2021 Autumn Budget: Bulletin A Budget preparing for a “new economy post Covid”
Published: 28 October 2021
Our guide to selected tax measures announced or confirmed at the 2021 Autumn Budget
One might be forgiven for coming away from Rishi Sunak’s third Budget with a certain sense of contradiction. While the Chancellor emphatically rejected leaving the economy “adrift with reckless unfunded pledges”, the Budget included large amounts of spending: on the NHS, education, courts, prisons and probation services (in fact, spending for pretty much every government department), research and development, ‘green financing’ initiatives, the cultural sectors, to name but a few. At the same time, major new tax announcements were few and far between, especially of the kind that raise funds for the treasury.
So how will all this largesse be paid for? Part of the answer is that several tax raising measures had already been announced prior to the Autumn Budget. This year’s Spring Budget already provided for the freezing of a number of thresholds and allowances up to (and including) the tax year 2025/26. This alone will result in a de facto increase in taxation, especially once inflation (at the current high levels) is factored in.
The Spring Budget also included an increase in the rate of corporation tax (from April 2023), a new social care levy was announced in September (with effect from April 2022) and a decision was made (also announced in September) to suspend the state pensions ‘triple lock’ for the tax year 2022/23.
While this did not leave much room for manoeuvre, investors and businesses will still be relieved to note that the Autumn Budget did not increase capital gains tax rates to match income tax rates or introduce any additional restrictions to EIS, SEIS or VCT reliefs.
All in, this Autumn Budget indicates that the government is keen to avoid any further extreme changes and instead wishes to give investors confidence in the system, despite increased inflation, the spectre of higher interest rates and of course Brexit. Time will tell how the “new economy” will turn out.
This Bulletin looks at selected measures included in the 2021 Autumn Budget, with a focus on taxation, that we think will matter most to our clients.
This Bulletin was compiled by Annette Beresford, Jeremy Glover, Winston Penhall, Samantha Cheong, Victoria Clement, Lucy Ganbold, Cameron Hughes, and Jamie Crocker.
The government remains committed to the £375 million Future Fund: Breakthrough, which was launched in July 2021 to help businesses access the funding they need to innovate and grow. This programme (which is separate from the original Future Fund that was set up to relieve funding challenges caused by Covid-19) makes equity co-investments with private sector investors in growth stage R&D-intensive British companies operating in breakthrough technology sectors. It is delivered by British Patient Capital, a commercial subsidiary of the British Business Bank.
The qualifying conditions include the following:
The total investment round size must be a minimum of £30 million
at least £5 million must have been raised in previous funding rounds
companies must be UK based with significant UK operations
the application must be made by a lead investor.
Global Britain Investment Fund
The Chancellor announced the introduction of a new £1.4 billion fund to attract overseas investment into the UK economy, aimed at the UK’s most innovative sectors, in particular life sciences manufacturing (including medicines, diagnostics and vaccines), offshore wind and automotive manufacturing sectors (in support of the production and supply chain of electric vehicles).
Business rates reform
Following a review, the system for calculating and charging business rates will be reformed over the next five years. As a first measure, the multiplier for calculating business rates will be frozen for 2022/23, which will benefit all businesses and is expected to save a total of £4.6 billion.
A new temporary business rates relief will be available for 2022/23 to eligible retail, hospitality and leisure properties in England, worth almost £1.7 billion, which is set to reduce rates payable by over 90% of such businesses by at least 50%. Further, new exemptions for the use of green technologies will be available from 2023, including and a new 100% relief for eligible heat networks, to support the decarbonisation of buildings.
The reforms also include an adjustment to the timing of revaluation, from every five years to every three years. This should go some way to support high-street business owners as rates should more accurately represent the declining popularity of high street locations over the past few years. The government plans to continue reforming the business rates regime in the future.
In support of cultural institutions that have been hit particularly hard by Covid-19, the government will legislate for the following reliefs in the Finance Bill 2021-22:
There will be a temporary increase to the headline rates of relief for the Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR) for expenditure incurred from 27 October 2021, returning to current rates by 1 April 2024.
