Archive for October, 2021

Budget Summary- Autumn 2021

Thursday, October 28th, 2021

Dear All,

Our “glossy” Budget summary can be found by clicking here: – 2021 Autumn Budget

It wasn’t the most exciting Budget for most of our clients.  The worries over changes to capital gains tax or pensions were, again, unfounded.

However, it is clear that the April 2022 social care levy (1.25% onto National Insurance and Dividend tax) and corporation tax rates of 25% from April 2023 will be affect many owner managed businesses quite significantly.

Within the speech, the Chancellor made clear that he wants to reduce taxation in this Parliament.  Perhaps these tax rises will be reversed or cancelled quite quickly if economic conditions permit.

The team here are always happy to help you plan for these changes.

Autumn Budget 2021 Summary

Thursday, October 28th, 2021

As with the Spring Budget 2021, much of the detail for the Autumn Budget had been leaked to the press prior to the official report to parliament, 27th October 2021.

But we now have all the details and, as usual, there is much to consider. The following Budget summary is split into two sections:

  1. Taxation changes
  2. Other announcements

Please call if you need to discuss how these changes may affect your business or tax affairs in the coming months.

Taxation changes

Income Tax 2022-23 to 2025-26

No increase in rates and the higher rate threshold is frozen at £37,700 through to April 2026. For the same period, the personal tax allowance is also frozen at £12,570 (£12,570 2021-22) and will apply to all regions of the UK.

In what many commentators consider to be a “stealth tax”, wage earners benefitting from annual increases in their earnings up to April 2026 will find themselves paying tax on the full value of any increases. This is because, with personal allowances and the higher rate thresholds frozen until April 2026, any increases in earnings will be taxed and, in some cases, this may push earnings into the higher rate tax bands.

Regional variations to Income Tax rates may apply in Wales and Scotland.

Income Tax and dividend income

The current £2,000 dividend tax-free allowance is unchanged.

As announced 7 September 2021, the tax rates payable on dividend income will increase in line with the 1.25% increase in certain NIC contributions. The rates that will apply in all regions of the UK from 6 April 2022 are:

  • Dividends that form part of the basic rate band – 8.75% (7.5% 2021-22)
  • Dividends that form part of the higher rate band – 33.75% (32.5% 2021-22)
  • Dividends that form part of the additional rate band – 39.35% (38.1% 2021-22)

Starting rate for savings

The band of savings income that is subject to the 0% starting rate will remain at £5,000 for 2022-23.

Reform of Basis Periods for self-employed and partners

The basis on which profits are taxed in a tax year are to be changed from the account’s year ending in a tax year to the actual profits arising in a tax year. Self-employed sole traders and partners who already have a year end at the end of the tax year will experience no change in their basis of taxation.

For affected traders with year ends other than the end of March or 5 April, there will be a transition to an actual basis during 2023-24 and the new rules will come into force from 6 April 2024.

The reform will include greater flexibility on the use of overlap relief in the transition year and provisions to reduce the impact of transition profits on allowances and profits.

National Insurance

Boris Johnson announced – earlier this year – a 1.25% increase in certain National Insurance Contributions from April 2022. This is ring-fenced to provide funding for health and social care. From April 2023, this NIC increase will be withdrawn and replaced by a new Health and Social Care Levy at the same rate.

The government will use the September Consumer Prices Index figure of 3.1% as the basis for uprating National Insurance limits and thresholds, and the rates of Class 2 and 3 National Insurance contributions, for 2022-23.

This excludes the Upper Earnings Limit and Upper Profits Limit which will be maintained at 2021-22 levels, in line with the higher rate threshold for Income Tax.

Lifetime Allowance for pension pots

From April 2021 to April 2026 the pensions lifetime allowance will remain frozen at £1,073,100.

Capital Gains Tax

Any attempt to align CGT rates with Income Tax rates seems to be off the table for the time being. Apart from anti-avoidance changes, there are two changes worth mentioning:

  • Capping the annual exempt amount. This was fixed at £12,300 from April 2021 to April 2026 for individuals, personal representatives, and some types of trusts for disabled people; and £6,150 for trustees of most settlements, and
  • The deadline for reporting chargeable residential property sales – not a main residence, this covers sales of second homes or buy-to-let properties – is increased from 30 days to 60 days. This change applies to disposals that complete on or after 27 October 2021.

The second change is welcomed as the 30 days reporting window was a tight reporting timeline in which to gather all the relevant data to make a submission to HMRC and to pay any taxes due.

