Autumn Budget 2021

TAX MEASURES: INTRODUCTION

As has been the case in recent budgets, the speculated radical changes, for example the alignment of CGT rates with income tax rates, were not forthcoming. In fact, fiscal measures were more notable by their absence from the main speech. However, the detail is always in the documentation later published on the government websites. But even here, much of the content is simply confirmation of previously announced policies, albeit with some minor changes – for example in respect of basis period reform.

Given the recently announced tax hike on companies, on National Insurance and on dividend rates, it’s perhaps not surprising that there were no Earth-shattering revelations, but it will surely go down as one of the most muted Budgets in modern times for accountants and tax advisers.

Capital allowances

 The temporary increase in the annual investment allowance – to £1 million from £200,000 – is extended until 31 March 2023, coinciding with the end of the super-deduction.

National minimum wage

The recommendations of the Low Pay Commission have been accepted in full by the government. As a result, the National Minimum/Living Wage from April 2022 will be as follows:

INDIVIDUALS

Tax and NI rates and allowances

The freeze to various thresholds and allowances, for example the personal allowance, will continue as planned until at least 2026 – despite the upbeat nature of the speech. The rates will be formally confirmed in Finance Bill 2021/22 which will be published on 4 November 2021.

However, the National Insurance limits and thresholds (other than the Upper Earnings and Profits Limits – which will be frozen) will increase in line with the September CPI figure of 3.1%. This implies that the Primary Threshold will be in the region of £9,865 for 2022/23, with a Secondary Threshold of £9,114 – though these are both subject to confirmation, as the CPI figure forms the basis for changes.

Savings etc.

The savings starting rate will remain at £5,000 for 2022/23. There will be no increases to the annual limits for ISAs, Junior ISAs or Child Trust Funds.

The previously announced increase in dividend rates, to 8.75%, 33.75% and 39.35% respectively, will also be legislated for in Finance Bill 2021/22.

Basis period reform

Following considerable concern over the original announcement that the basis period rules were going to be overhauled, a consultation was held over the summer of 2021. A number of changes have been made, and the revised proposals will be included in Finance Bill 2021/22.

The policy paper published alongside the Budget documents confirms that the movement to a tax year basis will now take effect from the 2024/25 year – a year later than originally scheduled. The transitional year will be in 2023/24, when the basis period will be the twelve months from the end of the basis period for 2022/23, plus a further component running from the end of that twelve months to 5 April 2024. Any overlap relief brought forward will be relieved in the transition year.

The paper also confirms that the proposed spreading mechanism from the original announcement will be legislated for. It appears that businesses that have higher profits as a result of the transition will automatically come within a regime to spread the additional profits over five years. There will be an opt out election available.

Businesses with accounting dates between 31 March and 5 April will be subject to equivalence rules and so be unaffected by the changes.

Universal Credit

 The traditional rabbit-from-the-hat that is now the customary last announcement of the main speech was the cut of the Universal Credit taper rate – from 63% to 55%. The taper is the amount that entitlement is reduced for every £1 above the level of the work allowance – essentially a threshold that can be earned before the taper takes effect.

Not every claimant is entitled to a work allowance. Since 2016, only those who are responsible for children (or qualifying young persons) or have limited capacity for work are entitled to a work allowance. The allowance is two tiered, with a higher amount available for those not receiving help with housing costs. Of course, this means that the announcement will not benefit non-working claimants at all, so an estimated 60% will miss out on the headline £2 billion giveaway.

Rather than waiting until April, this change is to be fast-tracked, and take effect no later than 1 December.

Vehicle-related benefits

The van benefit charge, and fuel benefit charges for vans and company cars will be uplifted by the CPI index for September from April 2022. This means that the flat-rate charges for vans and fuel for vans will increase to £3,600 and £688 respectively. The car fuel benefit multiplier will increase to £25,300.

