Budget 2021 – How Will it Affect you?

The 2021 Budget extended the furlough scheme, VAT and business rate reliefs, and the universal credit top-up, and also launched new schemes like Restart Grants, Recovery Loans and the mortgage guarantee.

Rhiannon Philps Published on 12 March 2020. Last updated on 24 March 2021.
Budget 2021 – How Will it Affect you?

With the UK still in the midst of the coronavirus pandemic, the March 2021 Budget addressed some immediate concerns as well as outlining the first steps to rebuilding the economy and fixing the public finances.

Chancellor Rishi Sunak announced a multitude of different schemes and proposals that will come into effect in 2021 and the coming years. They will affect both individuals and businesses, with a combination of continuing government support as well as some measures that seek to address the rising debt the country has accrued over the past year.

Some of the emergency support detailed in the Budget includes grants, an extension of the furlough scheme, continued tax and rates relief and the temporary extension of the £20 Universal Credit uplift.

These support measures to help people through the pandemic have not come cheap so, inevitably, the Budget also showed how the government intended to address this debt. These included the freezing of tax thresholds and an increase in corporation tax.

Read on to find out more about some of the key ways that the Budget will affect consumers and businesses.

What does the Budget mean for businesses?

Job Retention/Furlough Scheme

The furlough scheme, where the government covers a percentage of an employee’s salary for the hours they don’t work (up to £2,500) will continue until September 2021.

Until the end of June 2021, the government will continue to cover 80% of an employee’s unworked hours and the employer will continue to pay the necessary National Insurance and pension contributions.

From July, employers will have to contribute 10% of the cost of unworked hours, rising to 20% in August and September.

Self-employed support

The self-employed can claim the fourth grant from the Self-Employment Income Support Scheme (SEISS) to cover February, March and April. Like previously, the self-employed can claim up to 80% of their average trading profits, up to £2,500 per month and £7,500 in total. This will be paid in a lump sum and you can apply for this grant from the end of April.

A fifth grant will follow from May onwards. Again, it will cover 3 months’ worth of average trading profits and it will open from late July 2021. However, this grant aims to offer more targeted support and the amount you receive will be determined by a “turnover test”.

  • If your turnover has fallen by 30% or more, you will receive a grant for 80% of your profits up to £7,500.
  • If your turnover fell by less than 30%, you can get a grant to cover 30% of your profits, up to £2,850.

More details will be shared by the government soon. For the latest updates check the gov.uk website.

People who became self-employed more recently, who were previously ineligible for support, can now claim the fourth and fifth grants in the SEISS, as long as they have filed their 2019/20 tax returns.

For self-employed people on Universal Credit, the “minimum income floor” will continue to be suspended until the end of July 2021. This means the amount of Universal Credit you get will continue to be based on your actual earnings, rather than an estimated amount based on the “minimum income floor”.

Business “Restart Grants”

“Restart Grants” replace the current grant system and will be available to help businesses reopen after lockdown.

Non-essential retail, which will be able to open sooner, can receive up to £6,000 per premises.

Businesses in industries like hospitality, accommodation, leisure, personal care and gyms can get grants of up to £18,000 per premises, as they will open later and may be subject to more restrictions.

Recovery Loan Scheme

As the Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the other lending support schemes come to a close, they will be replaced with a new Recovery Loan Scheme.

From 6 April 2021, businesses of any size can apply for a loan worth between £25,000 and £10 million. The government will provide an 80% guarantee on these loans to lenders.

Asset and invoice finance worth between £1,000 and £10 million will also be available.

>>MORE: Recovery Loan Scheme

Taxes

Corporation Tax

From April 2023, the rate of corporation tax paid on company profits will rise to 25%. However, smaller businesses will be able to pay a smaller rate.

  • Businesses with profits of £50,000 or less will continue to pay corporation tax at a rate of 19%.
  • Businesses that earn between £50,000 and £250,000 will also get some relief.
  • Only businesses that earn more than £250,000 will pay the rate of 25%.

Tax “super-deduction”

To encourage businesses to invest their cash reserves, from 1 April 2021 to 31 March 2023, when companies invest in eligible plant and machinery, they can claim more tax relief.

Instead of the usual 18%, businesses will be able to deduct 130% of the cost of their investment from their taxable profits, so, for every £1 they invest in new equipment, they can cut their tax bill by 25p.

Plant and machinery investments that would normally qualify for a 6% writing down allowance will be able to get 50% until 31 March 2023.

Extension of period you can carry back losses

The 2021 Budget announced that businesses can temporarily carry back trading losses for three years rather than one year. This means they can offset any losses against profits of previous years to claim tax relief.

The temporary extension is available from April 2020 to 31 March 2022.

VAT reduction

The temporary reduction in VAT from 20% to 5% for tourism and hospitality businesses has been extended for another six months until 30 September 2021.

