Key Tax Measures
On June 10, the UK Finance Bill 2021 received Royal Assent and was passed into law, thereby implementing proposals announced in the Budget in March 2021. Here, we summarise the legislation's key tax provisions.
One of the centrepiece revenue-raising measures in the Finance Act is the increase in corporation tax from 19 percent to 25 percent. This is set to take place on April 1, 2023, and the increased rate will apply to business profits over GBP250,000. Companies with profits of less than GBP50,000 will pay corporation tax at 19 percent, while those with profits of between GBP50,000 and GBP250,000 will pay tax at 25 percent but will have the ability to claim marginal tax relief.
Additionally, the rate of diverted profits tax will rise from 25 percent to 31 percent, also from April 1, 2023. In place since April 2015, this tax is intended to discourage companies from diverting profits to other entities to exploit tax 'mismatches' and artificially reduce liability to corporation tax. This higher tax rate applies on profits deemed to have been improperly "diverted" and is payable upfront.
On a brighter note, the Finance Act includes a new "super deduction", which enables companies investing in qualifying new plant and machinery to claim a 130 percent capital allowance and a 50 percent first-year allowance for assets qualifying for "special rate relief". The super deduction is in place for two years from April 1, 2021, to March 31, 2023.
Free ports will be established in eight locations including East Midlands Airport, Felixstowe and Harwich, Humberside, Liverpool, Plymouth, the Solent, the Thames area, and Teesside. Proposed tax incentives for businesses locating in a freeport include:
- Additional tax relief for companies investing in new or existing buildings and plant and machinery.
- Temporary stamp duty land tax relief for the period from April 1, 2021, until March 31, 2026.
- Up to 100 percent relief on business rates (effectively the UK's local business tax).
- A temporary reduction in employer National Insurance contributions to 0 percent for the first three years after a new employee is hired. This will apply on the first GBP25,000 of wages and be available for nine years.
There are no major changes to the personal tax regime, with income tax rates fixed at 20 percent, 40 percent and 45 percent. However, in another revenue-raising move, the personal allowance and the higher rate thresholds will remain at 2021 levels until 2026.
Currently, the personal income tax-exempt allowance is GBP12,570. The basic 20 percent rate applies on income from GBP12,570 to GBP50,720, the 40 percent higher rate applies from GBP50,721 to GBP150,000, and the excess is taxed at the 45 percent additional rate.
The headline VAT measure is the extension of the reduced five percent rate for the tourism and hospitality sector until September 2021. From October 1, 2021, this special rate will increase to 12.5 percent before reverting to the standard rate (currently 20 percent) on April 1, 2022.
Further, the VAT registration threshold will remain fixed at GBP85,000 for two years from April 1, 2022.
The temporary stamp duty holiday on residential house purchases up to a value of GBP500,000 was extended until June 30, 2021. Until September 30, 2021, the zero percent rate will apply on property purchases up to a value of GBP250,000. From October 1, 2021, the zero percent rate will apply on the first GBP125,000 of a property's purchase price.