By Graham Hambly, PQ magazine editor

Worries of inflation above 4% hung over Chancellor Rishi Sunak as he unveiled his Autumn Budget and spending review for 2021.

On a positive note, he explained that the UK economy is forecast to return to pre-Covid levels by next year, and annual growth is set to rise by 6.5% this year.

Since February 2020 wages have grown in real terms by 3.4%, and unemployment is expected to peak at 5.2% next year.

To help with living costs the Chancellor froze fuel duty and the duty rates on alcohol. On top of cancelling the planned rises on alcohol duty, there are moves to simplify the whole system, reducing the 15 rates to just 6. He also cut the taxes for sparkling wine and draught beer.

A 50% business rates discount for retail, hospitality and leisure sectors was another highlight. And, Sunak confirmed business rates were to be ‘retained and reformed’.

If you are planning to fly internally then you will pay lower Air Passenger Duty too from April 2023, but taxes will go up on flights over 5,000 miles. 

So, here are the highlights of the 200-page Budget Report.

Raising living standards

The government is increasing the National Living Wage to £9.50 an hour from April 2022 and is reducing the taper rate in Universal Credit (UC) from 63% to 55%, as well as increasing work allowances in UC by £500 a year. 

Recognising that fuel is a major cost for households and businesses, the government will keep fuel duty frozen at 57.95 pence per litre UK-wide for 2022-23. This is the twelfth consecutive freeze, saving the average UK car driver a cumulative £1,900, compared to the pre-2010 escalator. 

In addition, the duty rates on beer, cider, wine and spirits will be frozen for another year. The Alcohol Duty system will undergo a major simplification. Drinks will be taxed in proportion to their alcohol content, making the system fairer and more conducive to product innovation in response to evolving consumer tastes. Alongside this, a new relief that recognises the importance of pubs and supports responsible drinking will be introduced, with duty rates on draft beer and cider being cut by 5%.

Reducing the burden of business rates

Following a review, the government has promised it will reduce the burden of business rates in England, and make the system fairer, more responsive and more supportive of investment. Up to 400,000 retail, hospitality and leisure properties will be eligible for a new, temporary £1.7 billion business rates relief next year. 

The government is also freezing the business rates multiplier in 2022-23. The multipliers will be kept at 49.9p and 51.2p. From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy. 

The government will continue to explore the arguments for and against a UK-wide Online Sales Tax, the revenue from which would be used to reduce business rates for retailers with properties in England and with the block grants of the Devolved Administrations increased in the usual way. The government will publish a consultation shortly.

Bank Corporation Tax Surcharge

At the Spring Budget 2021, the government announced a review of the Bank Corporation Tax Surcharge to establish an appropriate rate considering the upcoming increase in the main rate of corporation tax from 19% to 25%. The Budget announces the completion of that review. To ensure that banks continue to pay their fair share of tax while maintaining the UK’s financial services competitiveness and safeguarding British jobs and tax revenue, the government is setting the rate of the surcharge at 3% from April 2023. This new rate ensures that banks will continue to pay a higher rate of overall corporation tax than other companies (28% versus 25%) and a higher rate than they did previously (27%).

Business investment

The government will support UK businesses by extending the temporary £1 million level of the Annual Investment Allowance to 31 March 2023. This will provide businesses with more upfront support, encouraging them to bring forward investment, and making tax simpler for any business investing between £200,000 and £1 million. 

The Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses. Finance will be available up to a maximum of £2 million per business, supporting them to recover from the impact of the pandemic and to grow. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover.

To help businesses across the UK access the finance they need the government is: 

  • Confirming over £1.6 billion for the British Business Bank’s Regional Funds to provide debt and equity finance to SMEs, and to expand the Regional Angels programme.
  • Providing funding for Start Up Loans to deliver 33,000 loans to entrepreneurs across the UK looking to start or grow their business.

In addition, the Help to Grow scheme will provide further productivity support to over 100,000 SMEs around the UK through world-class management training and support for digital adoption.

Taxes

As announced by the Prime Minister on 7 September 2021, the government has legislated for a new 1.25% Health and Social Care Levy (the Levy), to fund a historic investment in the NHS and social care. The Levy will apply UK-wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self Employed) National Insurance contributions (NICs), and to the main and additional rates. The Levy will not apply to Class 2 NICs or Class 3 NICs. The Levy will be effectively introduced from April 2022, when NICs for working-age employees, self-employed people and employers will increase by 1.25% and be added to the existing NHS allocation. From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated and will also apply to the earnings of individuals working above State Pension age, and NICs rates will return to their 2021-22 levels. From April 2023, receipts from the Levy will go to those responsible for health and social care across all parts of the UK.

Legislation will also be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate. The changes will apply UK-wide and will take effect from 6 April 2022. In England, revenue from this increase will help to fund the health and social care settlement announced in September with the Barnett formula applying in the normal way. This change will ensure those with dividend income contribute to line with that made by employees and the self-employed on their earnings.

The government will use the September CPI figure of 3.1% as the basis for uprating National Insurance limits and thresholds, and the rates of Class 2 and 3 NICs, for 2022-23. This excludes the Upper Earnings Limit and Upper Profits Limit which will be maintained at current levels in line with the higher rate threshold for income tax.

As announced in February 2021, the government will introduce a new tax from April 2022 on the profits that companies and corporate groups derive from UK residential property development, to ensure that the largest developers make a fair contribution to help pay for building safety remediation. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million.

From 27 October 2021, the deadline for residents to report and pay CGT after selling UK residential property will increase from 30 days after the completion date to 60 days. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days. This will ensure that taxpayers have sufficient time to report and pay CGT, as recommended by the Office of Tax Simplification.

Indirect taxes

Duty rates on all tobacco products will increase by RPI + 2%. The rate on hand-rolling tobacco will increase by RPI + 6% and the minimum excise tax will increase by RPI +3% this year. These changes will take effect from 6 pm on 27 October 2021.

Tax administration and non-compliance

The government will legislate in Finance Bill 2021-22 to reform income tax basis periods so businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of its accounting data. This removes the complex basis period rules, the need to charge tax on profits twice and the need for overlap relief. The transition to the new rules will take place in 2023-24 and the new rules will come into force from 6 April 2024. 

As announced on 23 September 2021, the government will give sole traders and landlords, with income over £10,000 an extra year to prepare for MTD. MTD for ITSA will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025.

As announced on 23 September 2021, the new regime of penalties for the late filing and late payment of tax for ITSA will now come into effect on 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD, and 6 April 2025 for all other ITSA taxpayers. The new regime of VAT penalties will come into effect for VAT taxpayers from periods starting on or after 1 April 2022, as announced at Budget 2021.

The government will legislate in Finance Bill 2021-22 for further measures to clamp down on promoters of tax avoidance. The package of measures, which will take effect following Royal Assent, will: 

  • Allow HMRC to freeze a promoter’s assets so that the penalties they are liable for are paid. 
  • Deter offshore promoters by introducing a new penalty on the UK entities that support them. 
  • Provide for the closing down of companies and partnerships that promote tax avoidance schemes. 
  • Support taxpayers to steer clear of avoidance schemes or exit avoidance quickly, by sharing more information on promoters and their schemes.

Read the 2021 Autumn Budget in full here.

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