Our Budget reaction & summary of tax changes announced
In his Budget, the Chancellor made some serious spending commitments .
The overall changes were summarised by Paul Johnson, Director of the Institute for Fiscal Studies:
“The Government is now planning to spend more on public services, and to have a more generous system of universal credit, than it was intending pre-pandemic. The increases in universal credit for those in paid work are occurring alongside increases in the national living wage. This means that the Budget and Spending Review are much more similar to Gordon Brown’s than to George Osborne’s. To help fund the spending increases, the Chancellor confirmed big tax rises: this year has seen the biggest set of tax-raising measures since 1993. It now looks like a large part of those tax rises is to be spent rather than being entirely used to reduce borrowing as originally announced.”
Our Reaction
The Chancellor’s Autumn Budget was relatively light on new tax measures and was more ‘spend’ than ‘tax’ .
Perhaps we shouldn’t be too surprised as much of the tax measures were announced pre-Budget.
2021 will go down as a record-breaking year for tax raising measures with the increase in the rate of corporation tax and the freezing of personal allowances and thresholds announced in March, and the introduction of the new Health and Social Care Levy announced in September reflected in the increase in National Insurance Contributions.
The Chancellor was upbeat during his speech but will businesses share his optimism?
The changes to business rates will help, but faced with tax, wage and energy price rises, along with labour shortages and supply chain issues, many business may feel left out in the cold as they struggle to bounce back from the disruption caused by the pandemic.
Sadly the business rates reform for high street businesses or those with a shop front did not transpire as hoped. Business rates are a tax on physical property and were introduced even before the internet was invented, which creates a tax disadvantage for these businesses versus online businesses. The retail sector pays more tax than any other sector in the UK.
Tax Changes Highlights
The annual investment allowance (AIA)
You can deduct the full value of an item that qualifies for AIA from your business profits before tax.
The AIA is currently set at £1m per annum, which was due to fall to £200,000 from 1 January 2022.
The Chancellor has announced that the temporary increase will be extended, with the AIA remaining at £1m up to 31 March 2023.
This should encourage businesses to invest in plant and machinery, cash flow permitting of course.
This also helps sole traders and partnerships in particular who do not benefit from the ‘super deduction’ currently available for limited companies.
Research &Development (R&D) Tax Reliefs
As part of its strategy for the UK to be a ‘science superpower’, the Government will reform R&D tax reliefs by expanding the reliefs to bring in data and cloud computing costs, refocusing the reliefs on innovation in the UK.
Basis period reform for sole traders and partnerships
This reform will have a significant impact on some individuals, accelerating, and in some circumstances increasing, tax payments. The Chancellor confirmed it will go ahead, with 2023-24 being the transition year before full implementation in 2024-25.
Thankfully, the rules will be reworked to address some of the issues identified during the consultation process but nonetheless it will be a significant tax hit for affected taxpayers as the measure is expected to increase the Government’s coffers by £1.7bn.
Corporation Tax increase + Bank Corporation Tax Surcharge
In light of the increase in the rate of corporation tax from 19% to 25% from April 2023, the bank corporation tax surcharge will be set at 3% from the same date.
The new combined rate of 28% will ensure that banks pay tax at a higher rate than other companies, while ensuring that the UK remains competitive in the financial services market.
Other tax changes
The Government hopes that the changes will encourage firms to base their headquarters in the UK. The chancellor has offered a package of measures to reform tonnage tax, including a reduction in the lock in period for tonnage tax participants from ten to eight years.
Theatres, orchestras, museums and galleries will benefit from temporary rate uplifts to the creative industry tax reliefs.
In a welcome development, the Government will extend the payment window for CGT on residential properties from 30 days to 60 days, effective from 27 October 2021.
The Government will simplify the alcohol duty regime. Alcohol will be taxed in a progressive manner, with lower rates for low strength products, and there will be a new relief for small producers of products below 8.5% alcohol by volume.
To support the hospitality industry, the Government will cut duty rates on draught beer and cider by 5% and freeze duty rates of beer, wine, cider and spirits.
Approximately 9m passengers will pay less air passenger duty (APD) in 2023–24 as a result of a 50% reduction in domestic APD.
