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.
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.
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.
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.