate changes.

UK Tax Avoidance and Tax Evasion

The government’s action to repair the public finances will be supported by new steps to tackle tax avoidance and evasion that will raise £2.2 billion between now and 2025/2026. This includes the introduction of the controversial ‘Financial Institution Notices’ allowing HM Revenue & Customs (“HMRC”) to obtain information about bank accounts (in the UK or overseas) without first obtaining permission from the taxpayer or the Tribunal.Sadly, the CJRS and SEISS initiatives were abused by many and so HMRC is investing £100 million in a taskforce of over 1,000 HMRC staff to combat fraud in relation to COVID-19 support packages.

Conclusions

The Chancellor stated that “We will continue doing whatever it takes to support British people and businesses”. The short-term support and extensions to existing measures to April 2023 will be welcomed by most. Many individuals and businesses will be concerned that more support will be needed as the after-shocks of the economic impact of Covid-19 will be likely to be felt post 2023. The UK Leader of the Opposition accused the UK government of making decisions based on the electoral cycle as opposed to economic strategy. We note that tax rises may be still felt by taxpayers by the freezing of allowance and the fixing of tax bands. The more apparent tax-rises (for example, UK corporation tax) will start post 2023. Supporting citizens and businesses financially and rebuilding the economy is a very difficult balance to strike. Will this budget set the UK on the road to economic recovery?