BUDGET 27th OCTOBER 2021 - highlights

• 30-day reporting and payment deadline for CGT on UK residential property extended to 60 days for transactions completing on or after 27 October 2021
• 100% Annual Investment Allowance continues at £1m until 31 March 2023, instead of reducing to £200,000 on 1 January 2022
• Confirmation of 1.25% increases in National Insurance Contributions (NIC) and dividend tax rates from 6 April 2022, as well as increases in most NIC thresholds
• Residential Property Developer Tax to be introduced from 1 April 2022 at 4% on profits over £25 million
• Reform of basis period rules for unincorporated business and LLPs from 2023/24
• Temporary reliefs for Business Rates for small businesses in 2022/23, with longer-term reform of the system and reliefs for expenditure to be introduced in April 2023
• New late submission and payment penalty regimes to be introduced for VAT (for accounting periods beginning on or after 1 April 2022)
• Making Tax Digital for Income Tax Self-Assessment to be introduced from 2024/25, along with a new penalty regime for late submission and payment.

Personal Income Tax

Tax rates and allowances – 2022/23 (Table A) As announced in the March 2021 Budget, the income tax rates, and bands and the main allowances are frozen at their 2021/22 levels until the end of 2025/26.

There are no changes to the income levels at which the High-Income Child Benefit Charge begins to claw back Child Benefit receipts (£50,000) and at which tax-free personal allowances are withdrawn (£100,000). These measures create a higher marginal tax rate in the income bands £50,000 – £60,000 (for those in receipt of Child Benefit) and £100,000 – £125,140 (as the personal allowance is reduced to nil).

Dividend income

The tax rates on dividend income over £2,000 will increase for the tax year 2022/23. The ordinary rate, paid by basic rate taxpayers, will rise from 7.5% to 8.75%; the upper rate becomes 33.75% (from 32.5%) and the additional rate 39.35% (from 38.1%). The addition of 1.25% to each rate is related to the increases in National Insurance Contributions and the introduction of the Health and Social Care Levy described further below and is intended to ensure that individuals who work through companies and take their profits as dividends rather than salary cannot avoid paying the charge. However, it will also apply to dividends from passive investments, as well as from personal companies. The 33.75% rate will also apply to tax payable by close companies on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period. High Income Child Benefit Charge (HICBC) The HICBC applies where a taxpayer has income of over £50,000 and is the higher earner of a couple where one partner receives Child Benefit.

Employees

Company cars and fuel. No changes were made to the rates already announced in previous years. Cars first registered after 5 April 2020 and electric cars will see their benefit charge rise by one percentage point (subject to the maximum of 37%). The rates for 2022/23 will be the same for cars registered before and after 5 April 2020, and will now remain fixed until the end of 2024/25. The provision of a van available for private use gives rise to a tax charge on an income figure of £3,600, plus £688 if fuel is also provided free. An electric van available for an employee’s private use does not give rise to a tax charge.

National Living Wage (NLW) and National Minimum Wage (NMW). The NLW will increase by 6.1% for individuals aged 23 and over to £9.50 per hour from 1 April 2022. Other rates of NMW will rise from the same date by different percentages, as recommended by the Low Pay Commission.

National Insurance Contributions Thresholds and rates (Table D). The thresholds above which employer’s and employee’s National Insurance Contributions (NIC) become payable will increase in line with inflation in 2022/23. The upper limits for employee and self-employed contributions remain aligned with the point at which 40% income tax is payable (£50,270 per year, or £967 per week), and are frozen at that level until the end of 2025/26.

As announced on 7 September 2021, a new Health and Social Care Levy will be charged to raise £13 billion a year.

From 6 April 2022, Class 1 NIC paid by employers and employees, and Class 4 NIC paid by self-employed people, will increase by 1.25%. This means that employees will pay 13.25% from the primary threshold up to the upper earnings limit and 3.25% above that; employers will pay 15.05% on all earnings above the secondary threshold. Self-employed people will pay 10.25% on earnings between £9,880 and £50,270 and 3.25% above that. The rates will revert back to their previous levels from 6 April 2023 when the separate levy is introduced.

Savings and Pensions

ISA limits. The investment limits for 2022/23 remain £20,000.

The tax reliefs for pension contributions remain unchanged. As announced in the March 2021 Budget, the Lifetime Allowance, which is the maximum amount that a person can save in tax-advantaged pension schemes before extra tax charges arise on drawing benefits and at the age of 75, is frozen at its 2020/21 level of £1,073,100 until the end of 2025/26.

Taking pension benefits. The minimum age at which most people can first access their tax-advantaged pension scheme benefits is 55. This will be increased to 57 with effect from 6 April 2028, and will therefore affect those who are born on or after 6 April 1973.

Capital Gains Tax.

Rates and annual exempt amount.  the annual exempt amount will be fixed at its 2020/21 level of £12,300 until the end of 2025/26.

Sales of UK property.  CGT deadline is extended to 60 days for reporting and payment, for both UK and non-UK residents, where a transaction is completed on or after 27 October 2021. Inheritance Tax Rates The March 2021 Budget fixed the IHT nil rate band at £325,000 until the end of 2025/26. However, the introduction of the ‘residential nil rate band enhancement’ on death transfers can reduce the impact where it applies. A married couple are now able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent).