Corporation Tax

No change in Corporation Tax rates until April 2023. For the financial year beginning 1 April 2022, the rate will remain at 19%.

As announced earlier this year, from 1 April 2023, there will be two rates of CT.

  • Taxable profits up £50,000 will continue to be taxed at 19%
  • Taxable profits more than £250,000 will be taxed at 25%
  • Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.

Corporation Tax and banking companies

From 1 April 2023, the rate of surcharge on banking companies will be 3% and the surcharge allowance increased from £25m to £100m.

Corporate Tax – R&D Relief

R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. This will effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and target abuse and improve compliance. These changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023.

Museums and Galleries Exhibition Tax Relief

The sunset clause in this relief is extended for a further two years until 31 March 2024.

Cultural Relief changes

Theatre Tax Relief and Museums and Galleries Tax Relief

Rates 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 fall to 30% and 35%, with a return to 20% and 25% on 1 April 2024. As mentioned above, the Museums and Galleries Tax Relief will expire after 31 March 2024.

Orchestra Tax Relief

From 27 October 2021, the relief will increase from 25% to 50%, reducing to 35% from 1 April 2023, and returning to 25% from 1 April 2024.

Reliefs for investments in qualifying assets

Super-deduction

The temporary “Super-deduction” and a 50% first year allowance – that were introduced April 2021 – will continue to apply to qualifying expenditure up to 31 March 2023.

The super-deduction allows businesses to remove 130% of qualifying expenditure as a deduction from taxable profits.

Annual Investment Allowance

The existing Annual Investment Allowance (AIA) was due to reduce to £200,000 (from the present £1m) from 1 January 2022. This date has been changed. The £1m of AIA relief will now revert to £200,000 from 1 April 2023.

Business owners thinking about high-value investments in qualifying assets will now have more time to consider their timing of capital acquisitions.

Reform of loss relief rules for Corporation Tax

The government will legislate in the Finance Bill 2021-22 to amend the loss relief rules to ensure that the legislation continues to work as intended for companies adopting International Financial Reporting Standard (IFRS) 16. The changes will have retrospective effect from 1 January 2019.

Van and car benefit changes

This measure increases the van benefit charge and the car and van fuel benefit charges by the Consumer Price Index from 6 April 2022. The flat-rate van benefit charge will increase to £3,600; the multiplier for the car fuel benefit will increase to £25,300; and the flat-rate van fuel benefit charge will increase to £688.

Inheritance Tax

No changes to present rates and allowances. These are all frozen at current levels until April 2026.

This means the nil-rate band will continue to be £325,000 and the residence nil-rate band at £175,000, for this period.

VAT

There will be no changes to the 20% rate. The £85,000 registration limit and the £83,000 deregistration limit will remain at these levels until 31 March 2024.

The temporary reduced rate of 5% for hospitality, holiday accommodation and attractions was increased to 12.5% from 1 October 2021. This rate will remain until 31 March 2022 when it will revert to 20%. This acknowledges the disruption and financial hardship suffered by this sector during the COVID pandemic.

VAT rules in Freeports

From 3 November 2021, the government will introduce new elements into the VAT free zone model for Freeports. They are:

  • implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model,
  • make amendments to existing VAT law to ensure free zone rules and warehousing rules are mutually exclusive,
  • amend some parts of historic free zone legislation which are incompatible with the new free zone VAT rules.

 

Other announcements

Business rates changes

The business rates multipliers are frozen for a second year until 31 March 2023. The small business multiplier is set at 49.9p and the standard multiplier at 51.2p. Different rates apply in London and in Wales. The freezing of the multipliers will mean that your business rates will not increase in 2022/23.

Eligible retail, hospitality and leisure properties will benefit from a 50% relief in their business rates for 2022/23, subject to a cap of £110,000 per business.

A relief is also being introduced for improvements to business properties which will delay the start date of higher business rates triggered by the improvements for 12 months. The government are to consult on how to implement the relief, which will take effect from 2023 and will be reviewed in 2028. If you are planning improvements to your business premises, this may benefit you.

From 1 April 2023 until 31 March 2035 a targeted business rates exemption will apply for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief will be available for eligible heat networks. This is to support the decarbonisation of non-domestic buildings.

From 2023, business rate revaluations will take place every three years rather than every five years.

Transitional relief for small and medium-sized businesses is extended for one year, which will restrict bill increases to 15% for small properties (i.e. those with a rateable value of up to £20,000 or up to £28,000 in Greater London), and to 25% for medium properties (i.e. those with a rateable value of up to £100,000).

