The pandemic has had a huge economic cost, seeing government debt rise to its highest level since 1963. Perhaps unsurprisingly, the build up to this year’s budget and what Rishi Sunak (a household name now) was going to implement to repay the debt whilst in a period of recession was widely anticipated. The budget was delivered on the 3rd March 2021 with a three-part plan to protect the jobs and livelihoods of the British people.
There are several points that are key for the LATCO industry, one of which was the unwelcome increase of corporation tax. The UK has enjoyed a corporation tax rate of 19% since 1st April 2017, one of the lowest in the G20. This is set to change. The Chancellor announced that this rate will remain until 1st April 2023 and will continue for companies whose profits are below £50,000 but will increase to 25% for companies with profits over £250,000. Profits between these amounts will be reduced from the main rate by a taper relief.
This rate increase needs to be factored into budgets and cash flows, not forgetting deferred tax assets and liabilities which are measured at the rate they are expected to reverse at (where this rate has been enacted or substantively enacted). This could see a huge hike in provisions when the finance bill that will approve these rates is passed.
In contrast, and on a more positive note, a temporary extension was announced for taxable losses for accounting periods ending in the period 1st April 2020 to 31 March 2022. Trade losses can now be carried back for three years, instead of one, to facilitate a reduction or repayment of corporation tax. (This relief is capped at £2million pounds of losses.)
Another available ‘relief’ is for companies investing in plant and machinery. The Chancellor announced a new ‘Super deduction’ providing an allowance of 130% on most new plant and machinery that would have ordinarily qualified for the 18% rate and a first year allowance of 50% for new plant and machinery that would have ordinarily qualified for the 6% allowance such as integral features (in certain circumstances). These new rates are for the period 1st April 2021 to 31 March 2023.
For LATCOs in the residential property sector, a time extension of the temporary increase in the Stamp Duty Land Tax nil rate band of £500k to 30th June 2021 is welcome to encourage sales. From 1st July 2021 to 30 September 2021 this will be reduced to £250k, reverting back to £125k on 1st October 2021.
Commercial property lets have been difficult particularly with tenants in the retail, hospitality or leisure trade. Therefore an announcement of the continuation of the 100% business rates relief for eligible businesses until 30 June 2021, followed by a 66% relief from 1st July 2021 to 31st March 2022 (capped at £2m per business) together with the extension of the 5% VAT rate to 30 September 2021 and a reduced rate of 12.5% to 31 March 2022, is welcome for tenants struggling to pay their rent.
Finally, the announcement of a new economic zone, Freeport East, was a welcome boost making it easier and cheaper to do business in the East Anglian area.