• Date

    15 Mar 2021
  • Category

    Capital Allowances, Tax, Corporate Tax, Devolved Taxes, Private Client, R&D Tax Incentives, VAT & Indirect Tax

The Spring Budget – what does it mean for rural businesses?

During our recent Budget webinar, we discussed several changes that are likely to affect a number of rural businesses over the next few years. Suffice to say, there is a lot of change ahead for Limited Companies. Those of you trading through partnerships or as a sole trader and indeed anyone with substantial estates may wish to ‘watch this space’ with ‘Tax Day’ on 23rd March and the Autumn Budget not too far away!

We have summarised some of the key takeaways from the recent budget below.

Coronavirus Support Set to Continue

So many businesses and individuals have been affected by the turmoil created by the events of the past year. The government have prioritised job retention and business survival in both their past and their current plans.

We were pleased to see that many of the schemes currently available, including the Job Retention Scheme and Self-Employed Income Support Scheme (SEISS), will continue for a bit longer.

There will again be some tapering down of the support provided under the Job Retention Scheme (similar to that seen last year) but the cash injection will certainly help many businesses weather the storm.

The fourth grant under SEISS will be expanded to include new (unincorporated) businesses that started trading in the 2019/20 tax year.

VAT gets more complicated!

We will see, for the first time since 1979, four different rates of VAT. Most of our Agri clients will be pleased that this will have little to no impact on their business. However, those with furnished holiday lets or any other leisure or hospitality business, may see some increased complexity over the coming months. It is a welcome relief for those operating farm shops, with a gradual phasing of the VAT from 5% to 12.5% until April 2022, before returning to the standard rate of 20%.

You may also have seen that the portal is now open for businesses to further defer their VAT payments.  This is a welcome cash-flow boost on top of the original deferral which will allow businesses to defer VAT payments over the next year. Further details can be found here

Red Diesel

We heard during the 2020 Budget that the entitlement to use red diesel would be removed for many sectors from April 2022.  During the 2021 Budget, the Government expanded the list of industries that will continue to be allowed to use red diesel and, as we would expect, agriculture, forestry, horticulture and fish farming are included within the list of permitted users.

Increase in Corporation Tax Rates - Corporation Tax is Going up for Limited Companies

Despite pleas for a simpler tax system and HMRC setting up a department purely with the objective of making tax simpler, we will sadly see increased complexity creeping into our corporation tax calculations once again.

Whilst companies with taxable profit below £50,000 will continue to pay corporation tax at 19%, those with taxable profit over £250,000 will pay corporation tax at 25% from 1 April 2023. Companies with profits between £50,000 and £250,000 will pay tax at a ‘marginal’ rate between 19% and 25%.

This means that for some companies, the payment of dividends to shareholder/directors may no longer be more tax efficient than paying salaries.  It also means that the timing of capital expenditure needs to be considered carefully.

Extended Loss Carry Back – for Limited Companies and Unincorporated Businesses

HMRC has extended the period over which companies and unincorporated businesses (sole traders and partnerships) may carry back losses. This will apply to losses incurred in the period 1 April 2020 to 31 March 2022 for companies or 6 April 2020 to 5 April 2022 for unincorporated businesses. This change will allow a business to carry back their losses against profits in the previous three years, much more generous than the current 12 months.

This may be useful for some farming businesses. We anticipate the accounts from the livestock sector in the last 12 months will be reasonably strong on the back of good prices for lamb and beef, whereas farmers in the arable sector may see a fall in profitability with poorer cereal prices and a fall in demand for potatoes which have not been sold on contracts.

The New Super Deduction for Capital Allowances – for Limited Companies

You will see that we have written a separate article, purely on this topic! As with all things ‘tax’ – nothing is ever as simple as it seems.

So what hasn’t changed?

There was much speculation on what Rishi Sunak might unveil during this Budget. There were no changes to Agricultural Property Relief or Business Property Relief and we didn’t see any substantial rate increases in the area of Capital Gains.

The following tax bands have been frozen:

  • The Pension Standard Lifetime Allowance will remain at £1,073,100 for tax years up to 2025/26.
  • The Capital Gains Tax annual tax-free amount will remain at £12,300 for individuals, personal representatives and some Trusts (where the beneficiary is a vulnerable person) and £6,150 for all other Trusts.
  • The nil rate band of £325,000 and residence nil rate band of £175,000 will remain until April 2026. The nil rate band has now been frozen at the same level since 6 April 2009, resulting in increasing numbers of estates being brought within IHT.

Although the Income tax bands will increase by inflation in the next tax year, they will then be frozen at those levels until April 2026.

There have been no changes to the tax rates covering income tax, savings tax, dividend tax and capital gains tax…for now!

Whilst the 2021 Budget seemed quite ‘tame’ as far as Budgets go, the devil is always in the detail. Here at Azets, we like to help you understand how the Budget will impact you and your business and would always encourage you to speak to your usual contact for any specific advice.

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