Increasing the normal minimum pension age

The earliest age at which pension savers can access their pensions without incurring an unauthorised payments tax charge is changing.

From 6 April 2028, the normal minimum pension age is increasing from 55 to 57.

Universal Credits

To compensate for the recent withdrawal of the £20 a week UC payment, the government is to decrease the amount it reduces UC payments when a claimant works more hours. Presently, for every £1 earned UC payments decrease by 63p. From 1 December 2021 at the latest, this will be lowered to 55p for every £1 earned.

Duties and Miscellaneous taxes

  • Tobacco Duty will be increased by agreed rates above the Retail Prices Index (RPI) from 6pm on 27 October 2021.
  • Alcohol duty rates will be frozen.
  • Landfill Tax will increase in line with RPI increases. The increase will be effective from April 2022.
  • Aggregates Levy – the government will freeze the Levy rates in 2022-23.
  • Gaming Duty will increase in line with RPI changes. The increase will be effective from April 2022.
  • VED rates for cars, vans and motorcycles will increase in line with RPI changes. Change will be effective from April 2022.
  • VED rates for HGVs. The government will continue to freeze HGV VED for 2022-23. It will also suspend the HGV Levy for a further year from 1 August 2022.
  • Fuel Duty rates for 2022-23 will remain frozen.
  • Air Passenger Duty rates for flights within the UK will be reduced from April 2023 when new bandings are introduced. Rates for short and long-haul flights will increase in line with the RPI and a new ultra-long-haul band will be introduced.

ISA investment limits for 2022-23

The limits set for 2022-23 are:

  • Adult ISAs the limit remains at £20,000
  • Junior ISA limit remains at £9,000
  • Child Trust Funds remain unchanged at £9,000

National Living Wage increases

The NLW will increase to £9.50 per hour (previously £8.91) from 1 April 2022.

The full changes to the National Minimum Wage rates from 1 April 2022 are as follows:

  • The 21 to 22 year-old rate will be £9.18 per hour
  • The 18 to 20 year-old rate will be £6.83 per hour
  • The 16 to 17 year-old rate will be £4.81 per hour
  • The apprentice rate will be £4.81 per hour

Sunshine from Sunak? Autumn Budget Reaction

Wednesday, October 27th, 2021

A longer, and rather glossier, Budget summary is being prepared.  This will appear on our website early tomorrow I hope.  However, as watched Mr Sunak deliver the Budget I did reflect on how they have evolved over the years.  Many tax professionals share my disappointment that so much is leaked beforehand.  The drama of the red box is much more fun when you don’t know what is in it.

And what was in it for the tax profession?  Well, it may be more interesting to say what wasn’t in it.  There was no major change to Capital Gains Tax.  There was no major change to Inheritance Tax either.  This is curious as the Office of Tax Simplification carried out reviews in recent times for the Treasury and with covid and Brexit these appear to have been tossed in the bin.  So, for most of us, life is unchanged.  And the much rumoured notion of painful pension rule changes was once again just a rumour.

However, we must watch for things already announced.  At April 2022 the rate of tax on dividends goes up 1.25% , alongside the 1.25% social care levy – an increase in Employer’s and Employee’s National insurance.

For businesses and companies, we currently have 100% capital allowances for everything (£1m limit extended to March 2023), 130% allowances by way of a super deduction for some things in companies and excellent incentives to buy an electric company car.  All good.  These will all run to March 2023.  And a 19% corporation tax rate.  But in 2023 these all seem to end, with a 25% corporation tax rate too.  This, alongside the dividend/social care levy makes for a painful state of affairs for the owner managed business from 2023.

I was struck that the Chancellor made a pitch in his speech (just around 13.30 if interested in watching it – an hour in), explaining he believed the Government and taxpayer should not be the solution to every problem in society and that he wanted to lower taxes in this Parliament.  Well, it was an odd thing to say when he’s increasing taxes to spend spend spend!  And, I was struck that if 50% of GDP is now state generated and tax is a higher % of GDP than at any time since the 1950s, us taxpayers might reasonably ask why there is no obvious improvement in public services for all the extra taxes being paid.  It seems to me that we put more and more of GDP/income into public control and that education and health are said to be in a worse condition even ignoring the pandemic.

So, it seems the Chancellor wants to talk about tax cuts and a smaller Government whilst doing the very opposite (rightly or wrongly and I make no political observation there save for the comment above).  It’s like the chap who drinks and gambles and promises to stop soon.

