On 3 March 2021, the Chancellor delivered the 2021 Budget. This article provides an overview of the key developments relevant to HR professionals, covering all aspects of employment from Tax to Share Schemes and Pensions. Included below are also measures that were announced previously but are set to come into law on 6 April 2021, as well as considerations in respect of Coronavirus.
Changes in tax rates and allowances
The tax-free personal allowance will increase from £12,500 to £12,570 from 5 April 2021. The higher rate income tax (40%) threshold increases to £50,270 meaning after the personal allowance, the first £37,700 is taxed at 20%. The additional rate (45%) threshold will remain at £150,000. There will be no changes to the personal allowance and tax bands until April 2026.
The corporation tax rate will remain at 19% for the Financial Year 2021/22 as was previously announced but will go up to 25% for large corporations from April 2023 by introducing a taper for profits above £50,000 with the result that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
Capital gains tax
The capital gains tax annual exemption will increase to £12,300 in 2021/22 and will remain at this level until April 2026.
The government has increased the primary threshold and lower profits limit for employees and the self-employed respectively from £9,500 to £9,568. For employer contributions the annual threshold has increased from £8,788 to £8,840. The Upper Earnings Limit (UEL)/Upper Profits Limit (UPL) has increased to £50,270 and will remain at this level until April 2026.
Small businesses (those with an annual employer NICs bill of less than £100,000 in the previous tax year) will continue to be able to claim the Employment Allowance of £4,000.
COVID-19 employment tax support measures
Cycle to Work Schemes
Many employers offer ‘Cycle to Work’ schemes to promote healthier and greener commutes for its employees. There is a tax exemption from Income Tax and National Insurance Contributions available for the employer provision of bicycles and safety equipment under such schemes. One of the conditions is that such equipment should be used mainly for qualifying journeys (to and from or in the course of work). As part of the COVID-19 restrictions, the government has required employees to work from home where possible and many users of the scheme will be unable to meet this condition. Therefore, the government has announced an easement which will mean that employees who have received a bicycle or bicycle safety equipment on or before 20 December 2020, will not have to meet the qualifying journeys condition until after 5 April 2022.
Exemption for the provision or reimbursement of Antigen Tests
As a result of tax laws in place prior to the pandemic the provision by an employer of or reimbursement of costs by an employee for COVID-19 antigen tests results could have been subject to Income tax and National Insurance contributions. The government introduced an exemption in the summer 2020 for employer provided tests in the 2020/21 tax year. In the budget the government has extended this exemption to the 2021/22 tax year. The exemption will also apply to any reimbursement to an employee for a COVID-19 antigen test for the 2020/21 and 2021/22 tax years.
Extension of exemption from Income Tax and National Insurance Contributions for home office expenses
To support employees working from home as a result of COVID-19 restrictions, the government introduced an exemption from Income Tax and National Insurance Contributions for employer reimbursed expenses that cover the costs of home office equipment such as a laptop, desk or necessary computer accessories. This was due to expire 5 April 2021 but the exemption has now been extended to 5 April 2022.
Tax laws in some aspects did not cater for the impact of the disruption caused by exceptional circumstances of the pandemic. As such employers will welcome these helpful easements and exemptions to support the requirement for employees to work from home where possible. The clarity of the exemption for antigen tests will also be welcomed by employers who will want to ensure a safe workplace environment for employees as restrictions start to lift and employees start to return to offices. Employers will need to ensure that their reporting systems reflect these as they approach the preparation of benefits reporting forms P11D and their Pay As You Earn Settlement agreements for 2020/21.
Off-Payroll Working (IR35)
From 6 April 2021, it will become the responsibility of medium or large sized client organisations to determine whether fees being incurred by them for services provided by an individual using their own Personal Services Company (‘PSC’) are deemed employment income subject to Income Tax and National Insurance Contributions. This was originally due to come into effect on 6 April 2020 but was delayed by a year as a result of COVID-19. There will be no further delay and, after working with stakeholders, the government has announced several technical changes in the budget to prevent avoidance and ensure that the rules work as intended.