The rates for TTR and MGETR will increase from 20% (for non-touring productions) and 25% (for touring productions) to 45% and 50% respectively from 27 October 2021. From 1 April 2023, the rates will be 30% and 35%, and rates will return to 20% and 25% with effect from 1 April 2024. For MGETR (a temporary relief), the sunset clause has been extended by two years until 31 March 2024.
The rates for OTR will increase from 25% to 50% for expenditure taking place from 27 October 2021, reducing to 35% from 1 April 2023, and returning to 25% from 1 April 2024.
Film production companies will be allowed to claim Film Tax Relief for films that were initially intended to be released in cinemas, but which are instead put on streaming services, subject to meeting the criteria for High-End TV Tax Relief. This will ensure that relief is not lost if a company decides to change its distribution method during production. It will apply to any new production commencing on or after 1 April 2022, and to ongoing productions that have not completed principal photography by 1 April 2022.
Raising tax revenue – principal measures (including measures previously announced)
Health and Social Care Levy
As announced on 7 September 2021, a new Health and Social Care Levy (the Levy) will be introduced, with effect from April 2022. Initially, this will be in the form of a 1.25% increase to National Insurance contributions: Class 1 (employer and employee) and Class 4 (self-employed). The rates of income tax applicable to dividend income will likewise be increased by 1.25%, for the same purpose.
From April 2023, the 1.25% Levy will be formally separated out and will also apply to income from employment or self-employment of individuals working above state pension age. National Insurance contribution rates will then return to their 2021/22 levels. There has been no suggestion that the 1.25% increase to the rates of income tax on dividends will also be reversed, so this is assumed to be permanent.
Corporation tax rate increase
As announced at the 2021 Sprint Budget, the main rate of corporation tax will be increased from 19% to 25%, from April 2023.
The increased corporation tax main rate will not apply to companies with profits not exceeding £50,000, which will instead pay corporation tax at the “small profits rate” (remaining at 19%). Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25%, but will be able to claim marginal relief (providing a gradual increase in the effective rate of corporation tax).
Freezing thresholds and allowances
As announced at the 2021 Spring Budget, the following thresholds and allowances will remain frozen up to (and including) the tax year 2025/26:
income tax: personal allowance and basic rate limit
National Insurance: upper earnings limit for Class 1 National Insurance and upper
profits limit for Class 4 National Insurance
pension lifetime allowance
capital gains tax: annual exempt amount
inheritance tax: nil rate band.
This represents a de facto increase in taxation (especially the freezing of income tax thresholds), and its impact (once inflation is factored in) is likely to be significant.
Residential Property Developer Tax
The Residential Property Developer Tax, which was first announced in February 2021, will introduce a 4% tax on the largest property developments in the UK. The tax will apply to any profits over £25 million made from UK residential property developments, regardless of the jurisdiction of a developer’s residence. The £25 million allowance can be allocated between the companies of a group.
The new tax is intended to raise £2 billion over the next decade, to help pay for safety measures such as the removal of unsafe cladding. Certain exclusions will apply, for example, the tax will not be levied on residential homes purpose built for children with special needs or the elderly.
The tax will apply from 1 April 2022 to profits arising from residential property development recognised in accounting periods ending on or after that date. Where a company’s accounting period straddles 1 April 2022 the profits of the accounting period will be time apportioned to determine amounts falling before and after the start date. The tax will be charged as an extension to corporation tax. Anti-avoidance provisions will be put in place, to prevent artificial arrangements for accelerating the recognition of profits before the legislation takes effect.
It remains to be seen who will ultimately bear the cost of this new tax, with developers likely to push up sale prices on new builds to pay for it.
Reforming basis periods
Following a consultation in the summer of 2021, the government has confirmed that it will simplify the basis period rules for the self-employed, including individual partners. This measure will change the way trading profits are allocated to tax years. Currently, profits are assessed for the year up to the business’s accounting date, being the ‘basis period’, which may be different to the tax year. Specific rules determine the basis period in certain cases, including during the early years of trading. These rules can create overlapping basis periods and may affect the timing of when profits are charged to tax, depending on the choice of accounting date.
