It was an Autumn Budget of significant spending declarations but notable for little on the subject of taxation!
This perhaps was unsurprising, the earlier March Budget saw the freezing of thresholds and allowances for income tax, and this was followed by the subsequent introduction of the health and social care levy in September. These policy announcements mean large amounts of tax revenue are due to be raised over the next 5 years. Consequently the tax side of this statement was, in many ways, already done and this set the scene for more spending.
The real question was, given how the government had gone on a war like footing to tackle the COVID-19 pandemic, and how integrated it had become in people's lives, would Chancellor Rishi Sunak attempt to row back on the role of the state moving forward? The answer it would appear is a definitive no!
Increased capital expenditure combined with the levelling up agenda means the UK economy is dependent on a bigger government, and that has to be funded. The latest tax rises have resulted in the tax take reaching a 71 year high of 34% as a share of GDP, and this is forecast to reach 36% by 2026/27.
Inflation is the proverbial elephant in the room, and whilst it was referenced, the government's 5 year forecasts suggest a significant drop in GDP from 6.5% this year to 1.25% by 2026/27. This may be due to interest rates going up to deal with rising prices. Can this anaemic future growth really fund such a big government? If not, is there any scope left for further tax rises from here?
There will be a 6.6% increase to the National Living Wage. It will rise to £9.50 an hour as of 1 April 2022. This represents another increase in costs for employers and follows on from the health and social care levy (full details in the link), which is chargeable on employer NIC as well as employee NIC.
Young people and apprentices will benefit from increases in National Minimum Wage rates. These are as follows:
Current minimum wage per hour
Minimum wage per hour from 1 April 2022
21 - 22 years old
18 - 20 years old
16 - 17 years old
All of these increases are in excess of the expected CPI inflation rate for next year of 4%.
A cut to business rates
Around 400,000 retail, hospitality and leisure properties will be eligible for the new, temporary, £1.7bn of business rates relief from April 2022. The business rates multiplier will be frozen from 2022/23. This means business rates bills will be 3% lower.
A new business rates relief will be introduced from 2023. It is designed to ensure businesses won't incur higher bills for 12 months after they've undertaken 'qualifying' improvements to the property they occupy.
The Annual Investment Allowance extension
The Annual Investment Allowance (AIA) will stay at £1 million until 31 March 2023. The temporary increase was set to finish at the end of this year. Businesses will welcome this news where they're looking to invest in qualifying plant and machinery. This comes off the back of the previously announced super deduction which provides companies with a tax deduction of 130% of eligible qualifying expenditure up to March 2023.
The announcement will therefore be more beneficial to organisations who have significant expenditure on special rate expenditure. This would have otherwise only qualified for a 50% super deduction if not covered by the annual investment allowance already.
More time to pay Capital Gains Tax on property transactions
As of 27 October 2021 the deadline for reporting and paying Capital Gains Tax (CGT), following completion of the sale of UK residential property, will increase to 60 days. Previously it was 30 days. This increase also applies to non-UK residents disposing of UK property.
Basis period reform
The previous basis period rules for unincorporated businesses will be reformed and legislated for in the Finance Bill 2021/22. Consequently all business profits (or losses) for a tax year will be calculated with reference to those profits and losses arising in the tax year itself, regardless of the business’ accounting date.
This will simplify what can often be a complex tax area. It will reduce the need for profits to be taxed twice by HMRC in instances where a business starts up, or when a partner joins a partnership.
The transition to the new rules will take place in 2023/24. The new rules will come into force from 6 April 2024. During the transition year, overlap relief can be used. This means any profit generated during the alignment of the basis period with the tax year will be able to be spread over a 5 year period for tax purposes, starting with the tax year.
This reform will lead to an initial acceleration of tax collection for the Treasury as a result of the alignment.
Making Tax Digital implementation dates
The introduction of Making Tax Digital (MTD) was supposed to come into force from April 2023, for any taxpayers with businesses and/or property incomes of more than £10,000. This will be delayed and the new dates are:
April 2024 for taxpayers who are sole traders or landlords
April 2025 for taxpayers who are classed as general partnerships
There will however, be some voluntary pilot schemes before 2024 and also voluntary signing up for taxpayers with profits of less than £10,000.
This will take the form of a 1.25% increase on each dividend rate:
Income tax band
Dividend tax rate 2021/22
Dividend tax rate 2022/23
(income of £12,570 - £50,270)
(£50,271 - 150,000)
The thinking behind this is to ensure that people earning through dividends, not employment or self-employment, also make a contribution to funding additional health and social care spending.
R&D tax relief
The cost eligibility scope of the R&D tax relief scheme will be now extended to include data and cloud computing from April 2023. This was in response to calls for the scheme to take into account modern research methods and the use of technology.
The government are targeting relief to innovation undertaken in the UK as opposed to overseas. The issue being R&D was in effect being funded for projects that weren't based in the UK. This follows in the foot steps of a model already adopted by Australia.
The details of how the relief will be reformed are yet to be announced however, more detail will be set out later in the Autumn.
Alcohol duties reforms
Drinks will be taxed according to their alcohol content, with higher strength products incurring proportionately more duty with a standardised set of bands.
Air passenger duty
A new domestic band for air passenger duty for 2023 will be set at £6.50 for flights between airports in England, Scotland, Wales, and Northern Ireland.
Fuel duty and electric vehicles
Fuel duty has been frozen yet again, that's now the 12th year running. At the same time more money is being spent on infrastructure for electric vehicles with £620m allocated to installing charging points.
The triple-lock increase in state pensions is suspended for the 2022-23 tax year. This will achieve an estimated saving for the government of £5.4bn next year. However, the saving will be greater in future tax years! This is because state pensions will then rise from a lower base when the triple lock comes back in.
Start-up Loans Scheme
There will be an extension to the Start-up Loans Scheme. This allows entrepreneurs to borrow up to £25,000 for new ventures over a time frame of 3 or more years.
This post was created on 28/10/2021 and updated on 29/10/2021.
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