On Wednesday 27 October the Chancellor of the Exchequer delivered the Autumn Budget Announcement. In the run up to Halloween we ask whether it delivered tax tricks or treats?
The Autumn Budget Announcement trumpeted a “New Age of Optimism”, but there were ominous signs of tax increases to come. Tellingly, we were told that this new age will only be limited by the effort we are willing to put in and the “sacrifices we are prepared to make”. Although the Chancellor’s statement was optimistic in tone there were frequent reminders to “challenging times ahead”.
Overall the Budget Statement was very scarce in terms of new tax policy which had not already been announced to the press. The cynical amongst us may speculate that the increases to NICs announced in early September were a means of softening the blow of a Budget that offered very little in terms of new tax breaks or savings.
Besides cuts to Passenger levies, suspension of Business Rate rises and duty rules on alcohol very little new legislation was introduced. Our Tax Advisory team has assembled a summary of tax changes for the year ahead:
Employment
Health and Social Care Levy
In September 2021 introduced a new Health and Social Care Levy which would be ring-fenced for health and social care.
In its present incarnation the levy will form an increase of 1.25% on National Insurance Contributions (NICs), however, from April 2023 it will be legislated separately.
The National Insurance Contributions (NICs) increases will affect both the self-employed, employed and employers. All working adults will pay the levy, including old age pensioners.s
The NIC increases will be as follows:
| 2021/22 | 2022/23 | |
| Class 1 Primary NICs (Employees) | 12% | 13.25% |
| Class 1 Secondary (Employers) | 13.80% | 15.05% |
| Class 1A | 13.80% | 15.05% |
| Class 4 (Self Employed) | 9% | 10.25% |
There will also be a 1.25% increase to dividend rates therefore it is anticipated the reform will affect investors and company owners whose remuneration consists mostly of dividends:
| 2021/22 | 2022/23 | |
| Dividend (Basic Rate Band) | 7.50% | 8.75% |
| Dividend (Higher Rate Band) | 32.50% | 33.75% |
| Dividend (Additional Rate Band) | 38.10% | 39.35% |
National Living Wage
The Chancellor announced the National Living Wage (NLW) for individuals aged 23 and over will increase to £9.50 per hour from April 2022.
The government predicts that the rise represents an increase of about £1,000 a year for a full-time worker
Business
Making Tax Digital for Income Tax
The introduction of a Making Tax Digital (MTD) regime for income tax has been postponed from April 2023 to April 2024.
Under these rules, businesses are required to maintain their accounting records in a specified digital format and return information regularly to HMRC.
Crucially, businesses and landlords with turnover of £10,000 per annum are expected to submit quarterly returns plus payments of tax to HMRC followed by a final return at the end of the year.
Partnerships are expected to follow MTD rules from April 2025. HMRC has previously stated MTD for companies will not be introduced before 2026.
The government also hopes to implement a new points-based penalty regime around this time.
Corporation Tax Rates
The Spring 2021 Budget announced the main Corporation Tax was due to increase from 19% to 25% from 1 April 2023. This main rate of 25% Corporation Tax will apply to companies with profits of £250,000 or more.
Companies with profits of £50,000 or less will continue to be subject to 19% Corporation Tax. Alternatively, companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by the marginal relief:
Financial year commencing 1 April 2021 – 19%
Financial year commencing 1 April 2022 – 19%
Financial year commencing 1 April 2023 – 25%
An increase of Corporation Tax of 6% will translate to a significant increase in tax for most businesses despite the government maintaining it is the lowest rate of Corporation Tax in the G7 and the fifth lowest in the G20.
Annual Investment Allowance (AIA)
Under normal rules, all businesses – sole traders and companies – benefit from tax relief for investments in plant and machinery used for the purposes of trade. Plant and machinery includes obvious items such as a printing press, computers and fork lift trucks but also extends to company cars and the heating system/air conditioning of the workplace.
Tax relief is awarded via writing down allowances which allow 18% or 6% relief, depending on the type of items purchased.
Businesses also benefit from an Annual Investment Allowance (AIA) and First Year Allowances (FYA) which offer 100% tax relief on qualifying expenditure.
The AIA is available on all expenditure (except cars) and the standard value of the allowance is £200,000.
However, the AIA was temporarily increased to £1 million for acquisitions made between 1 January 2019 to 31 December 2021 (restrictions may apply if an accounting period straddles these dates).
The Autumn Budget confirmed that the temporary £1 million AIA allowance will be retained until 31 March 2023.
The Spring Budget Statement introduced a new Super Deduction offering 130% tax relief for qualifying expenditure incurred from 1 April 2021 up to and including 31 March 2023.
Qualifying expenditure only includes plant and machinery which would be eligible for the “main rate pool” and not for special rate (which generally applies to long life assets) items which would ordinarily only receive writing down allowances at 6%.
The Super Deduction represents the government’s £25 billion investment and, in theory, 130% relief, combined with the current corporation tax of 19%, means that for every £100,000 you spend, you get £24,700 back in tax reductions. However, please note, these items are not pooled like other Plant and Machinery items and companies could be subject to large clawbacks if they sell the items in later years.
Research and Development Relief Reform
Research and Development Relief was introduced by the Government to encourage companies to invest in research and development into new technological or scientific discoveries.
A small or medium sized company incurring Research and Development (R&D) expenditure is currently permitted to claim an additional deduction equal to 130% of the costs. Therefore in total an eligible company can claim for 230% of the RND expenditure to be deducted in arriving at the adjusted profits for tax purposes.
The government intends to reform the current legislation:
- To expand the qualifying expenditure to include data and cloud costs;
- Refocusing support towards innovation in the UK; and
- Target abuse and improve compliance
Little detail was revealed on Budget but we can expect more in coming months.
Capital Gains Tax (CGT)
Despite intense speculation and advice from the Office of Tax Simplification (OTS) Capital Gains Tax (CGT) has not increased in line with income tax, the Annual Exemption remains the same and Business Asset Disposal Relief (BADR) remains the same.
Annual Exemption of £12,300 has been frozen until 2025/26
New rules were introduced in April 2020 which mean sales of residential properties must be reported to HMRC within 30 days. The tax must also be paid within the same deadline.
The Autumn Budget thankfully extended this deadline to 60 days. (Applies to disposals which complete on 27 October 2021 or afterwards.)
Non-UK residents are subject to similar deadlines.
Inheritance Tax (IHT)
As above, the Autumn Budget more significant in what it omits than includes. No changes to Inheritance Tax (IHT) were announced although the current Nil Rate Band (NRB) and Residence Nil Rate Bands (RNRBs) have been frozen until 5 April 2026:
Nil Rate Band £325,000
Residence Nil Rate Band £175,000
The RNRB is restricted if an individual’s estate exceeds £2 million.
Summary
Although the message conveyed in the Chancellor’s Statement was ostensibly “Growth Up, Jobs Up, Debts Down” this seemed to translate to Taxes Up, Tax Rates Frozen, Tax Reliefs Down.
A measure of relief may be taken that this Statement provided very little tax spooks, scares or surprises. Rishi’s closing statement asserted “My goal is to reduce taxes by the end of this parliament”. Time will tell whether tax reductions will apply to all taxes or indeed all taxpayers…
If you have any questions around tax or require any professional tax advice… You can make an enquiry to Robson Laidler’s team of professional tax advisors here.