From 1 October 2021 until 31 March 2022, the rate of VAT will be set at 12.5%, before returning to 20% in April 2022.

Business rates

The 100% business rates holiday will continue for businesses in the hospitality, retail and leisure industries until the end of June 2021.

From July 2021 until 31 March 2022, there will then be a 66% discount on rates. This will be capped at £2 million for each business that had to be closed on 5 January 2021, and £105,000 per business that could be open.

Apprentices and trainees

The cash incentive for firms that take on an apprentice will increase to £3,000. This applies to apprentices of all ages and will be available from 1 April 2021 to 30 September 2021.

Businesses can also continue to receive an additional £1,000 payment if they take on a 16-18 year old apprentice or an apprentice aged under 25 with an Education, Health and Care Plan

Employers who give trainees work experience can continue to get £1,000 per trainee.

A new “flexi-job” apprenticeship programme is also being introduced, which will allow apprentices to work with more than one employer in their sector.

Help to Grow schemes

The Help to Grow: Management scheme will allow businesses to access management training from business schools and mentoring from business professionals. It is a 12-week programme and the government will contribute 90% of the cost.

The Help to Grow: Digital scheme will help small businesses to adopt new technologies and productivity-enhancing software. They will also benefit from a 50% discount on approved software, up to £5,000.

Both of these schemes are set to start in Autumn 2021.

Visa reform

The Budget announced plans to reform the immigration and visa system to help businesses in the UK attract talent from across the globe. It aims to introduce a fast-track visa and a simplified system to help businesses recruit highly-skilled workers, particularly in areas like science, research and technology.

Freeports

The Chancellor announced plans to introduce a number of Freeports in England. These are special zones that aim to stimulate economic growth with lower taxes, for example. The locations for these Freeports are:

  • East Midlands Airport.
  • Felixstowe & Harwich.
  • Humber.
  • Liverpool City Region.
  • Plymouth and South Devon.
  • Solent.
  • Teesside.
  • Thames.

How will the Budget affect my personal finances?

Stamp Duty

The Stamp Duty tax relief for England and Northern Ireland will end on 30 June 2021, rather than the initial date of 31 March. This means that anyone buying a property under £500,000 won’t pay any stamp duty.

From 1 July to 30 September 2021, this limit will be cut to £250,000, which is still higher than normal.

The usual Stamp Duty threshold of £125,000 will only return from 1 October 2021.

From 1 July 2021, first-time buyers will be able to benefit from extra relief as before, so they will only start paying stamp duty on properties over £300,000.

Mortgage Guarantee Scheme

From April 2021 to December 2022, the government can offer a guarantee to lenders on mortgages with a loan-to-value (LTV) of 91-95%.

It aims to encourage lenders to offer more mortgages to people with low deposits, as low-deposit mortgages virtually disappeared from the market in 2020.

The scheme is targeted at younger buyers who may struggle to build up a deposit, but it is not restricted to first-time buyers.

It will apply to residential mortgages on houses worth under £600,000 and buyers will be able to fix their initial mortgage rate for at least 5 years if they wish.

This scheme should increase the availability of lower-deposit mortgages, but eligibility for a mortgage will still be assessed by lenders based on your income and other financial factors.

» MORE: Mortgage Guarantee Scheme

Universal Credit

The £20 a week uplift to Universal Credit that was introduced in March 2020 has been extended for another six months until September 2021.

Working tax credit claimants will also receive a one-off payment of £500.

National Living Wage

The National Living Wage is increasing to £8.91 an hour from April 2021 and it will now apply to workers aged 23 and over. Minimum wage rates for younger workers and apprentices are also rising to:

  • £8.36 (21-22 year olds)
  • £6.56 (18-20 year olds)
  • £4.62 (Under 18s)
  • £4.30 (Apprentices)

Tax thresholds

The personal allowance tax threshold will increase as planned from 6 April 2021 to £12,570, and the higher-rate tax threshold will increase to £50,270. These thresholds will then remain the same until April 2026.

Because these thresholds normally rise with inflation, freezing them could cause some high-earners to fall into a higher tax band and so pay more tax.

Inheritance tax thresholds, the Pensions Lifetime Allowance (£1,073,100) and the Annual Exempt Amounts for Capital Gains Tax will also remain frozen until 2026.

The adult ISA limit remains at £20,000 and the Junior ISA limit will stay at £9,000.

Green savings product

In the middle of 2021, National Savings and Investment (NS&I) will offer a green savings product, which will be used to help fund green projects in the UK.

More details will be released at a later date.

Contactless limit

The contactless payment limit, which was increased from £30 to £45 in 2020, will rise again to £100 later in 2021.

» MORE: Contactless payments

Duties

Alcohol duties on beer, cider, wine and spirits will be frozen for a year, in an attempt to support the struggling businesses in this area.

Fuel duties will also be frozen again for 2021-22.

Image Source: Getty Images

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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