Our Real Money Correspondent, Laura Whateley, breaks down what the March 2021 budget means for your personal finances
Covid has shattered many people’s finances over the past year, with millions still on furlough or worrying about self-employment income drying up as lockdown continues. Yesterday the Chancellor, Rishi Sunak, announced his Budget, promising to protect workers and businesses. Here’s how it may affect your personal finances:
If you’re on furlough…
The furlough scheme, where those who are unable to work as a result of the pandemic can receive up to 80 per cent of their income to a maximum of £2,500 a month for hours not worked, has been extended until the end of September, longer than was expected.
The Government will pay the grant in full until June. From July, employers will be expected to contribute 10 per cent, and in August and September 20 per cent of furloughed wages. Your employer can also top them up further.
You can’t work for your employer for the hours that you are furloughed, but you can still work for them part time, for example, be furloughed for some days a week if there is not enough work to go round as a result of lockdown, as long as you were on your employers payroll before the Budget.
You don’t have to have been furloughed before. You could also take on other work elsewhere if your company allows it.
You can also be furloughed if you cannot work because of childcare responsibilities.
If you’re self-employed…
To match the furlough scheme there will be two more Self-Employed Income Support Scheme (SEISS) grants to cover those who work for themselves until the end of September, too.
The fourth grant
The fourth, which will be to compensate for earnings lost between February and April will be worth 80 per cent of your profits, up to £2,500 a month or a maximum of £7,500 overall.
The government has said you’ll be contacted in mid-April if you’re eligible and applications will be open at the end of April until a deadline of May 31, which means a long wait for those who are really struggling at the moment. If you are eligible the grant will be paid directly into your bank account in one go.
Broadened criteria for eligibility
The good news for some freelancers is that the criteria for application have been broadened to include those who are relatively newly self-employed,and have filed a self-assessment tax return for the year 2019-2020. Previously it was only available to those who had filed a return for the year 2018-2019.
The rest of the rules remain, however, which means hundreds of thousands will still miss out, according to ExcludedUK a campaign group that offers advice and a supportive community if you’ve fallen through the cracks of support.
SEISS is not open to those who run limited companies but see themselves as self-employed. If you are paid via PAYE you can however furlough yourself.
You must be a sole trader or in a partnership, have profits of no more than £50,000, and at least half your income must come from self-employment. You must also be intending to continue to trade, and agree that you “reasonably believe there will be a significant reduction in your trading profits, due to reduced business activity, capacity, demand or inability to trade due to coronavirus.”
The fifth grant
The fifth grant will cover May to September and be available to claim from late July. It will be a bit less generous, the amount you will get will depend on how much your turnover has reduced during April 2020 and April 2021.
If it’s down 30 per cent or more, you’ll still get 80 per cent of three month’s average trading profits, again, capped at £7,500 in total.
If it’s down less than this, you’ll get 30 per cent of trading profits, capped at £2,850 in total.
If you’re paying tax
While income tax itself isn’t rising, tax thresholds are being frozen. These are the amount you have to earn before you either pay tax at all or qualify for higher rates.
A quick explainer: tax thresholds
You don’t have to pay any income tax until you earn at least £12,500. If you earn between £12,500 and £50,000 you pay 20 per cent income tax, until you earn £50,000 at which point you pay 20 per cent on everything between £12,500 and £50,000 and 40 per cent of earnings above £50,000. The rate goes even higher, to 45 per cent, for each pound you earn over £150,000.
These “thresholds” usually rise to keep up with inflation and growth in earnings, and they will do so for one more year, to £12,570 and £50,270 from April when the new tax year begins. But after that time they’ll stay the same, “frozen” until April 2026.
What this means for your taxes
In terms of the practical impact for you, it means that more of your salary could end up going to HMRC, because inflation or a pay rise might drag you into a higher bracket, or if you are a lower or part-time earner it might mean that you start paying tax when you didn’t before.
If you’re out of work or claiming universal credit
At the beginning of the pandemic Rishi Sunak announced an additional £20 a week in Universal Credit, which is a benefit you can claim if your income has fallen below a certain low level and you have few savings, even if you are still working, are self-employed or on furlough.
This additional £20 was due to end in March, but has been extended until the end of September, though charities argue that cutting it off then will push more people into poverty and that it should be in place indefinitely.
Those who are still on Working Tax Credit, which was the benefit available before Universal Credit was introduced, will also get a one-off payment of £500 to match the £20 a week uplift.
If you’re planning to buy a house
Many first-time buyers have struggled to get affordable mortgages during the pandemic, with banks refusing to lend to those with small deposits and pulling their 95 per cent and in some cases 90 per cent deals, too.
A wider choice of mortgages
The government has introduced a guarantee to lenders to encourage them back to 95 per cent mortgages to help those with a just 5 per cent deposit be able to contemplate buying.
The biggest banks, including Lloyds, Barclays, HSBC and Santander, have already signed up to offer these loans from April until the end of 2022. They will be fixed rate deals for five years and will be available to any qualifying buyers (you’ll still need to meet the usual affordability and credit checks), not just first-time buyers, on homes worth no more than £600,000.
While this could be a welcome helping hand to get on the ladder, approach with caution. Many are arguing that measures like these will push up house prices, making it actually more expensive for first-time buyers in the long run, and potentially leading those on very small deposit mortgages, with big debts, into negative equity, where you owe more than your property is worth.
Stamp duty holiday extended
There will also be an extension of the stamp duty holiday. Stamp duty is the tax you pay when buying a home.
At the moment, there is nothing to pay on properties worth up to £500,000, a measure introduced to help keep the housing market going during the pandemic. This was coming to an end in March but will now remain the case until the end of June.
From June the point at which you start paying stamp duty will be reduced to £250,000 until the end of September, when it will revert to £125,000.
First time buyers, however, do not have to pay stamp duty on any property up to £300,000.
If you’re a small business owner
Corporation tax, which is what you pay on any company profits, is going to rise significantly by the existing 19 per cent to 25 per cent from April 2023. However, lots of smaller or single person businesses will keep the lower rates. This raise only applies to those with profits of more than £50,000 a year. There is also going to be a gradual rise in how much you pay above £50,000, so only those with profits of £250,000 or more can expect the full 25 per cent.