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Autumn Budget 2021 – What you need to know

The Chancellor, Rishi Sunak presented his third Budget yesterday when he set out plans to “build back better” with ambitions to level up and reduce regional inequality.

Reactions include, this is a Chancellor who is relying on growth to get out of the government’s borrowing deficit; a budget full of promises and pledges but including little about how we might pay for them; a budget full of fizz and optimism but one that might go flat quickly should inflation and living costs rise.

Whatever your thoughts, following on from our Budget Highlights article yesterday we have dug a little deeper into the 2021 Budget announcement to provide more detailed information on the key points below.

Personal Taxes

National Insurance Contributions: During the 2022/23 tax year, there will be a temporary 1.25% increase to Class 1 & Class 4 National Insurance Contributions (NIC). Known as the Health and Social Care Levy, this increase will pay for the impact of the coronavirus pandemic on the NHS and will address the long-standing funding gap for health and social care. This Levy will not apply to Class 2 or Class 3 NIC.
You can read more details on the Health and Social Care Levy in our earlier article.

Dividend Tax Rate Increase: From 6 April 2022, there will be an increase to the basic/higher/additional dividend tax rate of 1.25%. This will take the basic rate to 8.75%, the higher rate to 33.75% and the additional rate will be 39.35% during the 2022/23 tax year.

Extension of CGT Payment Date on Property Disposals: The current 30 day period to make Capital Gains Tax (CGT) payments on property disposals will now be extended to 60 days. This will affect disposals that complete on or after 27 October 2021.  This should provide a welcome extension to the short period individuals have at present to pay CGT.

Increase to Minimum Pension Age: The earliest age at which a pension saver can access their pension without incurring an unauthorised payments tax charge is set to increase from 55 years old to 57 years old. This change is some way off, as the increase is not set to take effect until 6 April 2028. However, this measure will affect individuals born after 5 April 1973 by adding a two year delay to the earliest date they can access their pensions without a tax charge.

Public Service Pensions Reform: Technical updates are to be made to pension tax legislation in order to remedy unlawful age discrimination which was found in public service pension schemes in 2015. This measure will seek to compensate individuals affected by the 2015 age discrimination and will take effect from 6 April 2022.

Changes to Universal Credit: The Universal Credit taper rate is to be reduced from 63% to 55% as soon as possible and by no later than 1 December 2021. This reduction to the taper rate will mean that a claimant will see a reduction of their Universal Credit by 55p, instead of 63p, for every £1 of net income they have earned.

Clampdown on Promoters of Tax Avoidance: The government will be introducing legislative changes designed to clampdown on the most persistent promoters and enablers of tax avoidance. These new powers will include the ability to charge significant additional penalties and seize the assets of the promoters of tax avoidance.

Business Taxes

Capital Allowances for Plant and Machinery: The Annual Investment Allowance (AIA) limit of £1,000,000 has been extended again to March 2023. This was due to be reduced to £200,000 from 1 January 2022.
The AIA provides a 100% first year allowance for investment in plant and machinery (excluding cars) up to the limit for that year. This allowance is offset against taxable profit. As a result, this  reduces the income from the business that is liable to either income tax or corporation tax.

Basis Period Reform: The government will be changing the way businesses are taxed on their profits, by transitioning from an accounts year basis to a tax year basis from the 2023/24 tax year. The draft legislation is still being revised. However, these changes will look to simplify the basis on which self-employed individuals and partners are taxed, bringing to an end complex basis period rules and situations where individuals are taxed twice on the same profits.

Research and Development Reform: Research and Development (R&D) tax reliefs for companies will be reformed by expanding qualifying expenditure to include data and cloud costs and refocusing support towards innovation in the UK. These changes will take effect from April 2023.

Vehicle Taxation: The government will amend the Capital Allowances, Company Car Tax & Vehicle Excise Duty legislation, so that vehicle taxes can be based on a new vehicle certification scheme due to be introduced in 2022. New carbon dioxide emission figures will be set for vehicles using the “Worldwide Harmonised Light Vehicle Test Procedure”. This will have an effect on the capital allowances available, as well as the charge to Company Car Tax on vehicles.

