Tax Director Angela Keery considers the Spring Budget. 

The Chancellor had a difficult balancing act to perform with this budget, supporting people, jobs and businesses through the Covid 19 pandemic whilst looking to the future. Mr Sunak has again made it clear with this budget that his priority, for now, is jobs and businesses. He set out how he intends to balance short term goals of helping people and businesses through the continuing Covid 19 pandemic with the medium-term goal of levelling debt and the longer-term goal of capital investment and growing the economy.

Whilst we are thankful for the numerous Covid 19 related reliefs announced, it seems that now was not the right time to make any significant tax changes to pay for these reliefs.

How will the budget affect you?

For most of us, other than potentially benefiting from the substantial Covid 19 reliefs announced, there will be no direct impact on our pocket as a result of this budget. It was made clear that at this stage, only those people and businesses that can afford to contribute to the increasing costs will do so.

Planned increases in duties (fuel/ alcohol etc) will not go ahead.  The Personal Tax Thresholds, Income Tax Rates and National Insurance levels are remaining the same and other thresholds such as the Inheritance Nil Rate Band, the Pensions Lifetime Allowance and the Capital Gains Exemption remain as they currently are for the foreseeable future ie until 2026.

The main tax changes impact businesses, with a potential tax benefit in the short term followed by a Corporation Tax increase for companies from April 2023.

The two reliefs which will benefit businesses in the short term are:

“Super Deduction” for Capital allowances purposes designed to encourage investment by companies. This Super Deduction means that companies can claim a tax deduction of 130% on qualifying Plant & Machinery from 01 April 2021 to 31 March 2023. The net effect of this relief is that companies can potentially claim 25p tax relief for every £1 of qualifying expenditure.

Loss relief rules have been relaxed, for both incorporated and unincorporated businesses. The trading loss carry-back rule will be temporarily extended from the existing one year to three years and the limits on the loss that can be claimed in any tax year by incorporated and unincorporated businesses has been increased.

Whilst each of these reliefs are valuable, the combination of the two reliefs may be of great benefit for businesses looking to invest for the future, as if the investment qualifies for the 130% deduction, it may result in a loss that can then be carried back three years, generating a tax repayment.

The only direct tax increase is an increase in the corporation tax rate to 25% (currently 19%) for businesses with profit exceeding £250K from April 2023. Businesses with profits of £50K or less will remain liable to corporation tax at 19% and a tapered rate will apply for businesses with profits between £50K and £250K.

To discuss any aspect in more detail contact Angela by Email or Tel: 028 9032 3466.

This article first appeared in the Irish News on 4th March 2021.