Biggest Rates Cut In Three Decades
On Wednesday 27 October 2021, Chancellor Rishi Sunak announced his Autumn Budget.
Mr. Sunak resisted the temptation to raise taxes to start paying for the emergency support schemes that kept so many businesses afloat during the pandemic in 2020/21.
Instead, Sunak continues to bask in the warm glow reserved for generous chancellors following his latest Autumn Budget speech, thanks largely to cutting the Universal Credit taper rate by 8%, bringing it down from 63% to 55%, from 1 December 2021 at the latest.
Sunak also boosted struggling businesses with premises by revealing a five-point plan to retain and revamp business rates in England, starting with canceling the multiplier for 2022/23 and confirming revaluations will take place every three years from April 2023, instead of every five years.
Beyond that, the Treasury took the unusual step of announcing several key measures well in advance of the day itself.
We already knew that several key tax rates and thresholds were frozen last spring, up to and including 2025/26, while news of the national living wage increasing by 6.6% was already common knowledge long before today.
And, last month, we heard the triple-lock – a pledge to increase the state pension’s value by at least 2.5% each year – would be suspended for a year as inflation continues to soar.
The Office for Budget Responsibility reckons inflation, as measured by the Consumer Prices Index, will average at 4% over the next year.
Then, in the guise of the health-and-social-care levy, a 1.25% National Insurance contributions (NICs) increase from April 2022 served to frustrate some company directors of owner-managed businesses, along with a corresponding 1.25% increase in tax on dividend income.
Directors felt they’d already borne the brunt of limited government support during the midst of COVID-19; now, they’re being asked to cover the cost, through tax and NICs for themselves and their employees.
In his speech on 27 October 2021, the Chancellor also announced a residential property developers’ tax will be levied on corporate developers with annual profits of £25 million or more at 4%.
Plenty of crowd-pleasers were also announced. Alcohol duties, for example, will be “radically simplified”, while pub landlords will be toasting the new ‘draught relief’ which lowers duties applying to draught beers and ciders by 5%.
There was no real mention of climate change, aside from the surprising decision to introduce a cheaper, domestic band for air passenger duty – which will be sure to raise some eyebrows at next month’s COP26 conference in Glasgow.
As ever, of course, there were a handful of policy changes not announced in the speech but instead squirreled away in background papers.
Our team of tax experts has been over those with red pens in hand and highlighted several items of note, such as changes to the reporting requirements, which will affect capital gains tax.
Overall, the Chancellor remains in spend mode, with a little hint of what might be in store as the UK economy continues to recover and the national debt demands to be paid.
To understand how the announcements made in the Budget will affect your financial situation, click on the link or read the summaries below.
Business Rates Reform
The publication of a long-awaited review of business rates brought with it a series of measures to adjust the system.
This included a 50% cut to rates for eligible retail, hospitality, and leisure businesses in 2022 to 2023, up to a cap of £110,000.
Additionally, the rates multiplier will be frozen for 2022 to 2023, which the Treasury says will save businesses in England £4.6 billion over the next five years.
Other reforms included the introduction of a new investment relief for green technology, an improvement relief for businesses expanding their properties, and a move to three-yearly revaluations from 2023, instead of five years as it stands now.
Taken together, Chancellor Rishi Sunak said the measures announced in the Budget amounted to a £7bn cut to business rates.
Annual Investment Allowance Extended
The annual investment allowance will remain at its current level of £1 million until 31 March 2023, instead of ending on 31 December 2021 as planned.
The allowance, which allows companies to deduct qualifying capital allowances from their profits before tax, previously stood at £200,000 but was raised from 1 January 2019 onwards to encourage investment.
R&D Tax Credit Changes
The Chancellor also announced plans to reform R&D tax reliefs, by including data and cloud costs as qualifying expenditure, as well as refocusing the reliefs on activity in the UK.
Details on these changes have not yet been released, but the Government says these will form part of its “further tax administration and maintenance announcements” later in the autumn.
Capital Gains Tax Property Payment Window Extended
Not included in the speech, but an important announcement nonetheless, was a change to the property payment window for capital gains tax.
The deadline by which any capital gains tax on the sale of UK residential property must be reported and paid has increased to 60 days after the completion date, up from 30 days.
This takes immediate effect, applying as of 27 October 2021.
Universal Credit Taper Rate Cut
This Budget’s ‘rabbit from a hat’ came at the end of the speech – an 8% reduction to the taper rate for Universal Credit.
The measure will allow claimants to keep an additional 8p for every £1 they earn.
National Living Wage Increases to £9.50
The national living wage will increase from 1 April 2022, from £8.91 to £9.50 an hour – an increase of 6.6%.
This increase was already agreed by the Government ahead of the Budget, in response to proposals from the Low Pay Commission.