The Chancellor, Rishi Sunak, announced the latest Budget on the 3rd March. This included continued support for the economy to cope with the effects of the Covid-19 pandemic whilst making the first, tentative, steps towards rebuilding the public finances and starting the mammoth task of paying back the debt built up over the last 12 months.
The economic outlook is set to improve later this year as lockdown measures are gradually unwound. The UK economy is forecast to have shrunk by 9.9% in 2020 – the largest contraction for 300 years. The latest forecast from the Office of Budget Responsibility (OBR) indicates that the economy will rebound with 4% growth in 2021 followed by an increase of 7.5% the year after. The economic support provided during the Covid outbreak has generated wartime-like levels of deficits. The UK is set to borrow £355bn in the 2020/21 financial year. Even in 2021/22 it is forecast that £234bn will be added to the national debt – equivalent to 10% of the UK’s GDP. It will take years if not decades for the country to pay this back. All parts of the economy, including agriculture, will be expected to play their part in this and there may be tougher fiscal times ahead. Indeed, as it is seen as a relatively ‘wealthy’ industry, farming may see a bigger squeeze that others.
Some key announcements as they affect the farming industry are set out below;
- The headline tax announcement was an increase in the rate of Corporation Tax from the current 19% to 25% – but only in April 2023. The Chancellor is unwilling to raise taxes too fast, too soon, in case it chokes-off any economic recovery. This increase is only for larger businesses with profits of over £250,000. A Small Companies rate (which was abolished some years ago) will return, with profits up to £50,000 continuing to be taxed at 19%. There will be a taper between £50,000 and £250,000. Most farming businesses are still Sole Traders or Partnerships so this measure will not affect them. However, those farming businesses which have incorporated tend to be the larger ones, so they may get hit by the higher rates.
- A new ‘Super Deduction’ Capital Allowance is to be introduced. This will provide tax relief at 130% for any qualifying investment in plant and machinery for two years from 1st April 2021 to 31st March 2023. The rate is normally 18% This is effectively paying firms to invest and the idea is to stop firms hoarding cash which happened after the Financial Crisis and slowed the economic recovery. This allowance is only open to incorporated firms however, which makes it far less useful in farming. Lobbying is taking place to reverse this issue. The ‘normal’ first year 100% Capital Allowances that are open to all types of business will remain at £1m for 2021/22.
- Under Income Tax, the Personal Allowance and the Higher Rate Threshold will be increased to £12,570 and £50,270 respectively for the 2021/22 tax year. These rates will then be frozen until 2026. This is effectively a ‘stealth’ tax rise as, over time, the real-terms value of the thresholds is gradually eroded.
- The Nil Rate Band for Inheritance Tax will be frozen at the current £325,000 until 2026 (the Residence nil rate band will also remain fixed). Similarly, the Annual Exemption for Capital Gains Tax is to be frozen at £12,300 until 2026.
- Duties on alcohol, tobacco and fuel are unchanged for 2021/22.
- The National Living Wage will rise 2.2% from £8.72 per hour to £8.91 on the 1st April 2021. This above-inflation increase is an unwelcome extra cost for those parts of farming and horticulture that employ significant quantities of labour.
- Furlough (the Coronavirus Job Retention Scheme – CJRS) whereby employees receive 80% of their usual salary will be extended to September. Employers will have to contribute 10% of wages in July and 20% in August and September. The Self-Employment Income Support Scheme (SEISS) will be extended for two more ’rounds’, also taking it through to the end of September. The criteria will change which will open the scheme to the recently self-employed.
- Bounce-back loans are to be replaced with a new Recovery Loan Scheme.
- The waiver of Stamp Duty Land Tax (SDLT) in England and NI on properties below £500,000 with be extended to 30th June. The threshold will then drop to £250,000 until 30th September before reverting to its usual level of £125,000. There will also be Government support to promote 95% mortgages.
- Retail, hospitality and leisure businesses (which will include some farm diversifications) will continue to have full Business Rates relief until the end of June. Then two-thirds relief will be available through to 31st March 2022 – subject to limits for larger businesses. There will be re-opening grants for leisure and retail businesses. Also, the 5% VAT rate for hospitality will continue until 30th September and then 12.5% through until March 2022.