The Chancellor’s Budget yesterday (27th October 2021) focused very much on spending commitments, rather than on taxes. This was perhaps not surprising given we had already seen the announcements of significant increases to Corporation Tax (effective April 2023) in the March budget and to National Insurance (effective April 2022) last month.
The Treasury remains focused on repairing the public finances, but at the same time has not fully withdrawn support for businesses, particularly those most affected by the pandemic. The government is also, increasing the minimum wage greater than inflation and changing the Universal Credit taper, seeking to ensure that those in work are better off.
Against this background, there were a number of important announcements for businesses and business owners.
The National Living Wage increased to £9.50 an hour
Among the announcements leaked before Budget Day was an increase in the hourly rate for the National Living Wage (NLW) for those aged 23 or over, to £9.50 an hour. For an employee working a 35-hour week, this is equivalent to a salary of £17,290 a year. This is effective from April 2022 and businesses with salaried employees with earnings around this level should review closely before then to make sure that they do not inadvertently breach the minimum wage/living wage regulations.
Business rates changes and 50% discount for the retail and hospitality sector
The Chancellor sought to boost struggling businesses with premises by revealing a five-point plan to retain and revamp business rates in England, starting with cancelling the multiplier for 2022/23 and confirming revaluations will take place every three years from April 2023, instead of every five years. He also announced a 50% discount on business rates up to £110,000 for businesses in the retail, hospitality and leisure sectors.
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.
£1 Million annual investment allowance extended
The 100% Annual Investment Allowance (AIA) will now remain at £1m until 31st March 2023. The AIA is less generous than the 130% super-deduction which is available when new plant and machinery is acquired by limited companies between 1 April 2021 and 31 March 2023. However, it remains very valuable as the AIA covers integral features and second-hand equipment – which do not receive the 130% super deduction – and is available to unincorporated businesses as well as to limited companies.
Changes to R&D tax relief
R&D tax reliefs 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.
Basis period reform
The Government is going to reform the basis period rules for self-employed individuals and partners. A business’s profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of the accounting date of the business. On transition, all basis periods will be aligned to the tax year and all outstanding overlap relief is given. It is now expected that the new rules will come fully into force on 6 April 2024, with 2023/24 being the transitional year.
Income tax rates and personal allowance
It had previously been announced that the basic and higher rates of income tax will remain at 20% and 40% respectively and that the 45% additional rate will continue to apply to income over £150,000. It had also previously been announced that the personal allowance and higher rate threshold will remain frozen at £12,570 and £50,270 until 2025/26.
However, the tax rate on dividend income will increase by 1.25% from 6th April 2022 to 8.75%, 33.75% or 39.35%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band.
National insurance rates and thresholds
It was announced in September that there will be a 1.25% increase in the rate of National Insurance Contributions (NICs) payable by employees and employers 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. By 2022/23, employees and the self-employed will start paying NICs at £9,880. Employer contributions at 15.05% will apply to earnings in excess of £9,100 a year for 2022/23.
Capital gains tax changes
Many were expecting big changes to capital gains tax in the Autumn Budget, with some expecting rates to be aligned with income tax rates.
The government has not increased rates, nor has it made changes to Business Asset Disposal (Entrepreneurs’ Relief), with a 10% tax rate continuing to apply to the first £1 million of lifetime gains.
The Chancellor has however announced that the deadline for reporting and paying tax in relation to residential property disposal will increase from 30 days to 60 days for disposals completed on or after 27 October 2021.
Pension tax relief unchanged
There was again speculation that the Chancellor would restrict the tax relief for saving into a pension to basic rate only. No changes to rates and allowances have been announced with the annual pension input limit for most taxpayers remaining at £40,000 and the lifetime pension allowance remaining at £1,073,100.
Budget webinar – Thursday 4th November 2021
Join us online for our autumn budget round up, Thursday 4th November 9.30 am – 10.15 am. Book your complimentary place on Eventbrite now.
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