These significant changes arrive four years after being introduced to the public sector and will impact individuals, their PSCs, recruitment agencies and other intermediaries, and clients where the individual are deemed to be employees of the end user (the client). The rules have been well trialled and HMRC expects organisations to be ready for their introduction. There will be no penalties in the first 12 months for inaccuracies unless there is evidence of deliberate non-compliance.
The Government has frozen the standard Lifetime Allowance at £1,073,100 from 2021 until 2026. This removes the link to an annual increase under the Consumer Prices Index for 5 years and is bad news for many pension savers who will end up being caught by the Lifetime Allowance. Those who take lump sum amounts out of their pension scheme above the Lifetime Allowance face a tax charge of 55%. Those who take pension in excess of the Lifetime Allowance face an additional 25% charge over and above any other tax payable on their pension income payments. Because of inflation and people working for longer, more pension savers will be caught by the Lifetime Allowance in the future. The ISA limit of £20,000 remains in place for the tax year 2021-22 with no increase on the tax year 2020-21, so it is becoming more difficult to invest money in a tax efficient environment.
In the Budget Plan for Growth published on 3rd March 2021, the Government intends to consult in the next month on defined contribution scheme investments and charge cap barriers. The Treasury wishes to encourage investment in venture capital and high growth equity assets where entry at present to such high growth company investment exceeds the auto-enrolment charge cap of 0.75%. The idea is to incentivise rather than disincentivise pension schemes from investing in a broader range of investments.
Rishi Sunak announced in today’s budget that he wanted “to make the UK the best place in the world for high growth, innovative companies” and stated that together with the Home Secretary they would be introducing new visas for highly skilled, globally mobile talent. However, none of this will be introduced in the short term with the budget statement making it clear that the new visas will be introduced in March 2022. In the budget statement it says:
“The government is modernising the immigration system to help the UK attract and retain the most highly skilled, globally mobile talent – particularly in academia, science, research and technology – from around the world. This will drive innovation, and support UK jobs and growth. To do this, the government will:
- introduce, by March 2022, an elite points-based visa. Within this visa there will be a ‘scaleup’ stream, enabling those with a job offer from a recognised UK scale-up to qualify for a fast-track visa
- reform the Global Talent visa, including to allow holders of international prizes and winners of scholarships and programmes for early promise to automatically qualify
- review the Innovator visa to make it easier for those with the skills and experience to found an innovative business to obtain a visa
- launch the new Global Business Mobility visa by spring 2022 for overseas businesses to establish a presence or transfer staff to the UK
- provide practical support to small firms that are using the visa system for the first time
- modernise the immigration sponsorship system to make it easier to use. The government will publish a delivery roadmap in the summer
- establish a global outreach strategy by expanding the Global Entrepreneur Programme, marketing the UK’s visa offering and explore building an overseas talent network”
The scale up visa is likely to be aimed at financial technology companies. This will be a subset of a new unsponsored route. It also looks like there will be a route for people who are not sponsored workers through the “elite points-based visa”. This is likely to be similar to the old Highly Skilled Migrant Programme where points will be on offer for age, qualifications and earnings. Reform of the Innovator and Global Talent visas will be welcomed. We will have to wait and see what the detail of these offerings are.
However, all this does signal that the UK is interested in attracting inward investment and the brightest and best talent as we suggested would be the case in our recent article on the decrease in migration. A further sign of this in the budget was the encouragement of businesses, both those already in the UK and those who are thinking of coming, to spend here through the Super Deduction scheme which will allow companies to invest in new equipment and offset all the cost against tax, plus an additional 30%.
Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme is to be further extended until the end of September 2021. The scheme pays 80% of employees’ wages for hours they cannot work during the pandemic up to a maximum of £2,500 per month. From July 2021, however, employers will have to contribute 10% of that 80%, rising to 20% in August and September 2021.
The Scheme, which was originally introduced in March 2020 has been extended a number of times from its original termination date of 30 June 2020. The requirement for employers to contribute to the “furlough” salary was originally included for September and October last year then dropped when the Scheme was extended to March 2021 and then to April 2021. It will now be reintroduced from 1 July 2021. Some changes were made to the Scheme in December 2020:
- To be eligible for a claim an employee had to have been in employment on 30 October 2020.
