The UK 2021 Budget was published yesterday, targeted at driving economic recovery as the UK begins to edge out of the worst of the COVID-19 pandemic and reopen its economy. Key to the Chancellor’s stated agenda is seeking to promote business investment and support entrepreneurial growth, whilst creating and protecting jobs and livelihoods – which the Chancellor maintains is at the forefront of his Budget mandate. We have summarized the key employment tax highlights of the 2021 Budget.
In more detail
Rishi Sunak outlined plans in his 2021 Budget yesterday, targeted at driving economic recovery as the UK begins to edge out of the worst of the COVID-19 pandemic and reopen its economy. Key to the Chancellor’s stated agenda is seeking to promote business investment and support entrepreneurial growth, whilst creating and protecting jobs and livelihoods – which the Chancellor maintains is at the forefront of his Budget mandate.
Significantly, the Chancellor did not outline any plans to increase individual tax rates, though freezes to personal allowances and the income tax higher rate threshold were announced. Of sharp interest have been the rumors circulating on proposals to change the UK’s capital gains tax regime and/or measures that would effectively clamp down on particular incentive vehicles structured to fall into the CGT regime (such as employee ‘growth shares’). The Budget does not introduce any such changes at this time. Speculation will continue as to the changes yet to come. It has been announced separately that there will be consultations on reforming the taxation of specific areas, to be published on 23 March 2021.
In the meantime, upcoming changes to the UK’s corporation tax regime will be a focus for businesses, and we have summarized the key proposals here.
A key announcement that was made in the Budget from an employment tax perspective is the government’s launch of a Call for Evidence on Enterprise Management Incentive (EMI) option schemes, ultimately to determine whether more companies should be permitted to grant EMI options. Initially raised in the 2020 Budget, the Call for Evidence has been launched today and signals a potential boost for smaller private companies who are currently ineligible for the scheme, as part of a series of support measures for Small and Medium Enterprises (SMEs) and innovative companies.
What were the Chancellor’s key announcements from an employee tax perspective?
Employment tax highlights from the Budget include:
- Enterprise Management Incentive (EMI) options – The EMI option scheme remains the UK’s most tax-efficient employee share incentive scheme, and the combination of its tax advantages and its flexibility means that it continues to be popular with qualifying companies and employees.
The Call for Evidence, which closes on 26 May 2021, will gather views on whether the current EMI option scheme is fulfilling its policy objectives of helping SMEs to recruit and retain employees of the caliber necessary to promote company up-scaling, in order to combat the inherent labor market disadvantages that these entities face. The review ultimately aims to determine whether the qualifying conditions for granting EMI options should be changed to enable more companies to use them.
- Income tax personal allowance and higher rate threshold – The income tax personal allowance and higher rate threshold (HRT) will be frozen at 2021/22 levels up to and including 2025/26. For this period, the personal allowance will be £12,570 and the HRT will be £50,270.
- National Insurance contributions (NICs) thresholds – The NICs Primary Threshold/Lower Profits Limit will rise to £9,568, and the Upper Earnings Limit (UEL)/Upper Profits Limit (UPL) will rise to £50,270 in line with the income tax HRT, in 2021/22. The UEL/UPL will then remain aligned with the HRT at £50,270 until April 2026. All other NICs thresholds will be considered and set at future fiscal events.
- Capital gain tax (CGT) exempt amount – The annual CGT exempt amount for individuals is set to remain at £12,300 up to and including 2025/26. No changes to CGT rates were announced.
- Pensions Lifetime Allowance – The lifetime allowance for pensions is set to remain at its current level of £1,073,100 until April 2026.
- Furlough scheme and Statutory Sick Pay (SSP) Rebate Scheme – The Coronavirus Job Retention Scheme (CJRS) is set to be extended until September 2021. Small and medium-sized employers may continue to reclaim up to two weeks of eligible SSP costs per employee, until the closure of the scheme which the government is yet to announce.
- Income tax exemptions for COVID-19 tests and home office expenses – The income tax exemption and NICs disregard for COVID-19 antigen tests provided by, or reimbursed by, employers, and for employer reimbursed expenses covering the cost of home office equipment, will be extended to the 2021/22 tax year.
- Supporting apprenticeships – Support measures include an extension and increase to the government payments made to employers in England who hire new apprentices; employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire (previously £1,500 or £2,000, depending on the apprentice’s age).
The Budget did not reference the new IR35 rules, which remain expected to come into force from 6 April 2021. For further information on the new IR35 rules, please click here.
If you would like to discuss any of these developments, please do not hesitate to get in touch with the usual members of your Baker McKenzie team.