2021 Autumn Budget and Spending Review
On 27 October 2021, Chancellor Rishi Sunak unveiled his 2021 Autumn Budget and Spending Review. With economic and employment recovery underway, thanks to an effective vaccination programme and the government’s economic plan, the Budget and Spending Review sets out the government’s tax and spending plans to “build back better” over the rest of the Parliament. The key messages are investing in strong public services, driving economic growth, leading the transition to "net zero", and supporting people and businesses.
With the increase in the rates of corporation tax and national insurance already announced and having dodged the bullet of a wealth tax or the increase in the rate of capital gains tax, the Autumn Budget at first glance appears to have little to get excited about. However, a deeper analysis shows wider intervention.
We set out below a summary of the main announcements but in the meantime please speak to your usual Statura contact should you wish to discuss the content of this document in more detail or indeed the way in which the Autumn Budget and Spending Review might affect your personal circumstances.
Rates and allowances for 2022/23
As already legislated for, the personal allowance of £12,570 and the basic rate limit of £37,700 are frozen at current levels up to and including 2025/26. Basic rate, higher rate and additional rate income tax will remain at 20%, 40% and 45% respectively for 2022/23. The additional rate threshold will remain at £150,000.
The capital gains tax (CGT) annual exempt amount will remain at £12,300 up to and including 2025/26. CGT rates are unchanged for 2022/23.
Inheritance tax thresholds and rates are unchanged, and the nil rate band is fixed until April 2026.
Dividend tax rates
As announced on 7 September 2021, the three income tax rates applied to dividend income (7.5%, 32.5% and 38.1%) will each increase by 1.25 percentage points for 2022/23 onwards. The increases are intended to help fund health and social care. HMRC's policy paper notes that they 'will also help to limit the incentive for individuals to set up a company and remunerate themselves via dividends, rather than as wages, to reduce their tax bill'.
The dividend trust rate will also increase from 38.1% to 39.35%, the main trust rate remaining otherwise unchanged at 45%.
The increased dividend upper rate will also apply for charging tax the loans to participators rules as applicable to close companies.
National Insurance Contributions rates and thresholds
The government had already legislated for a 1.25% Health and Social Care Levy (HSCL) from 6 April 2023, to fund investment in the NHS and social care. It will apply to all income to which Class 1, Class 1A and Class 1B, Class 4 NIC is charged as well as to employment income of those over the State Pension Age. For 2022/23, the relevant NIC rates will be raised by 1.25% for one year except for those over the State Pension Age.
ISAs, Junior ISAs and Child Trust Funds
The annual subscription limits for ISAs, Junior ISAs and Child Trust Funds will remain unchanged for 2022/23, so the limit for ISAs will be £20,000 and the limit for Junior ISAs and Child Trust Funds will be £9,000.
Increase in normal minimum pension age
Legislation to be included in Finance Bill 2022 will increase the normal minimum pension age, the earliest age at which most individuals can access their pensions without incurring an unauthorised payments tax charge, from 55 to 57. The increase will have effect from 6 April 2028.
Residential Property Developer Tax
As part of its measures to address unsafe cladding on high-rise buildings, the government had previously announced a new residential property developer tax, charged at 4% on profits exceeding an annual allowance of £25 million. It will apply with effect from 1 April 2022 to the relevant profits arising on or after this date of companies undertaking residential property development activities.
Basis period reform for self-employed
As announced in the summer, the Government is to legislate in Finance Bill 2022 to reform the basis period rules for self-employed individuals and partners. A business's profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of the accounting date of the business. The new rules will now come fully into force on 6 April 2024, with 2023/24 being the transitional year.
The annual investment allowance (AIA) had previously been increased temporarily from £200,000 to £1 million, but this was due to end on 31 December 2021. The increase will now extend for a further 15 months until 31 March 2023 for both income tax and corporation tax.
Minor amendments as to information requirement have been made to the Structure and Building Allowances (SBA) Statement.
No changes have been made to the Super Deduction rates, introduced in April 2021.
Research & Development
From April 2023, R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs.
Asset Holding Companies
Asset holding companies (AHCs) are used in a range of collective and institutional investment structures (e.g., private equity funds) to acquire and hold investment assets.
From 1 April 2022 a new tax regime for qualifying AHCs will be introduced to ensure UK competitiveness as a location for asset management and investment funds. It operates so that investors are taxed broadly as if they had invested in the underlying assets and the intermediate holding companies pay no more tax than is proportionate to the activities they perform.
