Budget March 2021: What does it mean for people on low incomes?

Income Tax Personal Allowance and Higher Rate Threshold

The Chancellor confirmed that the personal income tax allowance for 2021/22 will be £12,570. This is an inflationary increase (based on September 2020 CPI of 0.5%) from the level for 2020/21. He also confirmed that the basic rate band will increase from £37,500 to £37,700 for 2021/22, meaning that the higher rate threshold for 2021/22 will be £50,270.

There were further announcements however, that

• the personal allowance will remain at the level of £12,570 for the following four tax years too, that is for 2022/23, 2023/24, 2024/25 and 2025/26
• the higher rate threshold will remain at the level of £50,270 throughout those same tax years.

If there is wage inflation over those five tax years, this could result in people paying more income tax in real terms. So, for example, someone earning £12,570 in 2021/22 who receives an inflationary pay increase for 2022/23 will start to pay tax, whereas if the personal allowance was indexed by inflation, they would not do so.

However, for those claiming universal credit, the impact of this freeze is lessened because that benefit is calculated on net income. Claimants’ earned income is taken into account in the universal credit calculation after deducting income tax and National Insurance contributions.

National Insurance contributions thresholds

The Chancellor confirmed that the thresholds for 2021/22 will rise in accordance with CPI of 0.5%, bringing the Primary threshold/Lower Profits Limit to £9,568 and the Upper Earnings Limit/Upper Profits Limit to £50,270.

There was also confirmation that during the period 2022/23 to 2025/26 the National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the income tax higher rate threshold (and therefore frozen at £50,270). The other National Insurance limits will continue to be set at fiscal events. This means that there is an opportunity to continue aligning the point at which classes 1 and 4 National Insurance begin to be paid with the personal allowance.

Tax credits

The Job Retention Scheme (the ‘furlough’ scheme) is to be extended until the end of September 2021. This means the special tax credit rules for people whose working hours change temporarily due to coronavirus will also be extended until the end of September 2021, while the Job Retention Scheme remains in place.

In response to the coronavirus pandemic, HMRC introduced new legislation to allow people whose working hours reduced or who were temporarily laid off (such that they would not meet the hours thresholds for working tax credit) due to coronavirus, to be treated as working the hours they were doing before the coronavirus pandemic. The legislation effectively allows temporary changes to working hours due to coronavirus, for both the employed and self-employed, to be ignored whilst the Job Retention Scheme remains in place. This applies to temporary changes to working hours as a result of the coronavirus even if the claimant is not receiving support linked to the Job Retention Scheme. Any permanent changes to working hours need to be reported to HMRC in the usual way.

The temporary uplift in the rate of the basic element for working tax credit for 2020/21 has not been extended and previously announced annual rates will apply from 6 April 2021. Instead, the Chancellor announced a new, one-off payment of £500 for people who are claiming working tax credit. This payment is not a one-off payment of tax credits, but an entirely separate scheme and payment. HMRC will work out who is entitled to the payment and arrange for the payment to be made. HMRC say they expect all payments to be made by 23 April 2021.

Universal credit

The temporary uplift for the rate of universal credit for 2020/21 has been extended for 6 months. This means that universal credit awards will continue to benefit from the temporary £20 uplift in the rate of the standard allowance, on top of the planned annual uprating, until the end of September 2021 (previously announced planned uprating here).

The Minimum income floor (MIF) policy, which was due to be reintroduced from May, will remain suspended until the end of July 2021. The MIF will be reintroduced gradually from August 2021 with some discretion where DWP assess that the claimant’s earnings continue to be affected by coronavirus restrictions.

The temporary higher threshold of £2,500 for surplus earnings will remain in place for a further 12 months. It is now expected to revert to the normal level of £300 no earlier than April 2022.

Repayment of advances and deductions cap: The period over which universal credit advances (advance payment of the award) must be repaid has been extended to be 24 months and the maximum rate at which deductions can be made from a universal credit award will reduced from 30% to 25% of the standard allowance. Both of these changes have been announced previously but they will now be introduced from April 2021, instead of October 2021.

