The Chancellor of the Exchequer presented the Government’s Autumn Budget and Spending Review to Parliament on Wednesday 27th October.

The Autumn Statement didn’t reveal any radical changes to the UK tax system, nor did it contain the environmental policies that many people had anticipated. However, it did feature amendments to UK taxation laws that have the potential to impact several major UK sectors, notably:

  • Creative
  • Retail
  • Hospitality and leisure

Let’s look at how the Chancellor’s statement affects both the UK business community and private individuals.

 

Autumn Budget 2021 Impact on Businesses

 

Corporate Tax

The Chancellor announced no changes to the UK’s corporation tax regime on top of those announced in the March budget. From  April 2023, corporation tax rates will rise to 25% from the current level of 19%. The 19% rate will continue to apply to companies with profits of not more than £50,000, with marginal relief for profits up to £250,000.

As was forecasted, Rishi Sunak has also confirmed a reduction in the additional banking surcharge from 1st April 2023 levied on the profits of banking companies, from 8% to 3% per cent.

 

Business Rates

The Chancellor announced wholesale changes to the UK business rates system.

The current system will be modernised by moving from a five-yearly valuation cycle to a three-year one.

Ratepayers will also be subject to new reporting obligations related to their properties’ character, occupancy, and rental values. The next valuation will take effect in 2023 and will reflect property values in 2021.

The Chancellor has also announced measures that support green technologies and encourage the decarbonisation of commercial buildings. The budget includes exemptions for green energy sources such as solar panels and wind turbines and a 100% rate relief for low-carbon heat networks.

There is additional help for businesses in the retail, hospitality and leisure sectors that are not already fully exempt from business rates through small business rates relief. These firms will benefit from a 50% relief for the year to 31st March 2023, up to a maximum value of £110,000 per business.

 

R&D Tax Relief

From April 2023, Research & Development tax relief has been extended to include costs incurred from data and cloud computing operations. However, the relief will be restricted to domestic spending at this point too.

 

Capital Expenditure

The Annual Investment Allowance (AIA) limit of £1,000,000 for qualifying plant and machinery expenditure has also been extended to cover purchases made from 1st January 2022 to 31st March 2023 (the limit was originally set to return to £200,000 from 1st January 2022).

 

VAT-free zones / Freeports

Following the Chancellors designation of Freeports last year, he announced that the first three Freeport sites to commence operating in November 2021 would be Humber, Teesside and Thames. The Chancellor has also announced that It would begin legislating for a ‘free zone exit charge’. This is a significant change to the previously announced rules for VAT collected at Freeports, ensuring that firms aren’t able to obtain an unintended tax advantage from zero tax rates within the free zone model. The existing proposals also include a new zero rate for the sale of goods within a free zone regime.

 

Abolition of cross border loss relief

As the UK has now left the European Union, the legislation permitting UK companies to claim group relief in limited circumstances for losses incurred in the European Economic Area (EEA) will be repealed.

In addition, legislation limiting the amount of losses that an EEA resident company trading in the UK through a UK PE can surrender as group relief will be amended to align the rules for EEA-resident companies with companies resident elsewhere in the world.

The Chancellor also indicated his intention to legislate to treat all UK permanent establishments the same, by restricting them from surrendering losses where there is only a theoretical ability to relieve the loss against non-UK profits.

 

Diverted Profit Taxes

Diverted profits tax (DPT) charges tax at the rate of 25%, intending to deter and counteract the diversion of profits from the UK, predominantly by large organisations.

As it stands, companies who charged profits to DPT and avoided permanent establishments are allowed to amend their corporation tax return during the first 12 months of the review period to enable profits to be taxed at the corporation tax rate of 19%.

The Chancellor’s proposed amendments to the legislation will extend this period to the whole of the review period, except the last 30 days.

The changes will also ensure that an enquiry into the company tax return for the accounting period may not be closed during the review period.

 

Hybrids: transparent entities

The Chancellor has confirmed the Government’s intention to introduce this change in Finance Bill 2021-2022, with retrospective effect from 1st January 2017, that will allow payments made to ‘relevant transparent entities’ to qualify for an existing exclusion from Chapter 7 of the hybrid and other mismatch rules, that currently only apply to payments to partnerships.

This will leave some taxpayers in a challenging situation before December filing deadlines if the new clause is expected to be beneficial but is not yet within UK tax law. In addition, once any revised draft legislation is published, businesses will need to carefully consider how the new rules will be applied to their structure.

 

Creative sector tax reliefs

A sizeable portion of the Chancellor’s statement was dedicated to innovation and the hospitality sectors, but the budget has also provided significant relief for creative businesses across the UK.

Theatre tax relief has been increased from 20% for non-touring productions to 45% until 31st March 2023, then 30% to 31st March 2024. The increase for touring productions has risen to 50% from 25% up to March 2023, and a reduction to 35% following that.

