The Autumn Budget 2021

Thanks go to Kathy Hills, Elizabeth Nicholas, Leonie Langley and Olivier Jacquelin for their assistance in putting together this Budget note.

You may have missed it but there was already a debate on today’s Budget yesterday.?In what may be a first (we haven’t checked) so much of the Budget was leaked to the media that the Speaker granted an emergency debate to discuss it yesterday.?He also suggested that the Chancellor should “walk” for being responsible for the leaks.

In fact, the Chancellor could not be bothered even to walk as far as the Chamber.?He sent someone no-one has heard of to defend the Government’s position.?That person said he had no intention of talking about leaks.?Which rendered the emergency debate somewhat pointless.

Drama yesterday, and there was last-minute drama today too!?Sir Keir Starmer tested positive for Covid, leading to Rachel Reeves having to deliver the opposition’s response to the Budget.?Unfortunately, we cannot report what she said because we had to read the Budget.

We will start with the tax changes because, after all, that is what we do.

Corporation Tax Rise

Of course, the biggest tax change had already been leaked by the Government ages ago.??The Chancellor reminded us of the planned increase to corporation tax, rising to 25% from April 2023 for companies with profits above ï¿¡250,000. That is an increase from 19% to 25% - an increase of 31.6%! (surely 6%? Ed).?

A small profits rate will also be introduced (or re-introduced, for those who remember this previously, but at a lower threshold), set at 19% and applying to profits below ￡50,000. Where a company’s profits fall between these two thresholds, marginal relief will be available for those profits. These limits will be proportionally reduced for short accounting periods or where there are associated companies.

Bank Corporation Tax Surcharge

Currently banks pay a surcharge of 8% on their profits in addition to the standard corporation tax due, for profits in excess of ï¿¡25m.?When the main rate of corporation tax increases on 1 April 2023, the bank surcharge will reduce to 3% and the allowance for profits will increase from ï¿¡25m to ï¿¡100m.?Overall, the rate of corporation tax that banks pay will increase from 27% to 28%. There will be a time apportionment for banks whose accounting period straddles 1 April 2023.

Rachel Reeves said this was a tax cut for banks (we were still listening at this stage).?But you will see that it is, in fact, more nuanced than that – it is a cut for some banks depending on their level of profit.

NIC & Dividend Tax Rises

Yes, we knew about these rises too.?As announced in September, a new health and social care tax will be introduced from April 2022 via a 1.25% increase in both employee’s and employer’s national insurance rates. In conjunction with this rise, dividend tax rates will also increase from April 2022 by the same amount, rising to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

This will also have the effect of raising the rate of tax charged on company loans to participators – the so called “section 455 tax” – which will increase to 33.75%.

New Residential Property Development Tax

We also already knew that a Residential Property Development Tax is to be introduced – in fact it is actually already in force for accounting periods ending on or after 1 April 2022.?But we now know the rate of tax, 4%, and the threshold for it to apply - ￡25m of profits from residential property development.?If proof were needed that we are living in unprecedented times, the introduction of a property development tax by a Conservative Government is it.?Every previous such tax has been introduced by Labour governments and immediately abolished by Conservative ones.?

This is not, however, an unprecedented Covid-related tax change – it is an unprecedented poor-cladding related tax change.?It is being introduced to raise tax to pay for defective cladding on high-rise buildings.?But it is not a condition of the tax either that that the taxpayer was ever involved in constructing a property with defective cladding or that it has ever built any high-rise developments.?The charge only applies to companies.

There may be some relief for such companies that the tax rate is only 4%.?The previous tax on property development, development land tax, was introduced at a rate of 80%!

Business Rates

Several changes were announced to the business rates regime.?These include a new temporary business rates relief for eligible retail, hospitality and leisure properties.?Eligible properties will receive 50% relief, up to a ￡110,000 per business cap, from April 2022.?Also, a new 100% “improvement relief” will be introduced from 2023 where eligible improvements to an existing property increase the rateable value of a property – the relief will last for 12 months.?

The frequency of business rates revaluations will also be increased so that they take place every 3 years, instead of every 5 years, starting in 2023.

The real issue with business rates, though, is that they are charged on physical premises, not on online retailers, and the Government is still investigating whether an online sales tax could be used to level up the situation.

Capital Allowances

The Chancellor announced that the annual investment allowance limit of ￡1m is to be retained until April 2023.?This enables businesses to claim capital allowances on 100% of their expenditure on plant and machinery up to ￡1m.?You may remember (or you may not) that the Government introduced a “super deduction” for expenditure incurred by companies on unused plant and machinery from 1 April 2021 – the companies can claim capital allowances at 130% of their expenditure, hence its super-ness.?That deduction ceases on 1 April 2023, and the extension to that date of the ￡1m limit for the annual investment allowance is to bring the reliefs into line.