The reform will bring the basis period in line with the tax year, with effect from the tax year 2024/25. What sounds like a simplification may in fact result in an acceleration of taxing profits for a transitional period. Following consultation, the measure (originally intended to take effect from the tax year 2023/24) was postponed by a year to allow businesses more time to prepare for the transition. It may nevertheless be a painful change for large profitable businesses such as professional partnerships (especially those with a year end falling shortly after the end of the tax year), although no doubt an acceleration of taxing profits will be helpful to the treasury.
Online sales tax
The government is considering the implementation of an online sales tax (OST) to strike a better balance between online and physical shopping and will launch a consultation on this shortly. It is envisaged that revenue from the OST would be used to pay for a further reduction of business rates.
“The 2021 Autumn Budget was relatively thin on major tax announcements, especially of the kind that raise funds for the treasury. This is not to say there will be no increases in taxation – a number of measures had been previously announced, such as the freezing of thresholds and allowances, the increase in the rate of corporation tax and the new social care levy. The new residential property developer tax, also previously announced, had undergone a full consultation process.
Perhaps surprisingly, there has been no further suggestion that capital gains tax rates would be increased to match income tax rates, although this is something that is widely expected to occur at some point.
Likewise, there has been no further restriction to pension tax relief. Whether it will be possible to cut taxes by the end of the parliament, as the Chancellor is hoping, remains to be seen”.
Annette Beresford, Partner and Head of Tax, Humphreys Law
Other corporate and business tax measures
Reduced surcharge for banking companies
The government will legislate in the Finance Bill 2021-22 to set the rate of the surcharge on banking companies at 3%, instead of 8%, and to increase the surcharge allowance from £25 million to £100 million. This measure will have effect from 1 April 2023.
The background to this is the corporation tax rate increase from April 2023 (see above). Since the banking surcharge is charged in addition to corporation tax, the combination of the rate increase and the surcharge would have resulted in banks paying tax at 33%. The adjustment means that the 27% rate that banks currently pay (i.e. corporation tax at 19% plus surcharge at 8%) will only increase to a combined charge of 28%. The obvious aim is to maintain the UK’s attractiveness as a centre for financial services. However, the measure has been criticised in light of the tax increases for working people and the suspension of the ‘triple lock’ (see below).
Capital allowances – super-deduction and 50% first-year allowances
These measures were announced at the 2021 Spring Budget and are still in place now: first year capital allowances for investment in plant and machinery assets, where the qualifying expenditure is incurred between 1 April 2021 and 31 March 2023. This is a temporary 130% super-deduction for main rate assets (instead of an 18% writing down allowance), and a temporary 50% first-year allowance for special rate assets (instead of a 6% writing down allowance).
Capital allowances – further extension of the £1 million annual investment allowance
The 2021 Spring Budget also saw an extension to the temporary £1 million limit (increased from £200,000) for the annual investment allowance (AIA) to 31 December 2021. Such extension will now remain in place until 31 March 2023.
Reform of research and development (R&D) tax reliefs
The Chancellor announced plans for reforming R&D tax reliefs to support modern research methods by expanding ‘qualifying expenditure’ to include data and cloud costs. The proposed reform derives from a consultation launched at the Spring Budget 2020 which called for a review of what types of expenditure companies can be included in claims for R&D reliefs and R&D tax credits.
The broader aim is to capture the benefits of R&D funded by the reliefs more effectively through refocusing support on innovation in the UK and by targeting abuse and improving compliance. In particular, R&D reliefs will be refocused on activities that take place in the UK.
The proposed changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023.
The government has launched a consultation on the introduction of a corporate re-domiciliation regime to support overseas incorporated companies relocating to the UK, bringing with them increased investment.
Re-domiciliation refers to enabling a foreign-incorporated company to change its place of incorporation to the UK while maintaining its legal identity as a corporate body. This would give companies maximum continuity for their business operations and substantially reduce administrative complexity compared to other routes of relocating to and incorporating in the UK. A number of other large economies, such as Australia, Canada and several US states, operate similar regimes.