Orchestra tax relief has been increased to 50% from its current level of 25% until 31st March 2023, and then back down to 35% for the year up to 31st March 2024.

 

Simplifications to REITs regime

Whilst the budget didn’t contain many announcements regarding the UK real estate sector, there were some amendments to taxation surrounding real estate investment trusts.

The Chancellor has indicated that further to announcements made this year, the Government will forge ahead with several simplifications to the Real Estate Investment Trusts (REITs) regime.

The main change is regarding listing requirements, which will be removed entirely for cases where institutional investors hold at least 70% of the REIT.

This can make REITs more attractive to institutional investors, as it would remove the associated cost of maintaining a listed entity.

 

Autumn Budget 2021 Impact on Individuals

 

Dividend tax

Dividend Tax will increase by 1.25% across the board effective from 2022/23 tax year.

From 6th April 2022, the tax rates that will apply to dividends will be:

Income tax band Dividend tax rate 2021-22 Dividend tax rate 2022-23
Basic rate 7.5% 8.75%
Higher rate 32.5% 33.75%
Additional rate 38.1% 39.35%

There are no proposed changes to the dividend allowance. Any person with dividend income can benefit from the dividend allowance, which has been £2,000 since April 2018. Dividends within the £2,000 allowance are not charged to tax, and this will remain the case.

There are no proposed changes to paying dividend tax on shares held in a stocks and shares ISA, junior ISA, lifetime ISA or self-invested pension plan (SIPP).

 

National Insurance Contribution (NIC)

The Health & Social Care Levy introduction will add 1.25% to both employees and employers Class 1 NIC (including Classes 1A and IB) to Class 4 NIC from 6th April 2022 (a combined increase of 2.5%).

This increase will be reversed in the 2023-24 tax year and replaced by the new levy at the same amount.

In addition, the Health and Social Care Levy will apply to those over state retirement age who do not currently pay National Insurance contributions.

Other thresholds will be increased by September’s Consumer Price Index (CPI) of 3.1%.

Class 1 employee rates

Current 2022-23
On earnings up to LEL Nil Nil
On earnings between LEL and PT 0 0
On earnings between PT and UEL 12.0 13.25
On earnings above UEL 2.0 3.25
Married women’s reduced rate 5.85 7.1
Deferred rate 2.0 3.25

 

Class 1 employer rates

Current 2022-23
On earnings up to LEL Nil Nil
On earnings between LEL and ST 0 0
On earnings above ST (with exceptions) 13.8 15.05
On under 21s’ earnings between ST and UST 0 0
On Apprentices’ earnings between ST and AUST 0 0
On veterans’ earnings (year 1) between ST and VUST 0 0
On Freeport workers’ earnings (years 1 to 3) between ST and FUST n/a 0
On earnings over UST, AUST, VUST and FUST 13.8 15.05

 

Benefit in Kind (BiK)

The Chancellor confirmed that the BiK rates for company cars previously announced for the 2022-23 tax year will remain frozen until 2024-25.

 

Basis Period Reform / Self-Assessment

Starting in 2024/25, with a transition year in 2023/24, the Chancellor has indicated the Governments intention to introduce basis period reform to simplify the way in which it taxes those who are self-employed, and business partnerships, changing the way that profits are calculated for the tax year on the whole.

This will now be based on the profits generated in the tax year rather than on the profits of a 12-month set of accounts ending in the tax year.

The Government claims that the new system will significantly reduce the burden of calculating overlap taxation and relief and remove the tax deferral advantage possible under the old system.

It will however lead to sole traders and partnerships with year ends that are currently not 31 March or 5 April paying income tax on more than one year’s worth of profits during the transition year. This issue could be further exacerbated by sole traders and partners of partnerships who are normally basic rate taxpayers being pushed into the higher tax of tax in that year.

 

Capital Gains Tax

The Chancellor announced that the Capital Gains Tax payment deadline on property disposals has been extended from 30 days to 60 days, with immediate effect.

When disposing of UK land and property on or after 27th October 2021, the payment deadline has also been extended from 30 days to 60 days for making Capital Gains Tax (CGT) returns and associated payments on account.

The Government has also simplified reporting procedures by doubling taxpayers’ reporting timeframe whose disposals are complete after 27th October 2021. These individuals will have 60 days, up from 30 days, to report and pay their property’s capital gains tax obligations.

 

DS Burge & Co for financial expertise

We’ve summarised the main points of the Chancellor’s speech for you, but as with all budgets, this isn’t the whole story.

If you’d like to get a better understanding of how the 2021 budget impacts your business or your personal finances, please don’t hesitate to get in touch with our team of expert accountants in Wimbledon or Surbiton.