Self-employedIncome Support Scheme (SEISS)

Two further grants (SEISS 4 and SEISS 5) were announced as part of the government’s support package for the self-employed whose business has suffered a significant reduction in trading profits between February 2021 and April 2021. These new grants will be based on the 2019/20 self assessment tax returns, if they were submitted to HMRC before 2 March 2021, as well as the tax returns for 2016/17, 2017/18 and 2018/19 where appropriate.

These changes to the SEISS mean that people who started their self-employment or being a partner in a trading partnership during the 2019/20 tax year may be eligible for SEISS 4 and SEISS 5, however they will not be able to apply for the first three SEISS grants.

The way the SEISS grants will be calculated for all eligible claimants will change for the new SEISS 4 grants when compared to previous grants, because self-employed profits for the 2019/20 tax year will now also be used when calculating an average profit for three months multiplied by 80% up to a maximum claim of £7,500. This means if you have higher profits in 2019/20 than the previous three tax years you should receive a higher SEISS grant then the first and third SEISS grants, and vice versa.

HMRC will be contacting potential claimants in mid-April and the claim process should be open between late April 2021 and 31 May 2021.

The SEISS 5 grant, which can be claimed from late July 2021, will have a turnover (sales) test. There are few details available yet but if your sales have fallen by:

• 30% or more then the grant will be 80% of three months average profits (up to a maximum claim of £7,500)
• less than 30% then the grant will be 30% of three months average profits (up to a maximum claim of £2,850).

HMRC compliance

The Budget included the announcement of additional funds for HMRC’s compliance work. The government will invest over £100 million in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages, including the CJRS and SEISS, representing one of the largest responses to a fraud risk by HMRC.

The government will invest a further £180 million in 2021/22 in additional resources and new technology for HMRC, some of which will be used to continue to fund compliance work on the loan charge, historic disguised remuneration cases and early intervention to encourage individuals to exit tax avoidance schemes.

Coronavirus Job Retention Scheme (CJRS)

The government is extending the Coronavirus Job Retention Scheme (CJRS) until the end of September 2021. The Budget confirms that it will continue in its current form until the end of June 2021. As the economy reopens and demand returns, the government will require increased employer contributions until the end of September 2021.

There will be no employer contributions other than National Insurance contributions and pensions required in April, May and June. From the start of July, the government will introduce an employer contribution towards the cost of unworked hours. The employer contribution will be 10% in July, 20% in August and 20% in September.

The extension of the furlough scheme is a lifeline, but as the CJRS has now been in place since March 2020 this extension could cause complexities in some furlough pay calculations. The way in which furlough pay calculations work could also mean that furloughed workers will not feel the benefit of any pay rises they have received, including National Minimum Wage pay rises, until they are back at work. This is because the calculations could be based on two-year-old pay data.

For claim periods starting on or after 1 May 2021, employers will now be able to include employees that were previously not eligible due to RTI submissions being sent after 30 October 2020. Guidance now states that all employees who have had a PAYE RTI submission made for them between 20 March 2020 and 2 March 2021 are now eligible to be included in a CJRS claim from May 2021. The eligibility for the periods March 2021 and April 2021 remains unchanged.

National Minimum Wage

From April 2021, the rates will be as follows:

*If under 19 or in first year of apprenticeship (otherwise refer to age bands). The apprenticeship rate does not apply to Higher Level Apprenticeships.

Not only have the rates gone up, but the scope of the National Living Wage has been extended, as it now includes all those aged 23 or over. Employers should make sure they are ready by:

• taking appropriate payroll action for all workers who are eligible
• continuing to pay their workers what they are entitled to

For more information on paying the National Minimum Wage correctly employers can register for one of HMRC’s live webinars in March 2021.

The government has also published its remit for the Low Pay Commission (LPC) for 2021 on GOV.UK.

The remit asks the LPC to make UK-wide recommendations with the aim of reaching the government’s target for a National Living Wage (NLW) of two thirds of median earnings, extended to those aged 21 and over, by 2024, provided economic conditions allow.

Employers

Cycle to work: The government will legislate in Finance Bill 2021 to introduce a time-limited easement to the employer-provided cycle exemption. This will disapply the condition that states that employer-provided cycles must be used mainly for journeys to, from, or during work. The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020.

