The 2021 UK Budget is possibly the most anticipated budget of a lifetime, fuelled by the ongoing coronavirus pandemic as well as the global economic crisis which has ensued. This year’s budget will also be the first for the UK since leaving the EU. It will be closely watched by millions of people, eager to see just what the Chancellor of the Exchequer, Rishi Sunak, will propose, and how it will affect the nation and us as individuals.
The budget will take place on Wednesday 3rd March 2021 in the House of Commons and will most probably start around 12.30 GMT, following on from Prime Minister’s questions. One of the main concerns is how government borrowing (£270.8 billion, according to the Office for National Statistics) will be paid back. This has culminated in increasing the national debt to £2.13 trillion, 99.4% of GDP (Gross Domestic Product – the value of services and goods produced in the economy), which hasn’t been seen since the 1960s.
One of the obvious ways to cancel out some of this debt would be to increase taxes, however the Conservative government promised to not raise any of the three main taxes (Income Tax, National Insurance or VAT) during their 2019 manifesto. That said, the pandemic has subsequently caused a drastic reshuffle in all aspects of life, therefore it wouldn’t be surprising to see a rise in these taxes come into effect.
We break down the predictions and possibilities of what will happen on the 3rd March and how the UK will come to terms with these economic measures.
Scrapping Business Asset Disposal Relief (BADR)
The abolishment of BADR (previously known as Entrepreneur’s Relief) has been rumoured by many and would see the Capital Gains Tax (CGT) reduction scrapped when looking to sell or dispose of your business.
What BADR means is that there is a reduction to the rate of tax paid on the disposal of business assets when the disposal proceeds are high enough to take you into the higher tax bands. This applies to individuals and trustees, not companies looking to dispose of their business. The cap you can claim over a lifetime is currently £1m and doesn’t cover the sale of residential properties.
If BADR is scrapped, then individuals and trustees will have to pay the standard CGT rate, at least 20%, on all sales of a business. This would equate to approximately £2.4 billion of revenue each year to pump back into the UK economy and ultimately reduce the national deficit.
Investor’s Relief, which is a relief that offers a 10% CGT rate in the disposal of an unlisted trading company or holding company of a trading group, has also been rumoured to be scrapped alongside BADR.
These measures, if brought forward, are likely to deter people away from selling up their businesses or shares, with a hefty sum of CGT owed on each sale. Mitch Hahn, CEO of Nordens Chartered Accountants, believes, “This potential scrapping will harm ‘everyday entrepreneurs’ and not big corporations. I read recently that only around 10% of people who claim this relief are selling businesses worth more than £1m. The vast majority of those who benefit from this incentive are claiming back around £38,000 each year, which shows that small to medium business owners will suffer heavily from this.”
Rise In Corporation Taxes & Introduction Of Online Sales Tax
An increase in Corporation Taxes seems pretty straightforward and would make complete sense with a limited rise for larger companies that have fared well during the pandemic. Most importantly, this will be unlikely to hurt loss-making businesses or small businesses, and probably wouldn’t have an immediate impact on consumer spending. One of ways this could be set into action would be through an Online Sales Tax, a section of the retail industry which has seen exponential growth during the past year.
Already, businesses who generate revenue derived from the provision of a social media services, a search engine or an online marketplace to UK users, pay Digital Services Tax. This came into effect in April 2020 and saw that businesses were required to pay an additional 2% tax on their revenue. Going one step further by taxing e-commerce businesses who produce the bulk of their products through an online shop system, could yield positive economic results.
Furlough Scheme & SEISS Grant Extension
This is looking increasingly plausible to happen with the pandemic unlikely to go away over the next few months. An extension to the furlough scheme would provide an injection for businesses experiencing tough times to help balance the books without laying off their staff. Mitch claims, “There really is no choice but to extend the grants and furlough scheme as COVID has lasted a lot longer than anyone previously thought. It will help more people and businesses ultimately survive, whilst providing an exit plan is logical. It will also provide a boost for the economy to bounce back to where it was pre-COVID a lot quicker”.
It would also provide companies with more time to analyse and structure their business model for post-COVID, which is to be an extremely important time for the economy as business regrowth is likely to be prioritised by the government over the coming years.
Presently, the furlough scheme ends on 30th April 2021, with the most likely outcome being that it is extended until the summer at least. To coincide with this, a fourth Self-Employed Income Support Scheme (SEISS) is also likely to be announced, aiding self-employed workers and partnership members. This scheme relies on applicants to make an honest assessment as to whether their business has experienced a significant reduction in profits. The third SEISS grant was calculated at 80% of average monthly trading profits, paid out in a single instalment covering 3 months’ worth of profits, and capped at £7500 in total. The predicted fourth SEISS grant will likely be calculated at 70% of average monthly trading profits, similar to the second grant scheme.
The calls for an extension to the Stamp Duty Holiday has put a severe amount of pressure for the Chancellor to revise the 31st March 2021 deadline. Presently, the property market is in disarray with house prices plummeting and buyers unwilling to purchase during economic and social uncertainty caused by the pandemic and the effects of Brexit. This has led to a level of stagnation in the housing market, for which the Stamp Duty Holiday provided a minor boost when first introduced on 8th July 2020. Many experts are pleading with the government to extend this, but the government has thus far been reluctant to lengthen beyond the 31st March. However, a last-minute change of mind from the Chancellor certainly isn’t off the cards with a decision weighing finely in the balance.
In relation to this, there have also been murmurings that Stamp Duty and Council Tax could be phased out entirely and replaced with new annual property value tax. This could provide an annual levy for businesses who are required to include the market value of their assets, including property, in their accounts.
The usual increase to the so-called ‘Sin Taxes’ will also assumably happen, despite pubs remaining shut for the foreseeable future. The possibility of an increase in Green Taxes (taxes to encourage businesses to operate in a more environmentally friendly way) seems strong, however Fuel Duty may well see a freeze in order to protect individuals during the unprecedented times.
As in the majority of budgets, the ‘rabbit in the hat’ moment (a surprise announcement, usually positive) will probably happen in some form or another and provide a sense of optimism for the British public. It remains to be seen just what this will be, as usually they are very hard to predict.
One thing is for certain though, the government must recoup some of the enormous borrowing which has been achieved over the past 12 months. All eyes will be on Mr Sunak and his red briefcase come the 3rd March, with proceedings arguably altering the course of many people’s livelihoods forever.