We awaited Rishi Sunak’s announcements with great anticipation, only to reach the conclusion that despite the Chancellor stating his aim to reduce taxes by the end of this parliament, and much made of the freedom afforded by being outside the EU, this was a Budget full of pantomime and a focus on alcohol duty rather than any meaningful tax measures – good news if you are a Rosé or Prosecco fan!
In this blog, we’ve covered the tax matters that are most likely to affect and be of interest to our clients. We’re hosting a virtual Budget event next Wednesday 3 November – if you would like to hear us talk through the changes in more detail, just sign-up here.
Companies and businesses
Annual Investment Allowance (AIA)
The AIA is a tax relief that enables businesses to deduct 100% of the cost of plant or machinery in the year of purchase, and it’s been set at a generous level of £1m recently. It was due to reduce to £200k on 1 January 2022 but the Chancellor announced yesterday that the £1m limit will remain until 31 March 2023. This means that the AIA limit is now going to reduce at the same time as the Super Deduction (announced in March) ends, which is also the time when corporation tax will increase from 19% to 25%.
These reliefs are extremely valuable and will no doubt help businesses over the next 18 months. As it stands, AIA will reduce to £200k and the Super Deduction will end on 31 March 2023. We will of course be keeping an eye on this and will keep you informed of any developments.
As a reminder, the AIA is available to all businesses, but the Super Deduction only applies to companies.
Research and Development (R&D)
We were expecting potential changes to the R&D regime, and the Chancellor did indeed reveal a widening of R&D’s scope into data and cloud costs. He also announced that R&D relief will be refocussed on domestic innovation, together with the intention to target abuse and improve compliance. Changes will be implemented from April 2023, although we don’t have any further details.
Again, R&D is a company only relief, it doesn’t apply to partnerships or sole traders.
Anti-Money Laundering Levy
Entities subject to the Money Laundering Regulations (which include businesses like ours, law firms, and financial advisors, amongst others) will pay a levy based on UK revenue. Small entities (those with turnover less than £10.2million) will be exempt. The levy commences in April 2022 but is payable at the end of the relevant year, so for a business with a year ending 31 March 2023, the levy will become payable from April 2023. It looks like medium entities (£10.2m-£36m turnover) will pay a fixed annual levy of between £5-£15k, increasing to £30-£50k for large entities and higher still for very large entities.
Personal tax matters
Dividend Tax and Health and Social Care Levy
The Chancellor previously announced the increase to all rates of dividend tax by 1.25% from 6 April 2022. It was confirmed yesterday that the dividend trust rate will also increase to 39.35% to remain in line with the personal dividend additional rate.
In addition, there will be an increase to National Insurance (classes 1, 1A and 4) of 1.25% across all bands from 6 April 2022, covering both employee and employer contributions. The increase has been introduced to support UK health and social care bodies. Unusually, this also applies to workers over state pension age, who don’t otherwise pay employee NIC.
For privately-owned businesses, these changes, as well as the increase to corporation tax from April 2023, will need to be considered when deciding whether to take remuneration in the form of dividends or as salary, although it’s likely that dividends will remain more tax efficient in most cases. Directors will also need to consider whether dividends could be advanced into the 2021/22 tax year before the increase is introduced.
Capital Gains Tax reporting and paying on residential property sales
Mr Sunak announced a helpful change to the current requirement for reporting and paying CGT on the sale of residential properties, increasing the period from 30 to 60 days. This means that if you sell a UK residential property and have a CGT liability, you will have 60 days, rather than the current 30, to both report the gain and pay the tax. This applies to completions from 27 October 2021. It has proven tricky at times trying to get the registration complete on HMRC’s portal, so we welcome this extended timeframe.
A brief round-up of other measures
A reduction in air passenger duty on the return leg of domestic flights, something that was an EU law requirement, is coming in from April 2023. Whilst the Chancellor seemed delighted to announce this, it seems a slightly odd decision given the promise to reduce net carbon emissions to zero. There will however be a new higher rate for the longest of flights.
There was a business rate cut for specific sectors, positioned as a temporary measure to help with pandemic recovery, so applying to leisure, hospitality and retail sectors. There is also a further consultation on a new online sales tax, specifically whether this should be brought in to help level up the differences between high street and online retailers.
Tax relief for the creative and cultural industries will rise, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibition Relief are all going to increase for expenditure from 27 October 2021. The enhanced rates will apply until 31 March 2023, when they will reduce partially, returning to current rates on 1 April 2024, although the latter relief is due to end then.
In addition to the above, it is intended that film production companies will be able to claim tax relief where films that were intended to be released in cinema have gone straight to television.
It was also confirmed that the Income Tax basis period reform that has been announced previously will still happen albeit from 2023, with full implementation from April 2024. As previously announced, the implementation of Making Tax Digital (MTD) for income tax has been delayed until 6 April 2024 for sole traders and landlords with income over £10,000, and April 2025 for general partnerships.
We look forward to sharing more details about these measures in our virtual Budget event on Wednesday 3 November 2021 and if you have any queries in the meantime, please get in touch with your usual Sagars contact.