There was considerable speculation before the Budget on 3 March that the Chancellor would announce swingeing tax increases, including a wealth tax, in response to the budget deficit which is now the largest it has been since the Second World War. In the event, the Chancellor opted for a planned 6% increase in corporation tax to 25%, to take effect from April 2023, as well as freezing personal allowance, income tax, IHT, CGT, and pension allowance thresholds.
The Chancellor also announced further pandemic-related support for both businesses (including the extension of furlough until 30 September) and for individuals (with the Stamp Duty holiday extended for properties up to £500,000 until 30 June and up to £250,000 until 30 September).
The Office for Budget Responsibility has estimated that, as a result of tax thresholds remaining unchanged for at least the next four years, an extra 1.3m people will be pulled into the tax system with a further 1 million likely to breach the higher rate threshold. A further 25% of those currently eligible for child benefit will find their benefit either reduced or stopped. In addition, the freezing of IHT will result, according to government calculations, in a further 12,700 estates a year becoming subject to the tax.
Help for farming businesses
In a surprise move, but one that is designed to get the economy back on its feet as soon as possible, the Chancellor announced a super deduction of 130% for companies (but not partnerships or sole traders) investing in new machinery and plant over the next two tax years (2021/22 and 2022/23). In addition, the Annual Investment Allowance enables businesses to apply for 100% tax relief on purchases of new and second-hand equipment up to a value of £200,000 until 31 December 2021. Losses of up to £2m can also be carried back for three years rather than one, potentially giving farming businesses an incentive consider structural changes to enable them to take full advantage of the super deduction tax.
Other Covid-related, temporary measures include:
- The extension of the furlough scheme until 30September 2021, albeit with employers having to contribute a percentage towards workers’ wages.
- VAT for hospitality / tourism businesses will remain at 5% until 30 September, increasing to 12.5% from 1 October 2021 until 30 April 2022.
- Government backed business recovery loans of £25,000 - £10m.
- Recovery grants for non-essential retail businesses.
Although the tax changes were not as radical as anticipated (except, perhaps, for the 130% super deduction), most farming and land owning businesses would do well to review their business and tax structure arrangements to ensure that they are able to take advantage of available tax reliefs. As ever, with any such exercise it is critical to consider, succession, wills and powers of attorney as well as partnership and other business arrangements to avoid inadvertently creating inflexibility and/or an unnecessary tax liability further down the line.