Yesterday, the Chancellor of the British Government, Rishi Sunak, announced the budget for 2021. It’s important to keep up to date with these announcements, as the budget broadly sets out the national picture for saving and spending, and there can be real impacts to your household or business finances. To help, here’s our run-through and reaction to the new budget.
There were some rumours ahead of the budget that it might come with a few surprises, but this turned out mostly not to be true. It seems the Chancellor may be taking a cautious approach, perhaps wanting to defer decisions until after we have a better picture of how the predicted economic recovery develops over the next few months.
We’ve split our run-through of the budget out into two sections: firstly, announcements that will affect households and individuals; and secondly, changes in the budget that will affect businesses. These are just the key changes – there is a lot more detail available on the gov.uk page about the 2021 budget.
Budget 2021: changes for individuals and households
First, let’s go over some of the changes that are most likely to affect your personal finances.
1) Contactless limit raised
It’s not necessarily going to affect how much you save or spend, but it’ll certainly affect how you spend that money. The legal contactless limit is being raised from £45 to £100. We will have to wait to see how many shops and payment providers also raise the limit, but it seems likely, with cash usage massively decreasing, that it will see wide adoption. This should make it easier and quicker to pay for things in lots of different shops.
2) No increases to income tax, National Insurance or VAT
The Chancellor announced that there will be no increases to the current rates of income tax, National Insurance, or VAT – good news for consumers, as there was some discussion ahead of the budget announcement that these may be raised to pay for the increase in Government spending.
3) Tax thresholds frozen
However, while the current rates of these taxes won’t be increased, there are some changes to the way income tax will work which are likely to affect consumers. There are small increases in the two thresholds for tax to come at the end of this tax year. After these, the personal allowance threshold is due to be frozen at its April 2021 level (£12,570) until 2026, and the threshold for higher rate income tax is also due to be frozen at its April 2021 level (£50,270) for the same length of time. In practice, this is likely to result in a good chunk of people paying more income tax than they would otherwise. As they change jobs or have their pay increased, the tax thresholds will not be rising in line with inflation.
4) Stamp duty reduction extended
The current stamp duty holiday, which means no tax is charged on properties valued less than £500,000, has been extended to 30th June 2021. There will then be a tapered reduction in the property value threshold: it will drop to £250,000 until 30th September 2021 and return to its standard level of £125,000 on 1st October.
5) Inheritance tax thresholds, pensions lifetime allowances and annual capital gains tax frozen
There are no changes to the inheritance tax thresholds, pensions lifetime allowances or annual capital gains tax exempt amounts. These have all been frozen until 2026.
Budget 2021: Changes for businesses
This budget perhaps contains more sweeping changes when it comes to businesses. Here are our top 3 headlines from the 2021 budgets that you should be aware of:
1) Corporation tax increase
Corporation tax is set to rise. For businesses with annual profits above £250,000, the corporation tax rate will increase from 19% to 25% in April 2023. Companies with annual profits below £50,000 will see their corporation tax remain at 19%. For businesses with annual profits above £50,000 but below £250,000, the Chancellor announced a marginal relief plan, which will see them pay corporation tax at an overall rate between 19% and 25% – although we don’t have further details on this plan as yet.
As this tax increase isn’t set to come in until April 2023, businesses do have some time to plan and prepare for it. However, the change is likely to leave a lot of businesses with an increased tax bill when it comes into force.
2) VAT cut for hospitality, accommodation and attractions businesses extended
The reduced VAT rate of 5% for businesses in the hospitality, accommodation and attractions sectors has been extended until the end of September, with a further reduced rate of 12.5% in force for six months following this. This is good news for these sectors and should help them recover from the effects of the pandemic.
3) New corporation tax deduction for some investment costs
An increase in the allowances for capital spending for businesses was announced. This allows companies to write down up to 130% of some investments against their taxable profits. This “super-deduction” is designed to stimulate investment in new equipment. There are specific limits on this, as it only covers “qualifying plant and machinery assets”.