With the end of Covid-19 restrictions finally in sight, and the country once again looking to the future in the aftermath of the gravest economic downturn any UK government has faced since the Second World War, Rishi Sunak delivered his second Budget on 3 March 2021.
Although he didn’t shy away from the additional £350 billion debt that accumulated during the pandemic, his emphasis was on the financial wellbeing of the people as he promoted a strong economic recovery with continued support for business, investment in green technology and a post Brexit re-energising of towns and cities across the country with the introduction of Freeports, which were not feasible whilst we were a member of the European Union.
Income tax and National Insurance Contributions (“NIC”)
The personal tax allowance was increased by £70 from April 2021, in line with inflation, to £12,570 and the threshold at which UK taxpayers start to pay tax at the higher rate of 40% was increased by just £200, to £50,200. The threshold for UK additional rate tax remains the same and it was also announced that thresholds will remain frozen until at least April 2026.
Employee and employer NIC thresholds were likewise increased in line with inflation from April 2021.
Company car tax
Given the rapidly increasing interest in salary sacrifice for ultra-low emission cars, it was encouraging that there was no change to the Optional Remunerations Arrangement ("OpRA") threshold, which remains at 75 g/km. This means that the substantial income tax and NIC advantages associated with salary sacrifice are still available for cars with CO₂ emissions of 75 g/km or less. And with no changes proposed to that threshold, salary sacrifice, especially for zero emission cars, is likely to continue growing in popularity.
Meanwhile no further changes to company car tax percentages were announced, or proposed, ensuring that the percentages for cars taxed according to their NEDC or WLTP based emissions will be harmonised from April 2022, and then frozen until April 2025.
Van benefit charge
From 6 April 2021 the van benefit charge will rise in line with inflation to £3,500 (from £3,490), but zero emission vans will be exempted from the charge in line with the announcement made at last year's Budget.
Fuel benefit charge
With effect from 6 April 2021 the multipliers will rise in line with inflation, to:
- van benefit fuel multiplier — £669 (from £666); and
- car fuel benefit multiplier — £24,600 (from £24,500).
Confirming the changes initially proposed in last year's Budget, from April 2021 until April 2025 the following allowances will be available for purchased cars:
- the 100% first year allowance will only be available for zero emission cars;
- only cars with emissions between 1 and 50 g/km will be eligible for writing down allowances at the annual rate of 18% (main pool expenditure); and
- cars with emissions exceeding 50 g/km will only qualify for a writing down allowance at the annual rate of 6% (special rate expenditure) and, when they are leased, the lease rental restriction will be applied to these cars.
However, in a dramatic announcement designed to encourage post pandemic investment the Chancellor announced the introduction of 'super deductions' with effect from April 2021. Offering a 130% first year allowance for main pool expenditure incurred up to April 2023, this upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, with businesses also able to take advantage of a 50% first year allowance for qualifying special rate expenditure.
However, it should be noted that when a qualifying main pool asset is subsequently sold, tax will be due on 130% of the sale price in the year of disposal. This clawback does not apply to special rate expenditure.
Restrictions on the availability of these super deductions were also announced, so it's worthwhile noting that the assets purchased must be unused and not second hand, and super-deductions will not be available for cars or for companies buying to lease.
A super-deduction will be available for vans, including zero emission vans, even if acquired via deferred purchase arrangements, such as hire or contract purchase, provided there is an expectation that legal ownership will pass at some point to the ‘lessee’ on the exercise of an option to purchase or some other event occurring.
Investment in charging infrastructure
Although the super-deduction will not be available for plug-in cars, it will be available on the purchase of electric vehicle charging infrastructure at a rate of 130% in the year of purchase.
In addition, an enhanced capital allowance of 100% for businesses investing in plant and machinery for use in designated 'Freeport' tax sites in Great Britain. This will apply to both main and special rate expenditure, allowing businesses to reduce their taxable profits by the full cost of the qualifying investment in the year it is made; these enhanced allowances will be available until 30 September 2026.
The heavily publicised increase to corporation tax was duly announced but will not apply until April 2023, and then only for companies making profits of more than £250,000 per year.
For companies earning profits of less than £50,000 the rate of corporation tax relief will remain at 19% and a taper will be applied for companies with annual profits between £50,000 and £250,000.
Welcomed by the fleet and haulage industries, fuel duty on petrol and diesel has been frozen for another year, meaning that fuel duty has not been increased for the last 11 years .
Vehicle Excise Duty (VED)
From April 2021, VED for cars, vans and motorcycles will rise in line with inflation. This means that the first year rate for cars registered from 1 April 2017 will increase by up to £70, the standard rate will increase by £5 and the 'expensive car' supplement, which applies to cars with a list price exceeding £40,000, will increase by £10.
The annual VED for Euro 4 or Euro 5 vans is frozen, and will increase by £10 for all other vans registered after 1 March 2001.
Zero emission cars and vans will continue to be exempt from VED until April 2025, to support the haulage sector and pandemic recovery efforts heavy goods vehicles (HGVs) VED has been frozen once again, and the Road User Levy will be suspended for a further 12 months.
Incentives to increase the take up of electric vehicles
Despite the government's decision to bring forward the ban on the sale of new petrol and diesel vehicles to 2030 there were no new announcements regarding incentives to promote the take up of zero emission vehicles, so at present the range of plug-in grants will only be available until 2022/23, but the balance of the £500 million made available following last year's Budget to support the roll out of a fast charging network will continue to be available to invest over the next 4 years.
Public spending on roads
With an emphasis on levelling up, urban regeneration and the announcement of freeports there was little room for new expenditure on roads, but it's worthwhile remembering that in recent years the government launched the largest ever investment in England's motorways and major roads, with more than £27 billion to be spent over 5 years to progress transformative projects and to improve local roads by filling in potholes and preventing them from forming.
The only notable road specific announcement this year was £135 million to be made available to accelerate the start of the construction of the A66 Trans-Pennine upgrade in order to halve the construction phase from 10 to 5 years, but the headline announcement was the establishment of a new UK Infrastructure Bank that will, “partner with the private sector and local government to increase infrastructure investment to help tackle climate change and promote economic growth across the UK.”