In any case, tax professionals will be cheered to see that capital gains tax returns on the sale of properties which are not your tax free main residence are now to be submitted within 60, not 30, days of the disposal.

Of course there’s lots of “other stuff” in the Budget.  A consultation on changing alcohol duty (cheaper fizzy wine is the promise), changes to Tonnage tax, to some aspects of air passenger duty.  But mostly it is all for another time, another day and 2023 seemed a popular year for many changes announced today.

Kier Starmer had to withdraw from responding today due to Covid and whilst I wouldn’t wish him ill, it was the perfect Budget to miss.  A Budget where spending was generous and tax cuts few and far between.  Not rich pickings really for Labour, trying to offer a different future involving more taxation and a larger state – can we go much higher than 50% of GDP being state generated?  Time will tell.  I am sure it was 35% of something in 2017.  Clearly I need to go and read the detail.

In any case, another fairly forgettable Budget.  I can still remember my own involuntary gasp when Gordon Brown revealed the growing national debt figures after we brought in the tax credits system (Debt was well below 40% of GDP – and is now double that).  And Ken Clark’s cheery announcements about a penny off a pint.  Rose tinted glasses I’m sure.

In any case, do wait for the “glossy stuff”  – I’m sure I’ve missed something.

Donald Parbrook

Director, Milne Craig

 

 

Time to tighten the belt ?

Tuesday, October 26th, 2021

Later this week (27 October 2021) Rishi Sunak will present his second budget during 2021.

It is likely that reduced public expenditure and higher taxation will be features of this budget as the Treasury seeks to limit any further rise in government borrowings. The Chancellor will also have in mind increases in inflation and the growing possibility that interest rates may need to increase next year.

More recently, global trading has been hit by a series of additional issues (Brexit for example) that have conspired to delay supply chains. Witness the recent petrol shortages and gaps on supermarket shelves.

Further, it seems clear that sectors of our economy that have benefitted from the free movement of labour from the EU, are now under-resourced as they struggle to find replacements in the UK employment market.

We have also witnessed the ending of major support by government to employers and the self-employed (primarily the Coronavirus Job Retention Scheme and the Self-Employed Income Support Scheme) and it is hard to find evidence that the time for the easing of belt-tightening will be coming any time soon.

These challenges come at a time when we all have a need to relax and break loose from the restrictions placed on our business and personal lives by the COVID pandemic.

Let’s hope that the Chancellor has some strategies in mind to ease our present discomforts. Next week our posts will update you on the major announcements in the budget, and hopefully, there will be some good news to report.

New global tax system

Monday, October 25th, 2021

To tax multinational companies on business transactions completed in the UK, our government introduced the Digital Services Tax (DST) April 2020.

The US response was to threaten to levy tariffs. However, a compromise has been reached that will see the introduction of a global system that will ensure multinationals do pay their fair share of tax in the countries where they do business.

This new global system will be introduced in 2023.

On 8 October 2021, OECD-led discussions resulted in 136 countries agreeing a plan for a new system (known as Pillar One), whilst countries will also operate a minimum 15% corporation tax rate (known as Pillar Two).

As part of this agreement the US will not levy tariffs in response to the UK’s DST. The UK will also keep the revenue raised from the DST until the Pillar One reforms become operational. The DST credit agreement outlines that once Pillar One is in effect, firms will be able use the difference between what they have paid in DST from January 2022, and what they would have paid if Pillar One had been in effect instead, as credit against their future corporation tax bill.

This means that the UK will not lose out on tax revenue in the transition period, as for each business, the UK either retains the amount raised that Pillar One would have delivered if it had been in place originally, or the total revenue from our DST.

The DST will then be removed in favour of the global solution, which was always the UK’s intention.

Details in a recent press release confirm:

  • The agreement signed is between the US, UK, France, Italy, Austria, and Spain.
  • Under Pillar One of the OECD agreements, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters.
  • The rules would apply to global firms with at least a 10% profit margin – and would see 25% of any profit above the 10% margin reallocated and then subjected to tax in the countries they operate. Pillar 1 will be implemented through a Multilateral Convention (MLC) with this aiming to come into effect in 2023.

Under Pillar Two, the G7 also agreed to implement a 15% global minimum corporation tax, aiming to become effective from 2023. This will be operated on a country-by-country basis, creating a more level playing field for UK firms and cracking down on tax avoidance.

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