Abolition of cross-border group relief
Following Brexit, the government is now in a position to abolish cross-border group relief, with effect from 27 October 2021.
Group relief claims involving companies established in the EEA are currently subject to more favourable rules than those established elsewhere in the world. These rules were introduced under the UK’s obligations as a Member State of the EU. Having now left the EU, the UK is no longer required to maintain these rules and will therefore revert to the previous regime where the group relief rules are aligned for all non-UK companies.
In March 2021, the government published a call for evidence to explore whether and how to expand the EMI scheme to additional UK companies. The EMI scheme is a tax advantaged share option scheme that is popular with qualifying companies for its tax benefits and relative ease of operation.
The 2021 Autumn Budget does not include any further announcements on this measure, so we will be watching this space.
Although the government has extensively consulted on reforming stamp taxes (stamp duty and stamp duty reserve tax), the 2021 Autumn Budget did not include any further announcements on this. So it would seem that a major reform is still some way off.
The Budget did include a new stamp duty measure in the form of a power enabling HM Treasury to make stamp duty and stamp duty reserve tax changes in relation to securitisation and insurance-linked securities arrangements by secondary legislation (e.g. with regard to the application of the loan capital exemption to such arrangements). This is part of reforming some aspects of the taxation of securitisation companies following a consultation launched in March 2021.
Other property and funds tax measures
Extension of time limit for paying capital gains tax after disposal of property
Following a recommendation by the Office of Tax Simplification, the deadline for paying capital gains tax from a sale of UK residential property will be extended from 30 days to 60 days. The extension will apply equally to UK and non-UK sellers. It will also apply to disposals of mixed-use properties by UK sellers (in which case only the portion of the gain that is the residential property gain is to be reported and paid).
The change will apply to any disposals that complete on or after 27 October 2021.
New tax regime for asset holding companies
As announced in December 2020, and following consultation, the government will legislate in the Finance Bill 2021-22 to introduce a regime for the taxation of qualifying asset holding companies, to take effect from 1 April 2022.
The measure forms part of a wider review of the UK funds regime to consider reforms with the purpose of enhancing the UK’s competitiveness as a location for asset management and for investment funds. It is intended to apply in circumstances where intermediate holding companies are used to facilitate the flow of capital, income and gains between investors and underlying investments. The intended result is that investors are taxed broadly as if they had invested in the underlying assets and that the intermediate holding companies pay no more tax than is proportionate to the activities they perform.
The new regime is intended to only be available to prescribed investment arrangements involving diversified investment funds, charities, long-term insurance business, sovereign immune entities and certain pension schemes and public bodies. It is not intended to affect the taxation of profits from trading activities, UK land or intangibles. As such, it will include provisions to guard against potential for abuse or avoidance.
VAT treatment of fund management fees
As part of its ongoing review of the UK funds regime, the government also intends to consult on options to simplify the VAT treatment of fund management fees.
Other personal tax measures
State pensions – suspension of triple lock
The Autumn Budget confirmed that the ‘triple lock’ will be suspended for the tax year 2022/23. The triple lock policy normally guarantees that state pension rise in line with whichever is the highest out of inflation, average wage increase or 2.5%. The effect of an 8% growth in earnings, resulting from the effects of the furlough scheme ending, would have resulted in a similar rise in state pensions.
While the ‘triple lock’ is suspended, the increase to state pensions will instead be by reference to a ‘double lock’, i.e. the higher of inflation and 2.5%.
Personal tax – rates
There has been no change announced for income tax rates for the 2022/23 tax year. The rates remain at 20% for the basic rate, 40% for the higher rate, and 45% for the additional rate.
The band of saving income currently subject to the 0% rate will not increase from its current level of £5,000 for the 2022/23 tax year.
As previously announced on 7 September 2021, the tax rates for dividend income will be subject to a 1.25% increase from 6 April 2022. This brings the rate to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain. See also ‘Health and Social Care Tax’ above.