Business Rates – Multiplier Cancelled: Businesses will benefit from next year’s planned increase in the business rates multiplier being cancelled for the second year in a row, from 1 April 2022 until 31 March 2023, rather than increasing in line with inflation. This will affect people paying tax at all rates, therefore supporting both large and small businesses. The result will be bills will be 3% lower than they would have been without the freeze.

Business Rates – 50% Discount: There will also be a 50% discount on business rates for one year from 2022 to 2023, up to a cap of £110,000. This is for eligible businesses in the retail, hospitality, and leisure sectors. This is to help business recovery in those sectors considered to have been more severly affected by the pandemic.

Business Rates – Improvement Relief: The announcement of a new “Improvement Relief” will allow twelve months of business rates relief when making improvements or expanding business premises. The government are to consult further on how best to implement this relief, which will take effect from 2023 and be reviewed in 2028.  We will keep you informed on the results of these consultations as soon as they are available.

Business Rates – Green Investment Relief: A new “Green Investment Relief” is to be introduced from 1 April 2023. This will provide exemptions for eligible plant and machinery used for renewable energy generation.

Business Rates – Revaluations: The government announced that the business rates system will be made fairer by moving from a five-year to a three-year revaluation routine, starting from 2023.

Abolition of Cross-Border Group Relief: The government will look to revoke legislation which allows UK companies in certain circumstances to claim group relief for losses incurred in the European Economic Area (EEA). Following Brexit, this will bring the group relief rules relating to EEA-resident companies in line with those for non-UK companies resident elsewhere in the world.

Cultural Tax Reliefs: The government will temporarily increase the rates of relief available to companies for theatrical productions, orchestral concerts and museum & gallery exhibitions. This temporary increase will come into effect immediately (from 27 October 2021) an is intended to last for two years and five months.

Tax Administration

Making Tax Digital (MTD): The government will give sole traders and landlords with income over £10,000 an extra year to prepare for MTD, before they will be required to submit extracts from their records regularly to HM Revenue & Customs. It will now be introduced from 6 April 2024 for individuals, 6 April 2025 for partnerships and not until at least 2026 for companies.

Penalties for Late Submission and Late Payment of Tax: The new penalties for late submission and late payment of tax will be effective of 6 April 2024 for taxpayers required to submit quarterly updates via MTD and 6 April 2025 for other taxpayers.

Other Budget Highlights

Wage Increases: From next year, the National Minimum Wage is set to rise from £8.91 to £9.50 per hour.  There will also be a rise in public sector wages after a freeze introduced last November in response to the pandemic. The increase in public sector wages is not yet defined and will depend upon recommendations from independent pay review bodies.

Tobacco Duties: Tobacco duties on all tobacco products are to rise by 2% above inflation, as well as a further 4% on top of that for hand-rolling tobacco.

Fuel Duties: The planned increase to fuel duties has been cancelled and will now remain frozen until 2023.

Simplification of Alcohol Duties: The planned increase in alcohol duties has also been cancelled.  The complex alcohol duties system will also be simplified. This simplification will take effect from February 2023 and will see the number of duty rates reduce from 15 down to six.  The onus will move to taxing stronger drinks more heavily and reducing the tax on lower strength drinks.
Other changes include a relief for brewers of lower-alcoholic drinks and a “draft relief” for pubs which will take 3p off the price of a pint.

Heavy Goods Vehicle (HGV) Levy Suspension: A further suspension to the HGV levy was announced, which will see an additional suspension for 12 months from 1 August 2022.

As always, the information outlined above is for general guidance purposes only. We appreciate that every individual and business has different circumstances and you should always seek appropriate professional advice before you act on any of the information provided.

If you would like more information or advice on the budget or require wider business or planning guidance please do get in touch with your GWA Partner. Alternatively, if you are not a GWA client please do contact us to arrange your free initial meeting.

Information correct as at 28 October 2021

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