- Employees made redundant after 23 September 2020 could be reemployed and then furloughed
- Furlough may be on a full time or flexible basis
- Claims may be made for employees even if they have not previously been furloughed
From January 2021 the Guidance to the Scheme also stated that employers should “take every possible step to facilitate their employees working from home, including providing suitable IT and equipment to enable remote working”.
It is to be expected that the Guidance and the Treasury Direction which set out the detailed conditions of the Scheme will be revised shortly to take account of this latest extension. We have covered some strategies that businesses may wish to employ as alternatives to redundancy following the furlough scheme’s closure in September in our recent article.
The financial incentives available to employers who take on apprentices, which were due to end on 31 March 2021, are to be increased from £1,500 (£2,000 for those aged 16-24) to £3,000 for each new apprentice hired. The increase will be effective from 1 April 2021 and will now last until 30 September 2021. In addition, a new “portable apprenticeships” scheme is to be introduced in July 2021 that will enable apprentices to work across a number of employers in the same industry sector.
The increased support for apprentices will be welcomed as improving access to employment for young people at a time when 700,000 people in the UK have lost their jobs as a result of the COVID-19 pandemic.
The Budget contained no radical changes to the taxation of share options and other share incentives.
There was some speculation before the budget that rates of capital gains tax would increase or even be aligned with rates of income tax, and that the capital gains annual exempt amount would be reduced. These changes, if they had been made, would have impacted on the attractiveness of the various tax-advantaged share plans available for employees in the UK. Tax-advantaged share plans, in essence, allow value to be delivered to employees as capital gain rather than income, and so the alignment of capital and income taxation would have seriously impacted on the benefits these plans can provide to employees. As it is, tax-advantaged share plans have retained their advantages, and should remain an important part of an employer’s incentivisation, recruitment and retention strategy.
EMI options are perhaps the most tax-efficient of employee equity incentives. Provided an EMI option is granted with an exercise price of not less than market value at the date of grant, and the relevant statutory conditions are complied with between grant and exercise, there is no income tax or NICs payable when the option is exercised; when the shares are sold, the total gain (the different between the exercise price paid to exercise the option and the sale proceeds) is taxed as capital gain.
EMI options may be granted only to employees who work at least 25 hours per week, or if less at least 75% of their working time, for the company granting the EMI options or for another company in the same group (the ‘working time requirement’). If an employee ceases to satisfy this requirement, any EMI options held by that employee are disqualified, and the tax benefits of EMI qualifying status are reduced. Employees on furlough may cease to satisfy the working time requirement, depending on the extent to which they are furloughed. To prevent EMI options held by furloughed employees from being disqualified, and to enable new EMI options to be granted to furloughed employees, the Finance Act 2020 provided that furloughed employees would be treated for this purpose as if they had continued to satisfy the working time requirement. That treatment was due to expire on 5 April 2021, but it has been announced in the budget that the Finance Bill 2021 will extend this period to 5 April 2022.
The government has also announced a ‘Call for Evidence’ in relation to EMI options. This is designed to assist the government in assessing whether EMI options are fulfilling the government’s objective of helping small and medium sized growth companies recruit and retain key staff. The Call for Evidence also asks whether EMI options should be made available to more companies and in particular those high growth companies which have grown too big to continue to grant EMI options to their employees.
Stamp Duty Land Tax
As previously announced, from 1 April 2021 there will be a 2% stamp duty land tax surcharge on non-UK residents buying residential property in England and Northern Ireland. The surcharge for overseas residents is in addition to the typical stamp duty fees owed when buying a property, and on top of the 3% surcharge if they already own a home. It could mean an overseas buyer pays tax of up to 17% on any value above £1.5m.
The stamp duty nil rate band will be £500,000 for properties bought by 30 June 2021 and the stamp duty holiday will phase out by introducing a nil rate band up to £250,000 until 30 September 2021. From October 2021 the nil rate band will fall back to £125,000.
If you have any queries on how these changes will impact your business please get in touch.