Autumn Budget 2021 Guide for Business
The UK Chancellor Rishi Sunak delivered a more extensive Autumn Budget statement than some were expecting. It began by promising stronger growth, stronger economy, stronger public finances, stronger employment. But did the announcements match the ambition?
Extra economic headroom translated to extended tax reliefs, fairer business rates, and a focus on R&D investment. Here’s an outline of the measures that matter to business.
Inflation is said to rise by an average of 4% over the next year driven by two forces: demand for goods outstripping supply and global demand for energy putting a strain on prices. The Chancellor admitted that this will “take months to ease.”
OBR now expects post-COVID recovery to be quicker, with the economy back to pre-COVID levels at the turn of 2022.
Economic growth has been revised up to 6.5% this year as the UK recovers from COVID. This then drops to 6% growth in 2022, followed by 2.1%, 1.3% and 1.6% up to 2025. This future decline falls below what was considered trend growth of 2.5% per year. If the Chancellor was hoping to finally solve the UK’s productivity problem, this statement may not have delivered much hope.
More cheerful statistics included a better than expected unemployment peak of 5.2%, two million fewer people out of work than previously anticipated earlier in 2021.
Wages have also risen by 3.5% since February, and business investment in the UK has been revised up over the next five years.
As for borrowing, OBR forecasts signal a steep decline from an unprecedented £355 billion in 2020/21 down to £183 billion in 2021/22, £83 billion, £62 billion then dropping down to a conservative £46 billion from 2024 to 2026. If the forecast is correct, this is a lower level of borrowing not seen since the financial crash and could create more room for spending pledges closer to the next election.
BANK SURCHARGE CUT FROM 8 TO 3%
The Bank surcharge cut announced in the Autumn Budget will save banks £4 billion in taxes over five years. The amount paid by banks will fall by £220 million next year, £830 million in 2023/24; £975 million in 2024/25; £995 million in 2025/26 and £1.02 billion in 2026/27, the Budget Red Book states.
NATIONAL LIVING WAGES INCREASE
Among the announcements leaked before Budget Day was an increase in the hourly rate for the National Living Wage (NLW) which was greater than inflation for those aged 23 or over, to £9.50 an hour. For an employee working a 35-hour week that would mean £17,290 a year. With the 1.25% increase in employers NIC to 15.05% on earnings over £9,100 a year would mean £1,233 on top, the cost to the employer would be £18,523 a year before pension costs.
In exchange for cutting the £20 a week uplift to Universal Credit this year, the Chancellor announced a cut in the taper rate from 63p to 55p. The taper rate is how much your Universal Credit gets reduced by for every pound you earn through work. So, every pound earned will be worth 45p rather than 37p. This will save an estimated £9 per week for the average Universal Credit claimant.
The work allowance, the amount some claimants can earn before the taper comes into effect, was also raised by £500 a year.
NO CHANGES TO INCOME TAX RATES AND PERSONAL ALLOWANCE FROZEN
The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.
As previously announced in the March Budget, the personal allowance and higher rate threshold have been frozen at £12,570 and £50,270 until 2025/26.
As announced on 7 September, from 6 April 2022 dividend income will be taxed at 8.75%, 33.75% and then 39.35%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. The first £2,000 of dividend income continues to be tax-free. The summary of the economic impact published on Budget Day suggests that these rates will remain in place until 2025/26.
SOME NATIONAL INSURANCE THRESHOLDS ARE CHANGING
The 1.25% increase in the rate of National Insurance Contributions (NICs) paid by workers and employers announced on 7 September to provide extra funds for Health and Social care will go ahead from 6 April 2022.
This will become a new Health and Social Care Levy from 2023/24 onwards.
Although the income tax personal allowance and thresholds are frozen until 2025/26, certain NIC thresholds have been increased In line with inflation. For 2022/23, employees and the self-employed will start paying NICs at £9,880 and pay at 10.25% (self-employed) and 13.25% (employees) up to £50,270. Note that the Upper Limit is frozen in line with the income tax higher rate threshold and that the new 3.25% rate will apply to earnings or self-employed profits in excess of £50,270.
Employer contributions at 15.05% will apply to earnings in excess of £9,100 a year for 2022/23.
