Recently, you’ve come across numbers of pictures of Rishi Sunak with the famous red briefcase outside the number 11 in the news due to the budget announcement on 3rd March 2021.
There is always much important information to analyze after the budget announcement, and to make a clear understanding; we need to look beyond the headlines to the fine prints.
In this blog post, we are highlighting various parts of budget 2021 to understand how the budget will affect you,
Let’s get started!
This blog post is divided into the following sections
- Furlough extension
- Self-Employment Income Support Scheme (SEISS)
- The rise in the minimum wage
- Corporation tax increase
- VAT & business rates cut extended
- Restart grants for businesses
- Income tax freeze
- Stamp duty holiday
- Universal credit continues
1. Furlough extension
The research suggests that since March 2020, more than 700,000 people became unemployed, and the UK’s economy went through its worst downtick in more than 300 years.
In order to support the employees during this tough time, the furlough scheme has been extended until 30th September 2021.
This scheme was designed for people to safeguard their jobs from redundancy.
Furloughed workers in the UK are getting 80% of their pay for hours that they do not work. From July, employers must contribute 10% of wages, and in August, they must contribute 20% for hours they don’t work.
The scheme is supporting around 4 million UK workers currently, plus the extension until September 2021 will be very beneficial for jobs and the economy.
2. Self-Employment Income Support Scheme (SEISS)
While Furlough supports employed workers, SEISS is for self-employed people.
If you are Self-Employed and using this scheme, then the good news for you is that a new round of SEISS grants will be made available for you.
The 4th grant will cover February, March and April 2021 at the rate of 80% of previous trading profits.
And if you are the one who recently became self-employed, then no worries! Budget 2021 brings you a chance to be eligible to apply for this new round if you’ve filed a tax return for the year 2019-20.
The 5th grant will be available from May 2021.
As Self-Employed, if your trading profit has fallen by 30%, then you will be able to claim a grant of 80% of your previous earnings. And if your income has been less affected, then you can apply for a grant of 30%.
To know more, visit our blog on how to claim the Self-Employment Income Support grant.
3. The rise in the minimum wage
The minimum wage will be increased to £8.91/hour in April 2021, also an increase of £350/year for the full-time worker.
Plus, the age at which a worker is entitled to the full minimum wage will be lowered from 25 to 23.
The legal minimum increases from £6.45 to £6.56 for 18 to 20-year-olds, while for 21 to 22-year-olds, it’ll increase from £8.20 to £8.36.
4. Corporation tax increase
From April 2023, the rate of tax companies pay on their profits will increase from 19 to 25%.
Despite this large increase, the higher rate still leaves the UK with the lowest Corporation Tax rate in the G7.
Additionally, small businesses with profits of £50,000 or less will continue paying the lower rate.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate but will have an advantage from a tapered corporation tax rate.
Only companies making a profit of £250,000 or more will pay a higher tax rate.
To know more about Corporation Tax, visit our blog guide to the UK corporation tax system.
5. VAT & business rates cut extended
The VAT cut for the hospitality & tourism sector from the standard rate of 20% to 5% is being extended for another 6 months until 30th September 2021.
The VAT cut applying to the hospitality industry, hotel and holiday accommodation, and several attractions affect almost 150,000 businesses employing 2.4 million people, which have been amongst the hardest hit by the pandemic.
People connected to hospitality and leisure businesses will pay zero business rates for 3 months and then one-third of the normal rate for the final 9 months of the year.
6. Restart grants for businesses
From April 2021, ‘restart grants’ worth £5bn will be available to help businesses reopen.
Non-essential retail businesses will open first and can apply for grants of up to £6,000/premises.
Hospitality and leisure businesses, including gyms and personal care, will open later and can apply for grants of up to £18,000.
7. Income tax freeze
The Income Tax threshold is being frozen, and the tax-free Personal Allowance will remain at £12,750 until 2026.
Besides, from next year the higher-rate threshold will increase to £50,270 and then be frozen at the same level until 2026.
With this change, more people will slip into higher rate tax brackets as the wages rise with inflation, and people won’t benefit from the extra amount they could have gain tax-free or at the basic tax rate.
Thresholds for tax-free allowance and Inheritance Tax for pension contributions will also be frozen.
Also, do you know what taxes apply for a second job? If not! Then visit our blog. How much tax do you pay on your second job?
8. Stamp duty holiday
The stamp duty extension is probably the big announcement for home buyers as it is being extended for more than 3 months until the end of this June.
Purchases up to £500,000 will carry on to be free of tax, and homes bought up £250,000 until the end of this September.
From 1st October 2021, the Stamp Duty will be taking back to its prior level of £125,000.
This will be a relief to those people who are rushing to buy prior to 31st March 2021, when the window was due to close and to the conveyancers who are trying to make sure that existing transactions ended before the date.
Mr Sunak also confirmed a new mortgage guarantee scheme for homebuyers who are only able to put forward the 5% deposit.
Some large banks, including Natwest, Barclays, Santander as well as Lloyds, have already confirmed that they will start offering these mortgages from April 2021, and others will join the scheme later.
This will enable many people who have been locked out of the property market to get on the housing ladder as 95% of mortgages have virtually disappeared from the market.
Although measures to keep the housing market powerful are always accepted, surging house prices can be threatening.
10. Universal credit continues
Because of COVID-19, Universal Credit claimants were handed an extra £20/week on top of the usual amount.
Mr Sunak said this would continue for the next 6 months, but would then be withdrawn.
And if the uplift is extended further, it means people who are claiming Universal Credit will get more money – exactly how much is dependent on the extensions themselves.