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The 2021 budget- how does it impact you?

29 October 2021
Mark Friend
Reducing Tax, Accounting & Compliance, Payroll, People

Every year we sit with baited breath waiting to see what is in store for businesses and individuals from a tax perspective and the 2021 budget was no different. Were we in for some surprises? Was there going to be a radical overhaul of the tax system particularly in respect of capital gains tax and inheritance tax?

The answer was no. All the major headlines which would impact businesses and individuals had already been leaked to the press ahead of the announcements in the Commons, much to the dismay of House Speaker, Lindsay Hoyle.

There was a lot of content on spending but little new. The fact is all the bad news had already been announced prior to the Chancellor’s speech and there was a lot of bad news!!! Below is a summary of all the key changes announced recently which will impact businesses and individuals – mostly bad but some good.

Business Taxes

Corporation Tax

There was no change to previous announcements for ordinary companies. That means corporation tax is due to increase from 19% to 25% for most companies from 1 April 2023. Most companies with profits below £50,000 will continue to pay tax at 19%.

There were however a few measures that will affect our corporate clients:

R&D Reliefs

Companies are able to benefit from generous tax reliefs if they carry out research and development activities. From April 2023 qualifying expenditure will be extended to include cloud and data costs. The government has also pledged to refocus support towards innovation in the UK, to target abuse and improve compliance. Further details of these changes and next steps for the review will be set out as part of the government’s further tax administration and maintenance announcements later in the autumn.

Annual Investment Allowance

The annual investment allowance (AIA), which allows businesses to claim 100% of their capital expenditure on most assets, currently has a cap of £1 million per year. This cap was set to reduce to £200,000 on 1 January 2022. In an attempt to encourage more business investment in capital assets the £1 million limit has been extended to 31 March 2023.

For most businesses this will have little impact as businesses that buy new and unused equipment can now claim relief under the generous 130% super deduction. However there were a number of companies who are not entitled to the super deductions because they hire out equipment (e.g. plant hire companies). This change will come as a welcome boost for those businesses.

Business Rates

Another bit of good news was that the government is keeping business rates in check for small businesses for at least the tax year 2022/23. The government pledged to:

  • freeze the business rates multiplier for a second year, from 1 April 2022 until 31 March 2023, keeping the multipliers at 49.9p and 51.2p
  • introduce a new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a £110,000 per business cap
  • introduce a 100% improvement relief for business rates. This will provide 12 months relief from higher bills for occupiers where eligible improvements to an existing property increase the rateable value. The government will consult on how best to implement this relief, which will take effect in 2023 and be reviewed in 2028
  • introduce from 1 April 2023 until 31 March 2035 targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible heat networks, to support the decarbonisation of non-domestic buildings
  • increase the frequency of business rates revaluations so that they take place every 3 years instead of every 5 years, starting in 2023
  • provide additional funding to the Valuation Office Agency to support the delivery of the new revaluation cycle. Further detail on this is set out as part of the SR21
  • extend transitional relief for small and medium-sized businesses, and the supporting small business scheme, for 1 year. This will restrict bill increases to 15% for small properties (up to a rateable value of £20,000 or £28,000 in Greater London) and 25% for medium properties (up to a rateable value of £100,000), subject to subsidy control limits

Personal Taxes

Capital Gains Tax for Residential Property Sales

Since April 2020 sales of residential property that have tax to pay must be reported and the tax paid within 30 days of completion. With effect from Budget Day, 27 October 2021, the reporting and tax payment period has been extended to 60 days from the date of completion.

Dividend Tax

Another of the major announcements pre budget was the increase in national insurance costs- see below. At the same time it was announced that the dividend tax rates will increase from 6 April 2022 as follows:

Standard rate –                7.5% to 8.75%
Higher rate –                     32.5% to 33.75%
Additional rate –               38.1% to 39.35%

Savings Income Tax       

The starting rate for savings tax band remains at £5,000 for 2022/23
The maximum ISA subscription limit remains at £20,000
The junior ISA and Child Trust Fund subscription limits remain at £9,000

National Insurance

As announced on 7 September 2021 the government will introduce a new ‘Health and Social Care Levy’. That will come in the form of a 1.25% increase in national insurance costs for both employers and employees and the self-employed from April 2022 onwards.

Inheritance Tax

No changes were announced in the Budget relating to inheritance tax.

Stamp Duty

No stamp duty changes were announced in the Budget.

Minimum wage

The Chancellor also confirmed significant increases in the national minimum and national living wages from 6th April 2022. It looks almost certain that the national living wage will increase to £10 per hour in 2023.

Any Good News?

That of course depends on your perspective. There were a couple of non-tax policies that caught our eye:

Firstly the changes to duties on alcohol seemed quite radical, and will mean reductions in price on less alcoholic drinks, such as draught beer, champagne and ciders, but increases in price for more alcoholic drinks, such as certain spirits, fortified wines and full-bodied red wines.

There was also a reduction in Air Passenger Duties for domestic flights, which could be beneficial to some of our clients.

Perhaps the best news of all was the Chancellor’s pledge to reduce taxes during the remainder of this Parliament. I suppose we’ll just have to wait and see on that!

However overall businesses are likely to see:

  1. Increased employer NI costs from April 2022
  2. Increased dividend costs from April 2022
  3. Increased wages costs with the rises in the national minimum wage from April 2022
  4. Increased corporation tax from April 2023.

How can we help you minimise your tax liabilities?

For all those clients who have pre year end tax planning meetings as part of their agreed service we will review the impact of the changes over the coming months.

If you have never had a pre year end tax planning meeting and your profits are growing then you may want to consider this. For limited companies there is little that can be done to minimise tax liabilities once your year end has passed. A planning meeting two to three months before the year end will provide you with an estimate of the potential tax bill and would then form the basis of a discussion as to how to reduce that tax liability.

Similar exercises can be done for the self-employed and to review an individual’s personal tax position before the 5th April, again to estimate tax liabilities and to look at ways to minimise your personal tax bills.

If you are interested in having a pre year end tax planning meeting please speak to your account manager.

The content in this blog is correct as at 29 October 2021 See terms and conditions.

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