Budget Highlights - October 2021
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National Insurance Contributions set to increase
The Health and Social Care Levy was introduced by Prime Minister, Boris Johnson in September and will apply to employees and employers liable for Class 1 NIC and to self-employed individuals liable for Class 4 NIC. It will be introduced from April 2022.
For the average basic rate employee earning £20,000 per annum, they will contribute an additional £130 a year. Meanwhile a typical higher rate employee earning £80,000 per annum will pay a further £880 a year.
It is important to note the NIC increase will also apply to employers too, who will pay an additional 1.25% in employer NIC from April 2022.
Employers will have to pay the levy for employees earning above the Secondary Threshold of National Insurance, which is £8,840 in 2021-22. Existing reliefs will continue to apply for employers of apprentices under the age of 25, all employees under the age of 21, veterans, and new employees in freeports from April 2022.
The Employment Allowance allows eligible employers to reduce their NIC liability by up to £4,000 per year. The government believes that 40% of small business owners will pay nothing extra in employer NIC.
Dividend tax to rise from April
Individuals who receive dividend income will also face a higher tax bill as all rates of dividend tax will increase by 1.25% from April 2022.
The dividend tax is applicable on dividend income above the frozen £2,000 dividend allowance and above the £12,570 personal allowance. Dividends on assets held in ISAs are excluded from the dividend tax.
From the 2022-23 tax year, basic rate dividend tax will be charged at 8.75% instead of 7.5% for 2021/22. Higher rate dividend taxpayers will be charged at 33.75% instead of 32.5% and additional rate dividend taxpayers will pay 39.35% instead of 38.1% respectively
What did the Chancellor announce on the day of The Autumn Budget that affects business owners and the self-employed?
National Living Wage set to rise
The National Living Wage will rise on 1 April 2022 by 6.6% to £9.50 an hour. Young people and apprentices will also see increases in the National Minimum Wage rates.
Landlord and second home owner - Capital Gains Tax (CGT) payment and report window increase
From 27th October 2021, the deadline to report and pay CGT after selling UK residential property will increase from 30 days after the completion date to 60 days.
For non-UK residents disposing of property in the UK, the same extended deadline will apply.
This much welcome relaxation will make things easier for UK residents where tax is due on the disposal of a UK residential property. The deadline for submitting a CGT return and paying the tax had previously been 30 days from the date of completion of the sale and this short deadline had caused difficulties.
Non-UK residents are required to submit a return regardless of whether there is any tax due on all types of property disposals so will benefit from the extended filing period.
Entrepreneurs will be relieved that CGT Business Asset Disposal Relief continues resulting in a 10% CGT rate on the first £1 million of lifetime gains.
Annual Investment Allowance (AIA) extended
The government announced the temporary AIA limit of £1million of expenditure on qualifying plant and machinery, which was due to due to end on 31 December 2021, has been extended to 31 March 2023. This aligns the timescale for claiming AIA with the existing timescale for the 130% super-deduction, so it is likely to be of limited benefit to a majority of UK companies already entitled to the 130% super deduction for the same period.
Fuel duty rise scrapped for 2022/2023
This expected move means fuel duty will be held at 57.95 pence per litre, preventing the planned 2.8ppl increase which will cost the Treasury £1.5 billion.
According to the government, the continued fuel duty freeze has saved the average UK car driver a cumulative £1,900.
Many organisations have been lobbying for a further fuel duty freeze and with the cost of a barrel of oil continuing to rise, further fuel price increases are predicted in the coming weeks.
Basis period reforms and Making Tax Digital
The complex basis period rules for the self-employed will be reformed so business profit for a tax year will be the profit or loss arising in the tax year itself, regardless of the accounting date. As many sole traders will already prepare accounts to be aligned to the end of the tax year, this measure will only impact a relatively small percentage of the self-employed. The transition to the new rules will take place in 2023-24 with the new rules coming into force from 6th April 2024.
These changes are being made to support the move to a digital tax system. The government had already announced they would give sole traders and landlords, with income over £10,000, an extra year to prepare for Making Tax Digital. Making Tax Digital for income tax will now be introduced from 6th April 2024.
The position is slightly different for partnerships. Making Tax Digital rules will apply from April 2025 to general partnerships that only have individuals as partners. All other partnerships (for example Limited Liability Partnerships or partnerships with corporate partners) will be required to join Making Tax Digital at a future date which has not yet been confirmed.
Business rates reformed
BUSINESS RATES TO BE MADE “FAIRER” AND 50% DISCOUNT FOR THE RETAIL AND HOSPITALITY SECTOR
The Government continue to promise a fairer system of Business Rates and will provide new reliefs for investment and improvements to business premises. In order to support businesses and jobs in the retail, hospitality and leisure sectors, the chancellor announced a 50% discount in business rates up to £110,000.
High Street businesses still operate at a significant disadvantage to online retailers who generally pay lower Business Rates, and some pay a lot less corporation tax. The Government will consult shortly on an Online Sales Tax which may help level the playing field.
Changes To R&D Tax Relief
As announced in the Budget R&D, tax relief will be reformed from April 2023 to support modern research methods by expanding qualifying expenditure to include data and cloud costs, and to focus tax relief on innovation carried out in the UK. HMRC will continue to target abuse of this generous tax relief and improve compliance.