The 2021 UK Budget is possibly the most anticipated budget of a lifetime, fuelled by
the ongoing coronavirus pandemic as well as the global economic crisis which has
developed. This year’s budget will also be the first for the UK since leaving the EU
and millions of people will be watching closely for changes and outcomes that The
Chancellor of the Exchequer, Rishi Sunak, will propose, and how it will affect the
nation and us as individuals.
The budget will take place on Wednesday 3rd March 2021 in the House of Commons
and will most probably start around midday and following on from The Prime
Minister’s questions. One of the main concerns is how government
borrowing (£270.8 billion, according to the Office for National Statistics) will be paid
back. This has culminated in increasing the national debt to £2.13 trillion, 99.4% of
GDP (Gross Domestic Product – the value of services and goods produced in the
economy), which hasn’t been seen since the 1960s.
One of the obvious ways to cancel out some of this debt would be to increase taxes,
however the present government promised not to raise any of the three main
taxes (Income Tax, National Insurance or VAT) during their 2019 manifesto. That
said, the pandemic has subsequently caused a drastic reshuffle in all aspects of life,
therefore it wouldn’t be surprising to see a rise in these taxes come into effect.
There have been lots of predictions in the media so we decided to break down the
predictions and possibilities of what will happen on the 3 rd March and how the UK will
come to terms with these economic measures.
Scrapping Business Asset Disposal Relief (BADR)
The abolishment of BADR (previously known as Entrepreneur’s Relief) has been
rumoured by many and would see the Capital Gains Tax (CGT) reduction scrapped
when looking to sell or dispose of your business.
What BADR means is that there is a reduction to the rate of tax paid on the disposal
of business assets when the disposal proceeds are high enough to take you into the
higher tax bands. This applies to individuals and trustees, not companies looking to
dispose of their business. The cap you can claim over a lifetime is currently £1m and
doesn’t cover the sale of residential properties.
If BADR is scrapped, then individuals and trustees will have to pay the standard CGT
rate, at least 20%, on all sales of a business. This would equate to approximately
£2.4 billion of revenue each year to pump back into the UK economy and ultimately
reduce the national deficit.
Investor’s Relief, which is a relief that offers a 10% CGT rate in the disposal of an
unlisted trading company or holding company of a trading group, has also been
rumoured to be scrapped alongside BADR.
These measures, if brought forward, are likely to deter people away from selling up
their businesses or shares, with a hefty sum of CGT owed on each sale. This
potentially will harm everyday entrepreneurs and not the larger corporations. It has
been published that only around 10% of people who claim this relief are selling
businesses worth more than £1m and that the vast majority of those who do benefit
from this incentive are therefore claiming back around £38,000 a year which only
goes to show that it will be the small to medium business owners who will suffer
heavily from this.
Rise in Corporation taxes & Introduction of online sales tax
An increase in Corporation Taxes seems pretty straightforward and would make
complete sense with a limited rise for larger companies that have fared well during
the pandemic. Most importantly, this will be unlikely to hurt loss-making businesses
or small businesses, and probably wouldn’t have an immediate impact on consumer
spending. One of ways this could be set into action would be through an Online
Sales Tax, a section of the retail industry which has seen exponential growth during
the past year.
Already, businesses who generate revenue derived from the provision of a social
media services, a search engine or an online marketplace to UK users, pay Digital
Services Tax. This came into effect in April 2020 and saw that businesses were
required to pay an additional 2% tax on their revenue. Going one step further by
taxing e-commerce businesses who produce the bulk of their products through an
online shop system, could yield positive economic results.
Furlough Scheme & SEISS Grant Extension
This is does seem likely to happen with the pandemic not going away any time soon
so an extension to the furlough scheme would provide an injection for businesses
experiencing tough times to help balance the books without laying off their staff. The
consensus of opinion is that there really is no choice but to extend the grants and
furlough scheme as the pandemic has lasted a lot longer than anyone could have
expected. We feel that this is a must in order for individuals and businesses to
survive and give the economy the boost needed for it to bounce back to where it was
pre Covid sooner rather than later.
It would also give companies the extra time to analyse and structure their business
model for post-Covid, which will be an extremely important time for the economy as
business regrowth is likely to be prioritised by the government over the coming
Presently, the furlough scheme ends on 30th April 2021, with the most likely outcome
being that it is extended until the summer at least. To coincide with this, a fourth Self-
Employed Income Support Scheme (SEISS) is also likely to be announced, aiding
self-employed workers and partnership members. This scheme relies on applicants
to make an honest assessment as to whether their business has experienced a
significant reduction in profits. The third SEISS grant was calculated at 80% of
average monthly trading profits, paid out in a single instalment covering 3 months’
worth of profits, and capped at £7500 in total. The predicted fourth SEISS grant will
likely be calculated at 70% of average monthly trading profits, similar to the second
The calls for an extension to the Stamp Duty Holiday has put a severe amount of
pressure for the Chancellor to revise the 31 st March 2021 deadline. Presently, the
property market is in disarray with house prices plummeting and buyers unwilling to
purchase during economic and social uncertainty caused by the pandemic and the
effects of Brexit. This has led to a level of stagnation in the housing market, for which
the Stamp Duty Holiday provided a minor boost when first introduced on 8 th July
2020. Many experts are pleading with the government to extend this, but the
government has thus far been reluctant to lengthen beyond the 31 st March. However,
a last-minute change of mind from the Chancellor certainly isn’t off the cards with a
decision weighing finely in the balance.
In relation to this, there have also been murmurings that Stamp Duty and Council
Tax could be phased out entirely and replaced with new annual property value tax.
This could provide an annual levy for businesses who are required to include the
market value of their assets, including property, in their accounts.
The usual increase to the so-called ‘Sin Taxes’ (excise tax on socially harmful goods
such as alcohol, cigarettes, gambling and pornography as examples) will also
assumably happen, despite pubs remaining shut for the foreseeable future. The
possibility of an increase in Green Taxes (taxes to encourage businesses to operate
in a more environmentally friendly way) seems strong, however Fuel Duty may well
see a freeze in order to protect individuals during the unprecedented times.
As in the majority of budgets, we expect a surprise announcement which is usually
positive and provide us all with a sense of optimism. It remains to be seen just what
this will be, as always hard to predict.
One thing is for certain though, the government has no choice but to recoup some of
the enormous borrowing which has been achieved over the past 12 months. We will
all be watching Mr Sunak and his red briefcase come the 3 rd March, the proceedings
made will definitely bring a change to many people’s livelihoods forever.