On 27 October 2021 the Chancellor, Rishi Sunak, presented his latest Budget. Overall it seemed more of a “spending” budget than a “tax” budget and there was very little that was actually new, with major policy changes having been leaked in advance or announced previously….
Given there have been grants and reliefs dished out over the last 18 months to support business and individuals which need to be recouped somehow, the Chancellor appears to be banking on future growth, freezing of allowances and previously announced tax rises to top up the Government coffers.
As there wasn’t a huge amount in this Budget we will also give a little reminder of some of the recent announcements, made prior to yesterday, in case they’ve flown under your radar.
National Minimum Wage Increase
Across the board increases for the national minimum wage from April 2022 were announced as follows:
Age 16-17 £4.81 per hour
Age 18-20 £6.83 per hour
Age 21-22 £9.18 per hour
Age 23+ £9.50 per hour
Capital Gains Tax – Residential Property Returns and Payments Extension
One of very few announcements at the Budget that relates to taxes was the extension of the payment deadline for capital gains tax on disposal of residential properties. Previously this was 30 days from completion and has been extended to 60 days for all disposals completing on or after 27 October 21. This is a welcome change as it allows more time for taxpayers to gather the information required to estimate the capital gains tax due. If you dispose of a residential property that isn’t your main residence, please get in touch as soon as possible so that we can help you calculate the tax due.
Annual Investment Allowance (AIA) Extension
The annual investment allows businesses to deduct the entire cost of certain assets purchased against their taxable profits in the year of purchase, rather than spreading the tax saving over a number of years. It is currently £1m per year and was due to drop to £200,000 per year on 1 January 2022 (which sounds really far away, but apparently is only 2 months!). The £1m limit has been extended to 31 March 2023 which sounds very generous; however companies already have access to the “Super Deduction” (which gives 30% more tax relief than AIA) until 31 March 2023 so in practice this may not be that useful. The rules around year ends that span 31 March 2023 are complex though and depending on a company’s year end, the increased AIA limit might be of benefit. This also benefits those that can’t use the super deduction, such as sole traders and partnerships however those may not regularly spend over £200,000 a year on capital equipment.
Health & Social Care Levy / Increase in National Insurance
This is an increase of 1.25% on National Insurance rates paid by employees, employers and the self-employed. Due to logistical reasons (the time needed to update software) this will take the form of an increase in NI rates from April 2022, but from April 2023 will be separated out. The end result is the same though, it’s a tax increase on workers, though just not called that.
Dividend Tax Increase
The “Health & Social Care Levy” is only payable based on employment and self-employment income, rather than dividends. As many small and medium-sized business owners take their income via a small salary and dividends (neither of which attract National Insurance) the rates of tax on dividends will all increase by 1.25% (to 8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate) from April 2022 to mirror the increase for the employed and self-employed.
Corporation Tax Increase
The biggie…… So the good news is that for now, corporation tax rates are staying at 19% for small and larger companies and won’t increase until April 2023. The bad news is that from then there is a large increase in corporation tax planned and we will go back to the system of different tax rates for different levels of profit which hasn’t been the case since 2015. The main rate will increase to 25% (the highest corporation tax rate since 2011/12) while the small profits rate will remain at 19%. While this small profits rate of 19% is great for the smallest of businesses, you would be forgiven for thinking this is better than it actually is……
Back in the day (yep I’m sounding old now) “small” meant taxable profits of less than £300,000, the main rate was for profits over £1.5m and we had the strange situation of marginal rate in between the two. Because the small profits limit was so high lots of companies were able to benefit from the lowest tax rate. However from April 2023 “small” means under £50,000 of profits and the upper limit is £250,000 so a lot more businesses will be paying corporation tax at either the full or the marginal rate than would have been the case prior to 2015. Add to that the fact that you have to share the £50,000 and £250,000 limits between associated companies (not just group companies) and you realise that most businesses will be paying 25%, or very close to it, not 19% like they might be expecting.
Making Tax Digital
Making Tax Digital for sole trade businesses and landlords with income over £10,000 per year, which will require quarterly reporting of profits for tax purposes has been delayed until April 2024 at the earliest. The equivalent for corporation tax won’t be required until at least April 2026. I hope this delay allows the Treasury time to get the system right before it goes live as this is a fundamental change in the way tax is reported.
Access to Pensions
The age at which pension savings can be accessed without a tax surcharge will increase from 55 to 57, but this won’t apply until April 2028…. So plenty of time for this to change before then!
As always, if you have any queries about how any of the recent tax changes affect you please get in touch.