Here is our preliminary review of todays (27ths October 2021) Budget and Spending Review.
The two big tax changes funding Covid recovery were already known, viz the Health and Social Care Levy and the Corporation Tax changes coming in from April 2023. To recap:
- Health and Social Care Levy – a 1.25% rise in Employers and Employees NI, Class 4 Self Employed NI and Dividend Tax (DT) from April 2023. For the first 12 months this is an increase to existing NI/DT rates.
From April 2024 the levy will be split out separately from NI, meaning instead of seeing Income Tax and National Insurance on your payslips or Self Assessment, you will now see three lines – Income Tax, National Insurance and Health and Social Care Levy.
It is projected to raise £13bn annually.
- Corporation Tax – the main rate rises to 25% from 19% from April 2023 – so a 6% increase. Businesses with profits below £50k will still pay 19% and there will be a taper in for businesses with profits between £50k and £250k.
It is projected to raise £12bn a year initially, rising to £17bn by 2025/26.
These are big sums, and it was no surprise that there were no other major tax increases in todays announcement.
- Income Tax – no change to rates. Thresholds and Personal Allowance frozen for 2022-23.
- National Insurance – thresholds indexed for Employees and Self Employed Class 2/4, frozen for Employers. Other than the 1.25% levy no change to rates. Small inflationary rise, 10p a week, to Class 2 Self Employed NI.
- Capital Gains Tax – no changes to rates, no major changes to allowances/exemptions. Annual exemption frozen.
- Inheritance Tax – no changes to rates, no major changes to allowances/exemptions. Nil Rate Bands frozen.
- Corporation Tax – no immediate changes to rates for 2022/23.
- Value Added Tax – no changes to rate or registration / de-registration threshold
Other Significant Announcements
Here is the run down on other significant announcements which are likely to be of interest to our clients:
- Business Rates Review – the results of the ongoing review of Business Rates was published. In short they are staying, which will be of disappointment to the Retail, Hospitality and Leisure (RHL) sector, but no significant surprise.
There will be a freeze on the multiplier for 2022-23, and a 50% discount for the RHL sector in 2022-23 (down from 66% at present).
More frequent revaluations are going to be introduced along with requirements to notify the Valuation Office Agency of changes which impact valuation, and reforms to the appeal process known as Check, Challenge, Appeal.
The idea of a Online Sales Tax to level up between online and bricks and mortar businesses is still being looked at, but no decisions made.
- Basis Period Reform – this will affect Sole Traders and Partnerships who don’t prepare their business accounts to 31 March/5 April. Its been confirmed its deferred from April 2023 to April 2024 and some additional spreading options. In our experience this needs a review on a case by case business, which we are doing for our clients affected by it; in many cases there are simple steps to get ahead of this, in other cases it needs more thought and planning.
- Minimum Pension Age – is rising from 55 to 57 from 2028. This is the age at which benefits can be taken from Private Pensions – don’t confuse it with State Pension Age.
- Residential Property Developers Tax – coming in, but only if the developer makes over £25m a year.
- Residential CGT Reporting Time-scale Extended – this applies from today. Currently, under new rules introduced from 6 April 2020, CGT (Capital Gains Tax) on Residential Property transactions needs to be reported and paid 30 days after completion; from today its 60 days. This reflects that the new system hasn’t been working well. Do note the requirement only applies if there is CGT due, eg a second home, mixed use property or investment property – there is no CGT due, and hence no reporting, for the straight forward sale of main home.
- Annual Investment Allowance – for business tax payers this is being kept at £1m until April 2023, it was otherwise due to revert to £200k from January 2022.
- Universal Credit Taper – cut from 63p to 55p. This is the amount of UC someone looses for a pound of extra earnings. The change helps to remove some of the fiscal disincentives to come off of benefits and into work, but its questionable whether it will free up the labour market to any great degree, nor make up for the loss of the UC supplement paid during the pandemic.
- National Living Wage – goes up from £8.91 to £9.50 for the over 23s from April 2022.
- Spending – there were a raft of spending announcements – which are difficult to both summarise and review, and to distinguish between whats new and whats recycled announcements.
- Fuel Duties – frozen
- Alcohol Duties – being reformed
- Technical Taxation Measures – as usual there were a raft of corrective and technical announcements, covering areas as diverse as Theatre, Orchestra, and Museums and Galleries Exhibition Tax Relief through to interactions of Loss Relief and International Financial reporting standards – suffice to say a review of these throws up nothing of immediate concern.
Obviously this is a quick review of todays announcements, and more detail will inevitably seep out over coming weeks. However our initial summary is that other than the two big tax rises pre announced, there is nothing of significant concern tax wise for the smaller business announced today.