To recap the October 2021 Budget Announcement
The two big tax changes funding Covid recovery were already known, the Health and Social Care Levy and the Corporation Tax changes coming in from April 2023.
Health and Social Care Levy
A 1.25% rise in Employer’s and Employee’s National Insurance (NI), Class 4 Self Employed NI and Dividend Tax (DT) from April 2022. For the first 12 months this is an increase to existing NI/DT rates. From April 2023 the levy will be split out separately from NI, meaning instead of seeing Income Tax and National Insurance on your payslips or Self-Assessment, you will now see three lines – Income Tax, National Insurance and Health and Social Care Levy.
Before the levy is introduced all three rates of National Insurance Contributions will increase by 1.25 percentage points, in April 2022. This has the same effect as the levy, except that it will not apply to earnings over state pension age. National Insurance Contributions rates will then return to their current levels in April 2023, when the levy comes into effect
From 6 April 2022 the tax rates that will apply to dividends will be 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate), dividends will continue to be taxed as the top slice of an individual’s income. All individual taxpayers will continue to be entitled to the tax-free dividend allowance of £2,000 per year.
The main rate rises to 25% from 19% from April 2023 – so a 6% increase. Businesses with profits below £50k will still pay 19% and there will be a taper for businesses with profits between £50k and £250k. It is projected to raise £12bn a year initially, rising to £17bn by 2025/26.
These are big sums, and it was no surprise that there were no other major tax increases in yesterday’s announcement.
No change to rates. Thresholds and Personal Allowance frozen for 2022-23.
Thresholds indexed for Employees and Self Employed Class 2/4, frozen for Employers. Other than the 1.25 percentage point increase prior to the introduction of the Health and Social Care Levy mentioned above, there will be no change to rates. Small inflationary rise, 10p a week, to Class 2 Self Employed NI.
Capital Gains Tax
No changes to rates, no major changes to allowances/exemptions. Annual exemption frozen.
No changes to rates, no major changes to allowances/exemptions. Nil Rate Bands frozen.
Abolition of cross border loss relief
As the UK has now left the EU, the legislation permitting UK companies to claim group relief in limited circumstances for losses incurred in the EEA will be repealed. In addition, legislation that limits the amount of losses that an EEA resident company trading in the UK through a UK Permanent Establishment (PE) can surrender as group relief will be amended to align with the rules with companies resident elsewhere in the world.
Following the judgment in Marks & Spencer (C 446/03), the group relief provisions had been amended to allow cross-border group relief subject to certain conditions in order to comply with the UK’s obligations as an EU member state.
The group relief provisions currently allow non-UK resident EEA companies to surrender losses as group relief to UK companies in limited specific circumstances. In addition, EEA companies trading through a UK PE can only surrender losses of its UK PE if those losses have not been actually deducted from non-UK profits of any person. Any other non-UK resident company can only surrender losses of a UK PE if it is not possible for those losses to be deducted from non-UK profits of any person for any period.
These changes will apply for accounting periods ending after 27 October 2021, and where a company’s accounting period straddles this date, it will be deemed as separate accounting periods for the purpose of applying these changes.
Value Added Tax
No changes to rate or registration/deregistration threshold. This is the Government’s table of Rates and Allowances.
Other Significant Announcements
Here is the run down on other significant announcements which are likely to be of interest to our clients:
Business Rates Review
The results of the ongoing review of Business Rates was published. In short they are staying, which will be disappointing to the Retail, Hospitality and Leisure (RHL) sector, but no significant surprise. There will be a freeze on the multiplier for 2022-23, and a 50% discount for the RHL sector in 2022-23 (down from 66% at present).
More frequent revaluations are going to be introduced along with requirements to notify the Valuation Office Agency of changes which impact valuation, and reforms to the appeal process known as Check, Challenge, Appeal. The idea of an Online Sales Tax to level up between online and bricks and mortar businesses is still being looked at, but no decisions have been made.
Basis Period Reform
This will affect Sole Traders and Partnerships who don’t prepare their business accounts to 31 March/5 April. It’s been deferred from April 2023 to April 2024 and with some additional spreading options.
In our experience this needs a review on a case-by-case basis, which we are doing for our clients affected by it; in many cases there are simple steps to get ahead of this, in other cases it needs more thought and planning.
Minimum Pension Age
Is rising from 55 to 57 from 2028. This is the age at which benefits can be taken from Private Pensions – don’t confuse it with State Pension Age.
Plastic Packaging Taxes
If you are a business that manufactures or imports 10 or more tonnes of plastic packaging over a 12-month period you will need to register for the tax. This is regardless of whether you will have to pay any tax. This includes importers of packaging which already contains goods, such as plastic bottles filled with drinks. Where the packaging you import already contains other goods, the tax only applies to the plastic packaging itself.
Residential CGT Reporting Time-scale extended
This applies from 27th October 2021. Currently, under new rules introduced from 6 April 2020, CGT (Capital Gains Tax) on Residential Property transactions needs to be reported and paid 30 days after completion; from 27th October 2021 it’s 60 days. This reflects that the new system hasn’t been working well.
Do note the requirement only applies if there is CGT due, e.g. a second home, mixed use property or investment property – there is no CGT due, and hence no reporting, for the straight forward sale of the main home. Non-UK residents are also required to submit UK Land Returns, but with a wider scope that also covers the disposal of UK commercial property and shares in certain companies that hold UK property.
Annual Investment Allowance
The temporary increase in the limit of Annual Investment Allowance (AIA) of £1 million per annum will be extended from 31 December 2021 to 31 March 2023 to align with the end dates of the super-deduction and special rate allowance. This measure will benefit businesses investing in qualifying plant and machinery in the period to 1 April 2023.
It will particularly help those businesses that are not eligible for the super-deduction which is only available to companies subject to corporation tax. It enables the cost of qualifying expenditure on plant and machinery, up to the limit of £1 million, to be offset against taxable profits in the year of expenditure.
The AIA is expected to revert back to the permanent level of £200,000 from 1 April 2023. Transitional provisions will apply where businesses have a chargeable period that spans the date of reversal to the AIA limit by apportioning the periods before and after the change in rates. The transitional rules will need to be considered to ensure opportunities to maximise the AIAs available are not overlooked.
Universal Credit Taper
Cut from 63p to 55p. This is the amount of UC someone loses for a pound of extra earnings. The change helps to remove some of the fiscal disincentives to come off of benefits and into work, but it’s questionable whether it will free up the labour market to any great degree, nor make up for the loss of the UC supplement paid during the pandemic.
National Living Wage
Goes up from £8.91 to £9.50 for the over 23s from April 2022.
There was a raft of spending announcements – which are difficult to both summarise and review, and to distinguish between what’s new and what’s recycled announcements.
Technical Taxation Measures
As usual there was a raft of corrective and technical announcements, covering areas as diverse as Theatre, Orchestra, and Museums and Galleries Exhibition Tax Relief through to interactions of Loss Relief and International Financial reporting standards – suffice to say a review of these throws up nothing of immediate concern.
Obviously, this is a quick review of yesterday’s announcements, and more detail will inevitably seep out over coming weeks. However, our initial summary is that other than the two big tax rises pre-announced, there is nothing of significant concern tax wise for the smaller business announced yesterday.
This newsletter includes advice that is generic in nature and should not be interpreted as legal advice. Please contact us for specific and confirmed tax planning advice.
*Content accurate as at 28 October 2021.