The change will have effect on and after Royal Assent of Finance Bill 2021 and be in place until 5 April 2022, after which the normal rules of the exemption will apply. Read the Easement for employer provided cycles exemption tax information and impact note for more information.

Income tax exemptions for COVID-19 tests and home office expenses: On 9 July 2020 the government announced via a written ministerial statement that the provision of coronavirus antigen tests to employees by employers would not attract tax and National Insurance contributions liabilities for the tax year 2020/21. Legislation applies to ensure this for the period between 8 December 2020 and 5 April 2021. HMRC have also agreed to exercise collection and management powers to not collect the income tax and National Insurance contributions due on antigen tests provided between 6 April 2020 and 7 December 2020. Together, these ensure that no liabilities will be collected for the tax year 2020/21.

In December 2020 the government announced a second income tax exemption and National Insurance contributions disregard, to ensure that employees who purchase their own coronavirus antigen test and are reimbursed by their employer, will not attract tax and National Insurance contributions liabilities for the tax year 2020/21.

The government will also extend the income tax exemption and National Insurance contributions disregard for COVID-19 antigen tests provided by, or reimbursed by, employers and for employer reimbursed expenses covering the cost of home office equipment, to the 2021/22 tax year. There is more information on GOV.UK: Extension to the Income Tax and National Insurance contributions exemption for employer provided and employer-reimbursed coronavirus antigen tests and Extension to the temporary Income Tax and National Insurance contribution exemption for home-office expenses.

(Note: In addition to antigen tests there are also antibody tests which are intended to see if an individual has previously had the virus. The exemptions do not extend to these tests and the normal benefit-in-kind rules continue to apply.)

Statutory Sick Pay (SSP) Rebate Scheme: Small and medium-sized employers across the UK will continue to be able to reclaim up to two weeks of eligible SSP costs per employee. This scheme is a temporary COVID-19 measure intended to support employers while levels of sickness absence are high. As with other business support schemes, the government will set out steps for closing this scheme in due course.

Payments to employers: The following payments for employers who hire new apprentices/trainees were announced, meaning we are likely to see more people in apprenticeships/traineeships, who will need help with their tax and benefits positions.

The government has confirmed that it will provide £126 million for the 2021-22 academic year, in addition to the £111 million provided in 2020-21, towards high quality work placements and training for 16–24-year-olds in England. Those employers who provide trainees with work experience can continue to benefit from a payment of £1,000 per trainee.

Employers in England who hire new apprentices between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire. Previously, this was £1,500 for each apprentice hire, or £2,000 for each apprentice aged below 25. In addition, the government continues to provide £1,000 for any new apprentices aged between 16 and 18, and for those under the age of 25 with an Education, Health and Care plan.

Gig economy

The OECD issued a publication entitled “Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy” on 3 July 2020. The UK was involved in the discussions and agreement of these model rules at the OECD.

While HMRC already has the power to access information from UK-based platforms on the income of sellers on the platform, implementing the OECD rules will enable HMRC to exchange information with other tax authorities to access data from platforms based outside the UK quickly and efficiently.

The government will consult on the implementation of OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and the seller themselves. The government will introduce a new power in Finance Bill 2021 which will enable regulations to be made to implement OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and to the seller themselves. Consultation will take place in summer 2021.

This is expected to impact digital platforms that facilitate services such as the provision of taxi and private hire services, food delivery services, freelance work and the letting of short-term accommodation.

The rules should help make it easier for sellers on these platforms to comply and will help HMRC to detect and tackle tax evasion when they do not.

Read the Reporting rules for digital platforms tax information and impact note for more information.

Off payroll

A technical change will be legislated for in Finance Bill 2021 to address an unintended widening of the definition of an intermediary in the off-payroll working rules legislation, where it is a company. The original legislation went beyond the intended scope of the policy, and this change restores the policy intent.

An equivalent change will also be made to the relevant National Insurance contributions regulations ahead of 6 April 2021. The government will also introduce a Targeted Anti Avoidance Rule (TAAR) to ensure that the definition of an intermediary cannot be exploited.

The government is making two further minor related technical changes to improve the operation of the rules, in response to feedback from stakeholders, which will both be legislated for in Finance Bill 2021. The government will make changes to the rules regarding provision of information by parties in the labour supply chain.