“TEMPORARY” £1 MILLION ANNUAL INVESTMENT ALLOWANCE EXTENDED
Businesses investing in plant and machinery will welcome yet another extension in the 100% Annual Investment Allowance (AIA) until 31 March 2023. The 100% relief was scheduled to revert to £200,000 on 1 January 2022. This deduction is available to unincorporated businesses as well as limited companies and the equipment does not have to be new.
This tax allowance is not as generous as the 130% super-deduction announced in the March 2021 Budget which is available when new plant and machinery is acquired by limited companies between 1 April 2021 and 31 March 2023.
CULTURAL TAX RELIEFS DOUBLED
Eligible companies engaged in the production of qualifying theatrical productions, orchestral concerts, and museum and gallery exhibitions are currently able to claim an additional deduction in arriving at their profits. Where that additional deduction results in a loss, the company may surrender those losses for a payable tax credit similar to R&D tax relief.
The doubling of the relief is available for the costs of the production/performance incurred between 27 October 2021 and 31 March 2023.
£800m has also been set aside to protect museums, galleries, libraries and other local culture venues.
BUSINESS RATES TO BE MADE “FAIRER” AND 50% DISCOUNT FOR THE RETAIL AND HOSPITALITY SECTOR
The Government continue to promise a fairer system of Business Rates and will provide new reliefs for investment and improvements to business premises. In order to support businesses and jobs in the retail, hospitality and leisure sectors, the chancellor announced a 50% discount in business rates up to £110,000.
High Street businesses still operate at a significant disadvantage to online retailers who generally pay lower Business Rates, and some pay a lot less corporation tax. The Government will consult shortly on an Online Sales Tax which may help level the playing field.
CHANGES TO R&D TAX RELIEF
As announced in the Budget R&D, tax relief will be reformed from April 2023 to support modern research methods by expanding qualifying expenditure to include data and cloud costs, and to focus tax relief on innovation carried out in the UK. HMRC will continue to target abuse of this generous tax relief and improve compliance.
NEW RESIDENTIAL DEVELOPER TAX
From 1 April 2022 the Government will introduce a new tax on company profits derived from larger UK residential property developers. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the corporation tax returns of those companies liable to the new tax.
In other housing news, a multi-year housing settlement of £24 billion has been reached, with £11.5 billion earmarked for 180,000 affordable homes.
MORE TIME TO REPORT AND PAY CGT ON RESIDENTIAL PROPERTY DISPOSAL
Many were expecting big changes to capital gains tax in the Autumn Budget, particularly as the Office of Tax Simplification (OTS) had suggested that CGT rates should be aligned with income tax rates.
The Government have however taken on board the OTS recommendation that the 30 day reporting and payment deadline should be increased to 60 days. This will be a welcome change for property owners and their tax agents and will affect residential property disposals that complete on or after 27 October 2021.
Entrepreneurs will be relieved that CGT Business Asset Disposal Relief continues resulting in a 10% CGT rate on the first £1 million of lifetime gains.
PENSION TAX RELIEF UNCHANGED
There was much speculation that the Chancellor would restrict the tax relief for saving into a pension to basic rate only. Thankfully that has not happened (yet) and the key limits are unchanged. The annual pension input limit for most taxpayers remains at £40,000 which covers both individual and employer contributions. The lifetime pension allowance which dictates the size of the individual’s fund has been frozen at £1,073,100.
INDIVIDUAL SAVINGS ACCOUNT LIMITS FROZEN AGAIN
The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000 and the Junior ISA limit remains at £9,000 a year.
SIMPLIFICATION OF ALCOHOL DUTIES IN 5 STEPS
1 – Simplify the system by reducing the number of main duty rates to six. Duties will take a “common sense” approach: the stronger the drink, the higher the rate.
2 – Measures to encourage craft producers. A Small Producer Relief will include small cider makers and others producing alcohol that is less than 8.5%.
3 – End the duty premium of 28% on sparkling wines. Producers will now pay the same as still wines.
4 – Support for pubs with a Draft Relief, which will apply a new lower rate of duty on drafts of beer and cider. The cost of duty will be cut by 5% from February 2023: the biggest cut since 1923.
5 – The planned alcohol duty increase is cancelled, saving the industry £3 billion a year.
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If you would like to discuss how the measures could affect or benefit your business, please get in touch with your usual Cardens team.