As part of Budget 2021, the Chancellor announced a number of support measures including a further extension to the Self-Employment Income Support Scheme (SEISS) with the introduction of a fourth and fifth grant. The extension will apply to any qualifying individual who has already submitted their 2019/20 Self-Assessment tax return, and will be welcome news for those who were new to self-employment in 2019/20 and ineligible for previous grants.
In line with earlier claims, the fourth grant, covering the period February to April, will be worth 80% of three months’ average trading profit, capped at £7,500. The application window for this will open in late April.
The fifth and final grant covers the period May to September, again based on three months’ average profit. Individuals who have seen their turnover reduce by over 30% as a result of the pandemic will receive the usual 80%. However, for those who do not meet this threshold, their claim will be reduced to 30% of average profits, capped at £2,850. Applications for the final grant can be made from late July.
There has also been a temporary extension of the carry back period for trading losses. Previously, businesses were able to offset trading losses against net income of the current year or previous year (or both), subject to certain restrictions. The extension will allow trading losses of up to £2 million arising in tax years 2020/21 and 2021/22 to be carried back against profits for the previous three years, set against the later year first. This will be welcome relief for those whose previously profitable business continues to feel the impact of the pandemic.
More significant revenue raising measures appear to have been deferred for now, with no increases to mainline rates of income tax or Capital Gains Tax (CGT), the latter being widely mooted in advance of the Budget. Most tax allowances and thresholds will, however, be frozen from April 2021 to April 2026, and the government is consulting on wider tax policy changes from 23 March. This could see more fundamental changes and reform later this year and into the future.
As well as CGT, a recent Treasury Committee report published 1 March 2021 and titled Tax after coronavirus highlighted (amongst other tax reforms) the issue of the 'three person problem', where different forms of work are taxed in different ways depending on whether an individual is an employee, self-employed or an owner manager operating through a corporate, this has been further highlighted by the different levels of recent government support. Any plans to align the taxation of these different systems, as well as level the tax playing field for capital gains, would require substantial reform to the taxation of wealth generation, dividends, and national insurance, and could result in more substantial structural changes with unexpected tax impacts. We will be publishing more information and opinion as it becomes available.
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