The regime for QAHCs will include:
- exempting gains on disposals of certain shares and overseas property by QAHCs
- exempting profits of an overseas property business of a QAHC, where those profits are subject to tax in an overseas jurisdiction, and also exempting the associated profits that arise from loan relationships and derivative contracts
- allowing deductions for certain interest payments that would usually be disallowed as distributions
- switching off the late paid interest rules so that, in certain situations, interest payments are relieved in the QAHC on the accruals basis rather than the paid basis
- disapplying the obligation to deduct (withhold) a sum representing Income Tax at the basic rate on payments of interest
- allowing premiums paid, when a QAHC repurchases its share capital from an individual, to be treated as capital rather than income distributions
- allowing certain amounts paid to qualifying remittance basis users by a QAHC to be treated as non-UK source, reflecting the underlying mix of UK and overseas income and gains
- exempting repurchases by a QAHC of share and loan capital which it previously issued from Stamp Duty and Stamp Duty Reserve Tax (SDRT)
Diverted profits tax (DPT)
DPT is a closely targeted set of tax measures which addresses certain specific profit-shifting arrangements. DPT applies to profits arising from 1 April 2015 and is focused on contrived arrangements designed to erode the UK tax base. Its primary aim is to ensure that the profits taxed in the UK fully reflect the economic activity here, mirroring the aims of the OECD Base Erosion and Profit Shifting project.
With effect from 27 October 2021, DPT will now be included as a tax covered by the UK's double taxation treaties and so mutual agreement procedure outcomes will be able to be implemented for companies who have sought relief from DPT under this procedure.
Cross-border group relief
For accounting periods ending on or after 27 October 2021 the existing beneficial cross border group relief rules relating to EEA-resident companies are repealed. This is as a result of the UK's exit from the European Union. Group relief rules relating to EEA-resident companies are to be brought into line with those for non-UK companies resident elsewhere in the world so that all non-UK resident companies can only surrender as group relief losses of a UK permanent establishment if it is not possible for the loss to be deducted from non-UK profits of any person for any period.
For accounting periods beginning on or after 1 April 2023, the bank surcharge rate will be reduced to 3% (from 8%) and the surcharge allowance will be increased to £100 million (from £25 million). When this rate change is taken alongside the increase in the headline rate of corporation tax from 19% to 25% from April 2023, banks will be taxed at a combined rate of 28% on their profit.
A range of measures were announced in relation to the three “cultural” tax reliefs (Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR)).
VAT AND INDIRECT TAXES
Implementation of VAT rules in free zones
This measure, which is to take effect from 3 November 2021, will affect VAT registered businesses authorised to operate in the customs site (free zone) of a Freeport. The main VAT benefit of operating in a free zone is that businesses selling goods within free zones can zero-rate their supplies, and services carried out on goods in those zones may also be zero-rated subject to conditions, which provides a cash flow advantage. This measure will ensure that where goods leave a free zone and there is no qualifying onward supply of the goods, or where there is a breach of the rules of the free zone customs procedure, VAT will be due.
VAT treatment of fund management fees
The Autumn Budget and Spending Review 2021 included an announcement that there will be a consultation on options to simplify the VAT treatment of fund management fees in the coming months.
Air passenger duty
The following changes to air passenger duty are to take effect from 1 April 2023:
- a new domestic band for air passenger duty covering flights within the UK
- a new ultra long-haul band, covering destinations with capitals located more than 5,500 miles from London
The gross gaming yield bandings for calculating gaming duty are to be increased in accordance with the retail price index for accounting periods beginning after 31 March 2022.
Increases in tobacco duty rates are to take effect from 6pm on 27 October 2021. Tougher sanctions are to be introduced to tackle tobacco duty evasion with enforcement by HMRC and Trading Standards.
Alcohol duty rates will be frozen and it is intended that alcohol duty will be reformed.
Plastic packaging tax
Amendments are to be made to the plastic packaging tax legislation to ensure that the tax operates as intended, that the UK complies with international agreements, and that HMRC has the appropriate framework to administer the tax; see Plastic packaging tax amendments
Capital gains tax reporting and payment window
At present, UK residents disposing of UK residential property have to report gains and pay CGT within 30 days after completion. A similar window applies to non-residents disposing of property in the UK. These windows will each increase to 60 days with effect for disposals that complete on or after 27 October 2021.
When mixed-use property is disposed of by UK residents, the legislation will at the same time be amended to clarify that the 60-day window only applies to the residential element of the property gain.