After getting his knuckles wrapped for the various pre-Budget leaks, The Chancellor delivered his budget speech, with a wide range of positive and favourable announcements for individuals and businesses.
The Chancellor also announced that he wants to reduce taxes in the future, which is welcome news particularly given the rumours/predictions that we can expect to see Capital Gains tax rises.
As mentioned below though, remember that National Insurance and dividend tax increases of 1.25% have already been announced. Although the headline is a 1.25% increase, the effective rises is larger. For example, basic rate dividend tax is currently 7.5%, meaning an increase to 8.75% is an effective increase of 16%!!
So, what were the main Tax announcements?
Income Tax / National Insurance
Personal Allowance
The personal allowance will remain at £12,570 until the end of 2025/26, and the higher rate threshold at £50,270.
Those with earnings over £100,000 will continue to lose £1 of their personal allowance for every £2 of earnings over £100,000 (effectively taxing the income at 60%).
The basic rate of tax will remain at 20%, higher rate at 40% and additional rate for income in excess of £150,000 at 45%.
Dividend taxes will increase by 1.25% as from April 2022, meaning the dividend tax rates will be 8.75%, 33.75% and 39.35%.
Scottish tax rates and allowances should be announced on 9th December.
National Insurance
As announced last month, an increase of 1.25% of apply to national insurance, and this will apply to all types as from April 2022.
The main rate of employee's national insurance (Class 1) will increase to 13.25%, with the upper rate being increased to 3.25%.
Employers Class 1 NIC will also increase, from 13.8% to 15.05%.
Self employed NIC will also increase, with Class 4 NIC increasing to 10.25%, with the upper rate being 3.25%.
Basis Period Reform
The previously announced basis reform will go ahead from April 2024, which will bring forward tax charges for many unincorporated businesses.
From April 2024, all unincorporated businesses will be taxed on a tax year basis (i.e. year ended 5 April), regardless of their accounting period. It is understood the change has been brought in to simplify matters ahead of Making Tax Digital for income tax (expected April 2024).
As a result of the change, there will be a "transition year" in 2023/24, where all basis periods are aligned to 5 April.
So, if a business has a 30 September year end, they will be taxed on the 12 months to September, and also the 6 months to 5 April, so potentially 18 months taxable in this tax year. Overlap relief will be available to deduct if a business has any, however, many businesses do not due to making losses in the early years (due to start-up costs for example).
There will be an option to spread the additional tax over 5 years, but it should be noted 2023/24 may be a year in which your tax liability is greater than usual. Prior planning will be crucial.
Pension Tax
The lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will remain at £1,073,100, until April 2026
As a reminder, the pensions annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year. For those on the highest incomes, the annual allowance tapers down from £40,000. HM Treasury has reviewed the tapered annual allowance and its impact on the NHS (in particular high income earning doctors), as well as on public service delivery more widely. To support the delivery of public services, particularly in the NHS, the two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the "threshold income" will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an "adjusted income" above £240,000
For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.
Capital Gains Tax
Thankfully, despite talk (now over several years), there was no increase to CGT rates.
In welcome news, the current 30-day deadline for reporting gains (and paying any CGT) on UK residential property has been extended to 60 days. This applies to any disposal on or after 27 October 2021.
Annual Exemption
The annual exemption will remain at £12,300 until April 2026.
Corporation Tax
As previously announced, the rate of corporation tax will increase from April 2023 to 25% (currently 19%), on profits over £250,000.
For companies with profits up to £50,000, the tax rate will remain at 19%.
There will be a relief for businesses with profits between £50,000 and £250,000, so that they pay less than the main rate of 25%.
Research & Development
In welcome news, R&D relief will be extended to include qualifying expenditure on data and cloud costs.
R&D relief will also be reformed to focus the relief on innovation in the UK.
These changes are to take effect in April 2023, and further details will be announced in due course.
Residential Property Developer Tax
For those companies undertaking UK residential property development, there will be an additional tax charge of 4% on profits in excess of £25m. The new tax rate will apply from April 2022, and the tax take is to cover the costs of the Government's Building safety package, which came about primarily due to eth unsafe cladding that has been well publicised.
Employment Tax
The National Minimum and Living wage will increase from April 2022, as follows:
- £9.50 per hour 23 yrs. and over
- £9.18 per hour 21-23 yrs. old
- £6.83 per hour 18-20 yrs. old
- £4.81 per hour under 18
- £4.81 per hour apprentices under 19, or in first year of employment
Inheritance Tax
The IHT Nil Rate band threshold will remain at the existing level of £325,000 until April 2026. The residence NRB will continue at £175,000.
Business Rates
The government have been reviewing the business rates system for the past 18 months or so. A few small (some temporary) changes have been announced, which are detailed below. It was also said that business rates will not be scrapped, which is perhaps not surprising given the £25bn it raises each year.
The main changes are:
- -Business rates will be reduced by 50% for Retail, Hospitality and Leisure sectors for the 2022/23 tax year.
- -The Business rates multiplier will be frozen for 2022/23, benefitting all businesses.
- -Revaluations will take place every three years (currently every five), with effect from 2023.
- -A new relief to support investment in property, meaning any improvements to a property (e.g. extensions, air-con, CCTV, etc) will not increase the rateable value of the property for 12 months. This new relief comes into effect from April 2023.
- -New measures will be introduced to support green investment, meaning businesses are exempt from any increase in rateable value for a 12-month period, as a result of expenditure on equipment such as solar, charging points, etc.
VAT
No major new announcements made.
Domestic Reverse Charge for building and construction services
A reminder that the DRC is now in force, as from 1 March 2021.
Capital Allowances
The Annual Investment Allowance (AIA) will now remain at £1m until 31 March 2023 (it was due to decrease to £200,000 in January 2022). The AIA is the amount a business can spend on qualifying plant and machinery which qualifies for 100% tax relief.
Super-deduction
A reminder, that in a bid to encourage investment, from 1 April 2021 to 31 March 2023, companies investing in qualifying new plant and machinery will benefit from a 130% first year allowance.Please note that this only applies to companies.
Investing companies will also benefit from a 50% first year allowance for qualifying "special rate" assets.
Structures and Buildings Allowances (SBA)
There were no changes to the annual rate for Structures and Buildings Allowance which was previously increased to 3% from April 2020. New, non-resident structures and buildings will be eligible for this relief (capital allowance) where all the contracts for the construction works are entered into on or after 29 October 2018.
In order to make a claim, the claimant must have an interest in the land on which the structure/building is.
Claims for integral features and fixtures are unaffected and will continue to qualify for AIA.
Loss Carry Back – A reminder
Previously a trading loss could be carried back one year. This is being temporary increased to three years and is available to both incorporated and unincorporated businesses.
Unincorporated businesses and companies that are not members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22
Companies that are members of a corporate group will be able to obtain relief for up to £200,000 of losses in each of 2020-21 and 2021-22 without any group limitations.
Companies that are members of a corporate group will be able to obtain relief for up to £2 million of losses in each of 2020-21 and 2021-22, but subject to a £2 million cap across the group as a whole.
Universal Credit
The Chancellor announced the current taper rate will be reduced from 63% to 55%, as from 1 December 2021.
Worried how the Budget will affect you? Then why not get in touch with one of our tax specialists?