Autumn Budget 2021
After a turbulent couple of years as a result of the pandemic and government spending going through the roof, it was always going to be a bit of a painful budget as the government tried to tackle the growing debt of the nation. A rise in taxes was almost inevitable.
The Chancellor had to try and tackle the national debt which has continued to soar, without causing growth and the economic recovery to stagnate. If this wasn’t hard enough there was also the looming backdrop of inflation which is also hitting families hard as every day prices continue to rise.
This all meant that it was a fine tight rope that Rishi had to walk and only time will tell as to whether the taxation policies implemented has the desired effect
We have summarised the main points that came out of the budget below, but should you require any further help or assistance in interpreting the budget and how it will affect you, then please give us a shout at BJT Accountants and we would be happy to offer our assistance.
Main Budget proposals
Tax measures include:
- A new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23
- A change in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028 this will rise to 57
- The retention of the £1 million annual investment allowance until 31 March 2023
- Individuals disposing of UK property on or after 27 October 2021 now have a 60 day CGT reporting and payment deadline, following the completion of the disposal
Other measures include:
- A complete overhaul of alcohol duties that will see drinks taxed on their strength
- The cancellation of the previously announced rise in fuel duties
- Pubs supported with a reduction in draught beer and cider duty
- Increases in the National Living Wage and the National Minimum Wage rates
- An ultra-long-haul band of air passenger duty introduced
Personal Tax
The personal allowance
The personal allowance is currently £12,570. The Chancellor announced in the March 2021 Budget that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.
Tax bands and rates
The basic rate of tax is 20%. In 2021/22 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.
At Spring Budget 2021, the Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.
Individuals pay tax at 45% on their income over £150,000.
Tax on savings income
Savings income is income such as bank and building society interest.
The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.
Tax on dividends
The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates for 2021/22:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers
In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
Increase to the normal minimum pension age
The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57.
This measure will affect individuals born after 5 April 1973 whose earliest date to access their pension benefits will see a two-year delay to those born on or before that date.
Employment
National Insurance Contributions (NICs)
In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.
The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy
National Living Wage (NLW) and National Minimum Wage (NMW)
Following the recommendations of the independent Low Pay Commission, the government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also accepted the recommendations for the other NMW rates to be increased.
From 1 April 2022, the hourly rates of NLW and NMW will be:
- £9.50 for those 23 years old and over
- £9.18 for 21-22 year olds
- £6.83 for 18-20 year olds
- £4.81 for 16-17 year olds
£4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
Business
Making Tax Digital for income tax
The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024. Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.
Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.
HMRC has also confirmed that the new system of penalties for the late filing and late payment of tax for income tax self assessment will be aligned with when a taxpayer becomes mandated into MTD for income tax. For individuals without trade or property income or otherwise exempt from MTD for income tax, the new penalty regime will apply to their income tax affairs from 6 April 2025.
MTD for corporation tax.
HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.
Corporation tax rates
The main rate of corporation tax is currently 19%. In the Spring Budget 2021, the Chancellor announced the rate would remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Capital allowances
Plant and machinery
Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022. The £1 million allowance will now be retained until 31 March 2023.
Reminder – super-deductions
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from new capital allowances, termed ‘super-deductions’ or ‘first year allowances’, as follows:
- A super-deduction of 130% can be claimed on most new plant and machinery investments that ordinarily qualify for the 18% main rate writing down allowances
- A first year allowance of 50% can be claimed on most new plant and machinery investments that ordinarily qualify for the 6% special rate writing down allowances.
These reliefs are not available for unincorporated businesses.
Research and Development relief reform
Research and Development (R&D) tax reliefs for companies will be reformed to:
- Support modern research methods by expanding qualifying expenditure to include data and cloud costs
- More effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
- Target abuse and improve compliance.
These changes will take effect from April 2023.
Capital Taxes
Capital gains tax (CGT) rates
No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.
CGT annual exemption
The CGT annual exemption will be maintained at the current level of £12,300 for 2022/23 and up to and including 2025/26.
Inheritance tax (IHT) nil rate bands
The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026.