These changes will make it easier for parties in a contractual chain to share information relating to the off-payroll working rules by allowing an intermediary, as well as a worker, to confirm if the rules need to be considered by the client organisation.

The government will also amend a provision relating to fraudulent information. The change will allow HMRC to take action against any UK-based party in the labour supply chain providing fraudulent information.

This will prevent client organisations or deemed employers from facing liabilities where they have relied on fraudulent information provided by another party in the labour supply chain.

These 2 further technical changes and the TAAR will also be effective from 6 April 2021.

Read the Technical changes to make sure the off-payroll working legislation operates as intended tax information and impact note for more information.

Tax conditionality: licensing in England and Wales

As announced at Budget 2020, the government will legislate in Finance Bill 2021 to make the renewal of certain licences conditional on applicants completing checks that confirm they are appropriately registered for tax.

Those licences are to:

• drive taxis and private hire vehicles (for example minicabs)
• operate private hire vehicle firms
• deal in scrap metal

Licensing bodies will have to obtain confirmation that an applicant has completed the check before making a decision on their renewal application. The measure will make it more difficult for non-compliant traders to operate in the hidden economy and help level the playing field for the compliant majority. These changes will take effect in England and Wales from 4 April 2022. Read the New tax checks on licence renewal applications in England and Wales tax information and impact note for more information.

In our submission on this issue we highlighted a number of concerns about these changes.

Tax Conditionality: licensing in Scotland and Northern Ireland

The government will make the renewal of certain licences in Scotland and Northern Ireland conditional on applicants completing checks that confirm they are appropriately registered for tax, consistent with these reforms in England and Wales.

In Scotland, this will apply to licences to drive taxis and Private Hire Cars (PHCs); operate from PHC booking offices; and be a metal dealer. In Northern Ireland, this is for licences to drive taxis.

Licensing bodies will have to obtain confirmation that an applicant has completed the check before making a decision on their renewal application, making it more difficult for non-compliant traders to operate in the hidden economy.

The new tax checks will come into force in Scotland and Northern Ireland from April 2023. A consultation on implementation options will be published on 23 March 2021.

Job support

A raft of measures were announced to support jobs through initiatives like the Kickstart scheme, which have tax and benefit implications:

Kickstart scheme: The £2 billion Kickstart scheme provides young people at risk of long-term unemployment with fully-subsidised jobs to give them experience and skills. The funding available for each job will cover 100% of the age-relevant National Minimum Wage for 25 hours a week. So far, over 120,000 Kickstart vacancies have been created by the scheme. Employers across Great Britain, from a range of different sectors including Construction, Arts and Entertainment, Health and Social Work, Manufacturing, Retail, Transport and public and voluntary sectors have already had their bids to take part in the scheme approved.

Trading losses

A new way of relieving any trading tax losses made in either the 2020/21 or 2021/22 tax year has been announced. Currently it is only possible to relieve tax losses against one previous tax year (there are exceptions if you have recently started your business or ceased trading), however it will now be possible to carry back losses to set against taxable profits in the previous three tax years, which should result in a tax refund.

Business Support: Help to Grow programmes

Two initiatives will begin which may help small businesses with management and digital programmes. The management scheme will aim to help 30,000 businesses over the next three years through 12-week courses which are 90% funded by the government. It is planned that the digital scheme will help 100,000 businesses (with between 5 and 249 employees) towards the end of the year through grants worth 50% of software cost (up to a maximum of £5,000).

VAT

Businesses that took advantage of the VAT deferral on VAT returns from 20 March through to the end of June 2020 can opt to use the VAT Deferral New Payment Scheme. This will allow the business to pay the deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021.

The VAT registration and deregistration thresholds will not change for 2021/22, or for the following two tax years (2022/23 and 2023/24). So, the VAT registration threshold will remain at £85,000 and the deregistration threshold will remain at £83,000.

Capital Gains Tax Annual Exemption

The annual exemption for 2020/21 is £12,300. It is to be frozen at this level until April 2026.

Inheritance Tax Thresholds

The nil-rate band for 2020/21 is £325,000. It will be frozen at this level until April 2026. The residence nil-rate band for 2020/21 is £175,000. It will be frozen at this level until April 2026.