BUSINESS RATES

Business rates will be retained and reformed, rather than scrapped. There will be no rises for 2022 for any business – the second consecutive year that levels have been frozen. In addition, a 50% cut (subject to a maximum of £110,000) will be given to businesses in the hospitality and leisure industry, including bars, restaurants and gyms.

In an effort to encourage capital investment, the Chancellor also announced that all firms will be able to make improvements to property without seeing an increase in business rates for a year. This will include installing green technology, e.g. solar panels.

A consultation on an online sales tax – seen as a necessity to level the playing field by bricks and mortar businesses – was also confirmed.

CORPORATION TAX

Banking companies

Banking companies are subject to a surcharge of 8% on their profits, i.e. above the standard rate of corporation tax, subject to an allowance of £25 million. When the main rate of corporation tax increases to 25% in 2023, the surcharge will be cut to 3% and the allowance increased to £100 million.

Re-domiciliation regime

A consultation has been announced on “re-domiciliation”, which would make it possible for companies to shift their domicile to the UK. The stated aim of such a regime would be to make the UK a more attractive destination to locate business in, with the knock-on effect that there would be an increase in demand for existing UK expertise, e.g. accounting, audit and legal services. The consultation stresses that the regime would not be a mechanism for avoiding UK taxes, and that further legislation may be required to ensure this did not become the case.

The government is seeking responses on the following matters:

• The advantages of enabling companies to re-domicile
• The level of demand that exists, among which types of companies and sectors
• The appropriate checks and entry criteria
• The merits of establishing an outward re-domiciliation regime
• Any tax implications associated with the introduction of a re-domiciliation regime

Responses should be sent by 7 January 2022.

Tax reliefs for cultural activities

Museums and Galleries tax relief is extended for a further two years. Finance Bill 2021/22 will also increase the rates of relief for theatres, orchestras and museums and galleries until 31 March 2024. This will take effect immediately, and apply as follows:

^{1 – Rates will revert to pre-Budget level from 1 April 2024
2 – Museums and Galleries tax relief will expire after 31 March 2024}

There are also some minor changes to ensure the reliefs are targeted correctly, set out in a policy note.

Tonnage tax

A reform of tonnage tax was announced, with the aim of making it easier for shipping companies to join the regime, as well as making the UK regime more competitive – thereby encouraging shipping companies to move here. The effective period of an election into the regime is being reduced from ten years to eight, and HMRC is being given additional discretionary powers to admit companies outside the regular window where there appears to be “good reason” to do so.

Cross-border group relief

 Finance Act 2021/22 will include legislation to remove the ability for UK companies to claim group relief for losses incurred in the European Economic Area, ending the more favourable treatment compared with non-EEA companies.

PROPERTY TAXES

 30-day reporting reform

 Certain gains on UK-sited property are currently subject to accelerated CGT reporting and payment deadlines of 30 days. Following a recommendation by the Office of Tax Simplification, the deadline is being increased to 60 days with immediate effect, i.e. for completions on or after 27 October 2021.

The change affects UK-residents disposing of residential property, and non-UK residents making disposals of UK land, whether directly or indirectly.

Developer tax

 A new tax on property development companies will apply from 1 April 2022. The charge will be 4% on profits derived from UK residential property development above an annual allowance of £25 million. This charging period will be aligned on the same basis as corporation tax, but the tax will be a separate charge.

ATED

The ATED charges will increase by 3.1%, i.e. by the September 2021 CPI figure with effect from April 2022.

VAT

Early hopes of a cut in VAT on energy costs proved to be incorrect, and VAT announcements were relatively few and far between.

The new points-based penalty regime for VAT is confirmed to commence for accounting periods starting on or after 1 April 2022. This regime, which will also be introduced for direct taxes once they are mandated into Making Tax Digital, will see businesses receive a point for missing a submission deadline. There will then be a fine levied when the points threshold for a particular period is breached, depending on how frequently reporting is required, e.g. 4 points for quarterly returns. Points will expire after two years and will not reset upon the occasion of a penalty charge.

