Autumn Budget 2021
Posted on 7th November 2021 at 18:23
The Chancellor of the Exchequer, Rishi Sunak, delivered the second budget of the year on 27 October 2021. His speech was optimistic with a strong emphasis on the government plans to support innovation and economic growth.
• Inflation in September was 3.1% and is likely to rise to average 4% over next year, OBR says
• UK economy forecast to return to pre-Covid levels by 2022
• Annual growth set to rebound by 6.5% this year, followed by 6% in 2022
• Unemployment expected to peak at 5.2% next year, lower than 11.9% previously predicted
Corporation Tax increase from 1 April 2023 as previously announced in Spring Budget 2021.
• The Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000
• Companies with profits of £50,000 or less will continue to pay Corporation Tax at 19%.
• Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.
As previously announced in Spring Budget 2021:
• Personal allowance of £12,570 and the basic rate limit of £37,700 are frozen up to and including tax year 2025/26. Therefore, the higher rate threshold remains at £50,270 for 2022/23. The Personal Allowance reduces where the income is above £100,000 – by £1 for every £2 of income above the £100,000 limit.
• For the tax year 2022/23, basic rate, higher rate and additional rate income tax will remain at 20%, 40% and 45%. The additional rate threshold will remain at £150,000.
The Dividend Allowance will remain unchanged at £2,000.
As announced in September 2021, dividend rates will increase from 6 April 2022 by 1.25%
Dividends within the basic rate band - 8.75%
Dividends above basic rate band and within the higher rate band - 33.75%
Dividends above the higher rate band - 39.35%
Increase in normal minimum pension age
The earliest age at which most individuals can access their pensions without incurring an unauthorised payments tax charge is increased from 55 to 57. The increase will have effect from 6 April 2028.
Class 1 National Insurance rates thresholds for 2022/23:
The Chancellor confirmed that the thresholds for 2022/23 will rise in line with the September Consumer Prices Index (CPI) of 3.1%
- Lower earnings limit: £533 pm/ £6,396 pa
- Primary threshold: £823 pm/ £9,880 pa
- Secondary threshold: £758 pm/ £9,100 pa
- Upper earnings limit: £4,189 pm/ £50,270 pa
The rising cost of labour
National Insurance Contribution (NIC) increases
The introduction of the Health and Social Care Levy will add 1.25% to both employees and employers Class 1 NIC (including Classes 1A) and to Class 4 NIC from 6 April 2022. This increase will be reversed in the 2023-24 tax year but will be replaced by the new levy in the same amount. In addition, the Health and Social Care Levy will apply to those over state retirement age who do not currently pay NIC.
• From April 2022 – National Insurance will increase by 1.25 per cent for both employees and employers, including Class 1A and applied to self-employed for Class 4 NIC.
• From April 2023 – the extra 1.25 per cent will be collected as a separate Health and Social Care levy, which will also be paid by state pensioners.
Class 1 NIC will increase for employees from 12% to 13.25% for earnings over primary threshold.
Class 1 NIC will increase for employers from 13.8% to 15.05%. Class 1A will increase also to 15.05% for earnings over secondary threshold. Below secondary threshold 0%.
Class 4 for self-employed will increase from 9% to 10.25% (between lower profit limit £9,880 and the upper profits limit £50,270 and). Above this, the rates will increase from 2% to 3.25%.
Class 2 (Self Employed) NIC – Flat Rate increased from £3.05 to £3.15 a week for profits £6,725 or more a year.
Class 3 NIC (voluntarily contributions) – increase from £15.40 to £15.85 a week.
Minimum wage increase
National Living Wage to increase next year by 6.6% to £9.50 an hour for workers over 23 years old.
The rate for the national minimum wage will also go up. People aged 21-22 will see an increase from £8.36 to £9.18, and apprentices (aged 16 and over and not in full-time education) will get £4.81 an hour, up from £4.30.
The increases to NMW and NLW announced will have the biggest impact on those sectors who rely on large numbers of low paid employees, such as hospitality, leisure, retail and agriculture.
As a result most employers will look to pass on their increased labour costs to customers over time.
High Income Child Benefit Charge (HICBC)
The Chancellor did not announce any increase to the HICBC threshold. This therefore remains at £50,000, this means that a basic-rate taxpayer with earnings between £50,000 and £50,270 will be subject to a charge. The Low Incomes Tax Reform Group (LITRG) said this was “contrary to the original policy intent”, which was to target higher-rate taxpayers, and likely to cause problems for raising awareness about the charge.
Capital Gains Tax Rates
Despite rumours and speculations before the Budget that the government was looking to increase its tax collection from Capital Gains Tax, there was no mention of CGT in the Budget.
The Government has announced that the capital gains tax (CGT) annual exempt amount (AEA) will remain at its current rate £12,300 up to and including the 2025/26 tax year.
Capital Gains Tax – 60 days extended time limit for payments and reporting on residential property disposals:
There was however a change to the CGT reporting published on the Budget Day albeit not announced in The Chancellor’s speech.
The Office of Tax Simplification made recommendations back in May 2021 to the government to extend the 30-day deadline to 60 days. This measure was announced at Autumn Budget 2021 for disposals that complete on or after 27 October 2021.
Significant changes to R&D tax reliefs from April 2023
Three major changes to the R&D tax relief legislation will come into effect from 1 April 2023. These are:
• R&D qualifying expenditure to include data and cloud computing
• a restriction on the inclusion of overseas costs in UK R&D claims
This change means that R&D will focus on increasing domestic expenditure. The inclusion of cloud computing and data development costs in R&D claims will provide a welcomed additional tax relief to companies with costs representing a significant proportion of their software development expenditure.
Alcohol duty reform and simplification
The changes are introduced by the government to support better public health protection.
The main proposals include the following:
• Beverages would be taxed in direct proportion to their alcohol content.
• The duty rates will be harmonised for drinks at 8.5% ABV or above. There would be reduced rates for products below 3.5% ABV.
• To support the pub sector, the rates for draft beer and cider would be cut by 5%.
A consultation on the proposals has been launched which will end in January 2022. There is an opportunity for any business that is impacted by alcohol duties to respond to the Consultation here.
Online sales tax
The government has announced that it will consult shortly on an Online Sales Tax.
Air Passenger Duty (APD)
Flights between airports in the UK nations will be subject to a new lower rate of Air Passenger Duty from April 2023. There will be however a new ultra-long-haul band covering destinations with capitals located more than 5,500 miles from London. These measures are designed to support the government’s environmental objectives.
Company cars with zero CO² emissions
The Government has confirmed that the benefit in kind rates for company cars will remain frozen at 2% from 6 April 2022 until 5 April 2025 for electric vehicles with a zero CO² emissions rating, or a rating of less than 50g/km and more than 130 electric range miles.
The Recovery Loan Scheme has been extended
At Autumn Budget 2021, the government announced that the Recovery Loan Scheme will be extended by six months to 30 June 2022.
You can apply to the scheme if Covid-19 has affected your business. You can use the finance for any legitimate business purpose – including managing cashflow, investment and growth. However, you must be able to afford to take out additional debt finance for these purposes.
From 1 January 2022, the following changes will come into force:
• 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 be reduced to 70%
• These changes will apply to all offers made from 1 January 2022.
Find out more on gov.uk’s Recovery Loan Scheme page.
This Budget was the first delivered by Rishi Sunak that wasn’t dominated by managing the pandemic. He also announced the results of a spending review, setting departmental spending totals for 2022/23 to 2024/25. Overall spending will increase, with a large proportion of the increase going to the NHS.
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