ISAs and child trust funds - limits
The Individual Savings Account (ISA) annual subscription limit, as well as the junior ISA annual subscription limit, will be maintained at £20,000 and £9,000 respectively for 2022/23.
The Child Trust Funds annual subscription limit is also maintained at £9,000 for 2022/23.
Miscellaneous tax measures
Insurance premium tax (IPT)
The government will legislate in the Finance Bill 2021-22 to set out criteria for determining where the risk for IPT falls. Risks located outside the UK are intended to remain exempt from IPT, and this measure aims to provide clarity and continuity.
Air passenger duty (ADP)
The Chancellor announced a new lower rate domestic band for APD for all flights within the UK to promote UK connectivity and boost performance of regional airports. Additionally, to align APD with environmental and climate change objectives, the government is also introducing a new ultra long-haul band covering destinations with capitals located more than 5,500 miles from London (which will attract a rate of APD of £91 for economy passengers). These reforms are to take effect from 1 April 2023.
The expected 2.84p increase in fuel duty has been cancelled and fuel duty will remain frozen for the 12th consecutive year at 57.95p a litre on petrol and diesel.
Alcohol duty rates
All alcohol duty rates will be frozen and there will be a lower rate of duty on draught beer and cider with a cut of 5%. The government has also published a consultation on proposals for alcohol duty reform, which will close on 30 January 2022.
Tax administration and anti-avoidance
Economic Crime Levy
An Economic Crime (Anti-Money Laundering) Levy will be introduced to raise approximately £100 million per annum to help fund anti-money laundering and economic crime reforms.
Entities subject to the Money Laundering Regulations will pay the levy as a fixed fee based on the ‘size’ band they belong to, as determined by their UK revenue for the relevant accounting period: medium (more than £10.2 million but not more than £36 million); large (more than £36 million but not more than £1 billion); very large (more than £1 billion). Small entities (with UK revenue of less than £10.2 million for the relevant accounting period) will be fully exempt from the levy.
The levy will first be charged for the year 1 April 2022 to 31 March 2023, with first payments being due only after the end of that year.
Clamping down on promoters of tax avoidance
As previously announced, the Finance Bill 2021-22 will include further legislation to clamp down on promoters of tax avoidance. This will take effect when the Finance Bill 2021-22 receives Royal Assent and include the following measures:
allowing HMRC to freeze a promoter’s assets so that the penalties they are liable for are paid
the introduction of a new penalty for UK entities supporting offshore promoters
the closing down of companies and partnerships that promote tax avoidance schemes
the sharing of information on promoters and their schemes, to encourage taxpayers to steer clear of avoidance schemes or exit them quickly
Notification of uncertain tax treatment by large businesses
The Budget confirmed that, as previously announced, large businesses will be required to notify HMRC where they have adopted an ‘uncertain tax treatment’, from April 2022.
Uncertain tax treatments will be defined by either of the following two criteria: that a provision has been made in the accounts for the uncertainty, or that the position taken by the business is contrary to HMRC’s known interpretation (as stated in the public domain or in dealings with HMRC).
A third criterion which had been included in draft legislation published in the summer has been dropped for the time being following consultation. This would also have triggered the notification obligation where there is a “substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect”.
Replacement of DAC6 with OECD mandatory disclosure rules
It was previously announced at the Spring Budget that the government would consult later this year on draft regulations to implement the OECD’s Mandatory Disclosure Rules, which facilitate global exchange of information on certain cross-border tax arrangements, in order to combat offshore tax evasion. This will replace DAC6 which following the conclusion of the EU-UK Trade and Cooperation Agreement no longer needs to be implemented in the UK to the extent obligations under DAC6 exceed obligations under the OECD’s Mandatory Disclosure Rules. However, no further information has been provided on the timescale for implementing this measure.
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This Bulletin was prepared as a service to clients and other friends of Humphreys Law to report on selected measures announced or confirmed at the 2021 Autumn Budget that may be of interest to them. The information in it is therefore general and should not be considered or relied on as legal advice.