The second-hand margin scheme in Northern Ireland will be extended on an interim basis, until such time as the Second-hand Motor Vehicle Export Refund Scheme is implemented.

The is also a new exemption for the import of dental prostheses, retrospective to 1 January 2021.

INDIRECT TAXES

Alcohol duty

Alcohol duty rates will be frozen, and the system will be heavily reformed and modernised, following a period of review. A consultation has been launched with a closing date of 30 January 2022. The main thrust of this is to more closely align duty rates with ABV strength, and removing seemingly illogical differences in charging between differing products of the same strength – e.g. still vs sparkling wine. The reform aims to align with public health objectives.

Duties increasing with RPI

A number of duty rates and bands will increase in line with the Retail Prices Index from April 2022, including:

• Landfill tax rates;
• Gross Gaming Yield bands for gaming duty;
• Vehicle Excise Duty.

Fuel duty rises will be scrapped in light of recent price rises and supply issues.

HGVs

The HGV Vehicle Excise Duty freeze will continue for a further twelve months, i.e. for 2022/23, and the HGV Levy will be suspended until 31 July 2023. Finance Bill 2021/22 will also contain provisions to temporarily extend road haulage cabotage (the transport of goods between two locations in the same country by an operator from another country). The rules permit two journeys to be undertaken within seven days of entry into the UK. The extension will permit unlimited cabotage movements for up to 14 days until 30 April 2022.

Tobacco

The Finance Bill 2021/22 will increase the duty rates on all tobacco products by 2% above the Retail Price Index. The duty rate for hand-rolling tobacco increased by an additional 4% above this and the minimum excise tax by an additional 1%. There are also a number of new sanctions designed to combat duty evasion, with detail available here.

Air passenger duty

A lower rate of duty will apply to domestic flights from April 2023. A new band for ultra-long-haul flights will be introduced at the same time.

ADMINISTRATION AND OTHER MATTERS

Extension to “scheme pays” for annual allowance charges

Currently, where a pension scheme member wishes to pay an annual allowance charge from their accrued pension savings, referred to as “scheme pays”, the scheme administrator has until 14 February following the end of the tax year on its Accounting for Tax Return. New legislation will be introduced to set the reporting deadline by reference to the time the administrator is notified of the charge (by the member) rather than a fixed date.

Promoters of tax avoidance

Further measures will be added to HMRC’s arsenal of powers to combat promoters of aggressive tax avoidance schemes. The new provisions, to be included in Finance Bill 2021/22 will purportedly:

• allow HMRC to freeze a promoter’s assets so that the penalties they are liable for are paid
• deter offshore promoters by introducing a new penalty on the UK entities that support them
• provide for the closing down of companies and partnerships that promote tax avoidance schemes
• support taxpayers to steer clear of avoidance schemes or exit avoidance quickly by sharing more information on promoters and their schemes

HMRC enforcement

The discovery assessment provisions in s.29, TMA 1970 will be updated to clarify that assessments may be raised in certain circumstances where special charges are applicable; namely the high-income child benefit charge, gift aid charge and pension related charges, e.g. the annual allowance charge. Such charges may increase the amount of tax payable under the self-assessment system, but do not directly correspond to “income”.

HMRC recently lost an Upper Tribunal case (see HMRC v Jason Wilkes), partly on the basis that a strict interpretation of s.29 requires a discovery of undeclared “income which ought to be assessed to income tax” in order to be valid. Strictly, while the charges relate to a level of income in one way or another, they are required to be declared separately to income on the tax return, notwithstanding that most software packages will automatically calculate them.

HMRC is appealing the UT decision; however, the legislation is also being amended to ensure that such charges are clearly within the remit of s.29 going forward.

Uncertain tax treatment

A new requirement for large businesses to notify HMRC where they take a tax position that is “uncertain” in their returns will be effective from 1 April. a policy note is available here.