Business Tax.

From 2024/25 (a year later than previously announced), a different basis of assessing profits is being introduced. Trading profits chargeable in a tax year will be the profits actually arising in that tax year, by apportioning the business accounting periods across tax years if the business does not have a 31 March or 5 April year-end.

Carry back of losses. The March 2021 Budget extended the period for which companies and unincorporated businesses can ‘carry back’ losses to offset against taxable profits of earlier years and claim a refund of tax paid on those profits.

Losses of 2020/21 and 2021/22 can be carried back three years (subject to monetary limits). This rule has not been extended, so losses of 2022/23 will revert to the normal carry back period of one year.

Corporation Tax. The Corporation Tax rate will remain at 19% until 31 March 2023. It will then increase to 25% for companies with profits over £250,000.

Capital allowances for plant and machinery. The introduction of enhanced allowances for qualifying expenditure on plant and machinery (P&M) contracted from 3 March 2021 and incurred from 1 April 2021 to 31 March 2023 by companies.

They can claim:

• a ‘super-deduction’, providing allowances of 130% on new P&M investment that would ordinarily qualify for 18% writing down allowances (WDAs) in the main capital allowance pool;

• a first-year ‘special rate allowance’ of 50% on new P&M investment that would ordinarily qualify for 6% WDAs in the special rate pool.

The rate of the super-deduction will require adjustment if an accounting period straddles 1 April 2023 to ensure that the super-deduction cannot be relieved at the 25% rate of corporation tax. Adjustments will also be required on the disposal of assets on which a super-deduction or special rate allowance has been claimed.

No further changes were announced in relation to this measure in October 2021.

The 100% Annual Investment Allowance (AIA) will be available for qualifying expenditure on P&M up to £1 million until 31 March 2023, rather than being reduced to its former level of £200,000 after 31 December 2021 as previously announced. The limit will be subject to transitional rules where accounting periods straddle 31 March 2023.

The AIA may produce more tax relief for companies than the 50% FYA available for special rate expenditure described above. As the main corporation tax rate will increase from 19% to 25% on 1 April 2023, advancing expenditure to enjoy the 100% deduction will also reduce the benefit of the tax relief available

VAT

Registration threshold. The VAT registration and deregistration thresholds will remain frozen at their present levels of £85,000 and £83,000 until 31 March 2024.

Property. Residential Property Developer Tax. The government will introduce a new tax from April 2022 on the profits that companies and corporate groups derive from UK residential property development. This is intended to ensure that the largest developers make a fair contribution to help pay for building safety remediation. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million.

Annual Tax on Enveloped Dwellings (ATED).

ATED applies to residential property worth above £500,000 which is owned through companies and other corporate structures, unless the situation qualifies for a relief. The rates increase automatically each year in line with inflation.

Other measures

Making Tax Digital (MTD) for Income Tax.

The government has decided to delay the requirement for sole traders and landlords with income over £10,000 to file income tax self assessment (ITSA) information using MTD until the tax year 2024/25. General partnerships will not be required to join the system until 6 April 2025.

Business rates.

To reduce the burden of business rates in England, the government will:

• freeze the business rates multiplier for a second year, from 1 April 2022 to 31 March 2023

• introduce a new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022/23, giving 50% relief up to a £110,000 per business cap

• extend transitional relief for small and medium-sized businesses, and the supporting small business scheme, for 1 year, restricting increases in rates bills, subject to subsidy control limits.

Recovery Loan Scheme.

The Recovery Loan Scheme, which was introduced to help businesses recover from the impact of the pandemic, will be extended until 30 June 2022. The following changes will apply to all offers made from 1 January 2022:

• The scheme will only be open to small and medium-sized enterprises

• The maximum amount of finance available will be £2 million per business

• The guarantee coverage that the government will provide to lenders will fall to 70%

Apprenticeship funding

The government will continue to meet 95% of the apprenticeship training cost for employers who do not pay the Apprenticeship Levy. The £3,000 apprenticeship hiring incentive payment (per new hire) has been extended by four months to 31 January 2022.

Universal Credit

The Chancellor announced two measures that are intended to benefit Universal Credit recipients: reducing the taper rate at which extra earnings leads to a reduction in benefits (from 63% to 55%) and increasing the Work Allowance by £500 a year. These measures are intended to take effect not later than 1 December 2021. They will benefit some claimants by more than the £20 per week that has been recently taken away, but not everyone will qualify.

Freeports

The introduction of ‘Freeports’, areas in which a number of tax and other incentives will operate to encourage trade. The enhanced tax reliefs will include 10% Structures and Buildings Allowances (instead of 3%), 100% First Year Allowances for plant and machinery, full relief from Stamp Duty Land Tax, full Business Rates relief for five years, and relief from Employer’s NIC. The reliefs will depend on designation as a ‘tax site’ within a Freeport and will run until 30 September 2026, with a possible extension to April 2031.

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