Research & Development Tax Relief

The Government have previously launched a consultation on making wide-ranging changes to R&D tax relief back in Spring. The consultation posed a total of 17 questions, which all offered hope of an expanded scope for the relief together with a simplified regime. However, it looks like the government have not finalised their conclusions on the responses to this consultation, because only two announcements were made for R&D tax relief:

*??????????qualifying expenditure will be expanded to include data and cloud computing costs; and

*??????????changes will be made to limit relief to R&D activities taking place in the UK only.

Currently of the ï¿¡47.5bn of R&D relief claimed, only ï¿¡25.9bn of R&D expenditure was actually carried out in the UK. The change will bring the relief into line with the US and Australia, who only offer relief for activities carried out in the jurisdiction.?

Capital gains tax – deadline for reporting and paying CGT on the disposal of residential property

There is currently a very tight, 30-day deadline for filing a CGT return and paying the tax due when disposing of UK residential property.?This can be difficult to meet in practice, and has in some cases resulted in taxpayers being issued with penalties for missing the deadline. This Office of Tax Simplification acknowledged this to be problematic, in its second report into Capital Gains Tax, published in May 2021.?It is pleasing that the government has chosen to follow the OTS’s recommendation and will increase the reporting deadline to 60 days for disposals that complete on or after 27 October 2021.

HMRC’s powers - Discovery assessments

HMRC has numerous powers to investigate and recover unpaid taxes. ?Amongst these is the power to issue “discovery assessments” if an officer of HMRC “discovers” an underpayment of UK tax. ?These powers have been the subject of some controversy. ?Following a recent case relating to the High Income Child Benefit Charge, which HMRC lost and is appealing, the legislation on discovery assessments is to be “clarified” retrospectively to affirm HMRC’s own view of the taxes to which these powers apply. ?This will affect liability to the HICBC, tax charges relation to gift aid donations and a number of different pension charges.?The changes will apply, for the future, to income tax and Capital Gains Tax and the detail will need to be looked a carefully.

Basis period reform

Self-employed traders are currently taxed according to the date to which they draw up their accounts - their ‘basis period’ (subject to some special rules during the early years of trading and on cessation of trading). ?New measures are being introduced to change the way trading income is allocated. ?From April 2023, the basis period for these traders will be aligned to the tax year (a year delay from the originally planned introduction) with special transitional rules applying in the first year. ?The policy will reduce the amount of tax traders have to pay in their early years of trading, where under current rules, basis periods may overlap leading to double taxation (which was only relievable by way of overlap relief on cessation).

There will, however, be an element of additional profits allocated to the basis period in the transitional year in 2023, i.e. the from the end of the usual basis period to 5 April 2023. Traders will be able to offset any existing overlap relief from these profits and then spread any “excess profits” over 5 years to minimise the impact of this change in the transitional year.

Alcohol & Tobacco

Consumers across the country of lower alcohol drinks (such as fruit cider and rosé) will raise their glasses to the Chancellor’s announcement on alcohol duties. The government’s new approach can be summarised as “the stronger the drink, the higher the rate”, which is less welcome news for connoisseurs of drinks such as sherry and port (call those high alcohol drinks? Ed). There will now be six main rates applied to alcohol as opposed to fifteen previously. ?In addition, the duty rates on beer, cider, wine and spirits will be frozen for another year. ?Pub landlords will be in a particularly jovial mood thanks to the announcement of a “draught relief” that would apply a lower rate of tax to draught beer and cider served from kegs and casks in pubs.

By contrast, smokers face an inevitable increase to the rates of duty on tobacco products from 6pm tonight!

Tonnage Tax

The Government announced a series of reforms to this, including the removal, due to Brexit, of the requirement for ships in the UK Tonnage Tax regime to fly the flag of any EU country.?(Note for editors – Brexit was something people talked about prior to the Coronavirus pandemic).

The Spending Review

One couldn’t leave the Budget without mentioning the spending.?Almost the entire speech was devoted to increases in spending which the Chancellor detailed at some length.?You see, he has an extra ￡30bn or so to spend because the costs of the pandemic are less than he thought they would be.?(Don’t understand this? Ed.)?And his enthusiasm on this topic was so unbridled that you had to conclude that this post pandemic period is surely the best time to be alive (if indeed you are still alive).

My personal favourites were 3 lumps of money to be given to Stoke and a new Beatles attraction on the Liverpool waterfront.?But there were so many others.?I do hope that the Chancellor is right that he does have an extra ï¿¡30bn to spend.

Philip Hammond (remember him?) decided in 2016 to move the Budget from Spring to Autumn and to dispense with a full Spring spending review.?"No other major economy makes hundreds of tax changes twice a year, and neither should we," Mr Hammond said.?(He definitely did.)

Since then we have had 3 Spring Budgets and, now, 3 Autumn Budgets.?Our last Budget was indeed in Spring of this very year and the resulting Finance Act 2021 ran to 417 pages.?Large amounts of the next Finance Act had already been published in draft, even before today, and it will undoubtedly run to hundreds more pages.?Well, Phil??Anything to say??I’m waiting.