The Chancellor’s Autumn Budget contained a raft of measures targeted towards Local and Central Government, with “Levelling Up” a particular focus supported by a £1.7bn fund across the UK. If successful, this should help provide a real foundation for growth and economic rebalancing with the Chancellor himself recognising the UK’s “uneven geography”.

The LGA has also responded warmly to the Chancellor’s measures, particularly those focused on supporting vital local services through both the Levelling Up Fund and Community Renewal Fund. There was no mention of adult social care or children’s services, however connecting the country through significant investment in transport links will remain a complex challenge which transport providers and local authorities face.

From a tax perspective, we have outlined some of the key measures affecting Councils below.

Corporation Tax

Residential Property Developer Tax (‘RPDT’)

The Chancellor’s Budget confirmed the introduction of a new tax – Residential Property Developer Tax (‘RPDT’) - on the largest residential property developers with effect from 1 April 2022.

This could impact Local Authorities involved in joint ventures with third party developers, especially because the draft legislation can result in increased RPDT liabilities for commercial organisations partnering with tax exempt bodies, such as Local Authorities.

RPDT applies to profits arising from the development of certain residential accommodation for sale. Following consultation feedback, build to rent developments are excluded. Also, an exemption has been given to non-profit housing providers (such as charitable housing associations). RPDT uses as its starting place the corporation tax (CT) code. Its broad characteristics are as follows:

  • A person is only taxable if they, their group or a related party has, or had, an interest in land. Thus, a building contractor will not be taxable, but land promoters could be;
  • It taxes profits from the development of certain residential accommodation – excluded categories include student accommodation and communal living such as care homes;
  • Profits and losses derived from development need to be aggregated across a group. This value is then subject to certain adjustments - significantly, no relief is given for finance costs, or for losses derived from other activities; and
  • The rate of tax is 4 percent, with a developer’s allowance of £25 million per annum applied on a group basis. Unused amounts cannot be carried forward. Complex rules apply to the calculation of the developer’s allowance for corporate joint ventures undertaking development.

Clarification concerning the rate of tax and the developer’s allowance is welcome and will allow businesses to model the impact of the tax.

The wide range of assets within scope and the exclusion of relief for finance costs may lead to more businesses being in scope than might initially be expected. The exclusion of build to rent activities has however substantially reduced the population of businesses that will pay RPDT.

Some of the computational provisions, particularly with respect to the calculation of the developer’s allowance and joint ventures, are complex, and HMRC guidance will be welcome.

Fundamental Review of Business Rates in England concludes

The Government has concluded its fundamental review of Business Rates in England, with the 26-page Final Report published on Budget Day. The Final Report reaffirms the importance of Business Rates and its central role in the tax system. The tax is therefore retained but will be reformed to make it “fairer and timelier”. The reforms include more frequent revaluations as well as new discounts and reliefs. The Government estimates that the reforms represent the biggest rate cut for 30 years (excluding the COVID-19 reliefs).

Headline changes set out in the Final Report include:

  • Revaluations will now take place every three years, rather than every five years. This will start from the April 2023 revaluation. Whilst there was widespread support for having a shorter Antecedent Valuation Date (or ‘AVD’ – which is the period between the revaluation date and the date at which market rental values are assessed), this will remain as two years for the time being, such that the AVD for the 2023 revaluation is April 2021. Both the length of the AVD and the periodicity of revaluations may be shortened further in future, signaling a trend towards business rates responding more quickly to fluctuating market and economic trends;
  • The planned increase in the multiplier next year is cancelled. Instead, the multiplier will be frozen at the 2021/22 level;
  • A 50 percent discount for small retail, hospitality and leisure businesses will be implemented - up to a maximum of £110,000 for 2022/23. This discount takes effect immediately which will be particularly welcome news for smaller businesses still feeling the impact of the pandemic as well as increasing competition from online retailers. However, it will not help large legacy retailers who are most likely to have excess physical space;
  • Changes to the way relief is applied for investments in renewable energy and storage, with new investment relief for green technologies like solar panels applying from 2023 to 2035, regardless of whether the installations are for a businesses’ own use or for onward sale;
  • In order to avoid disincentivizing investments in property, the Government is introducing a 100 percent improvement relief for property improvements for one year e.g., an office adding new air conditioning. This will start in 2023 and continue until a review in 2028;
  • The Government has pledged £0.5 billion additional funding for the Valuation Office Agency (VoA) – to cover the additional resourcing needs arising from the increased frequency of valuations, a move towards digitalisation of business rates and increased transparency and guidance around the approach to valuations by the VoA; and
  • Backward looking appeals of past revaluations will transition to being limited to the ‘life of the list’ from 2026 i.e., from 2026 the end of each list will be set as the statutory deadline for the VoA to resolve challenges.

Museums and Galleries Exhibition Tax Relief (‘MGETR’)

Subsidiaries of Local Authorities are one of the few types of entity eligible to claim MGETR.  The relief provides a cash tax credit to loss-making exhibitions in respect of eligible expenditure on producing and closing an exhibition.

Many Local Authorities have not taken advantage of the relief historically, but the Budget announced two measures which are likely to bring greater attention to a relief which can bring cash into Local Authorities:

  • MGETR was due to expire (the ‘sunset’ clause) on 31 March 2022 – this has now been extended until 31 March 2024.
  • Furthermore, the headline rates of tax credit available have also been temporarily increased significantly, as follows:
Period    MGETR rates  
27 October 2021 to 31 March 2023

Non-touring productions: 45% (from 20%)

Touring productions: 50% (from 25%)

1 April 2023 to 31 March 2024

Non-touring productions: 30%

Touring productions: 35%

1 April 2024 onwards TBC

Employment Tax

Public sector pensions and taxation of the McCloud case remedy

Aspects of the 2015 public sector pension reforms were found in the McCloud case to give rise to unlawful age discrimination. The Public Service Pensions and Judicial Offices Bill will, when enacted, amend the pension provision of affected individuals with effect from 1 April 2015. Legislation will also be introduced to ensure that the pensions tax framework applies as intended to these changes. Broadly, compensation payable will not be taxable, and affected individuals will not be taxed on any retrospective breaches of their pension savings limits due to the McCloud case remedy.

Employment issues

The previously announced 1.25 percentage point increase to employer’s National Insurance Contributions, to fund health and social care prior to the introduction of the separate Health and Social Care Levy, comes into force from 6 April 2022. As anticipated, the National Living Wage/National Minimum Wage will be increased so that employees aged 23 years and over will be entitled to £9.50 per hour for pay periods starting from 1 April 2022.

On benefits-in-kind, the van benefit charge and fuel benefit charges for cars and vans will rise in line with the Consumer Price Index from 6 April 2022. A new Scale-Up visa will launch in Spring 2022 to help eligible growth businesses recruit key overseas talent who meet certain language requirements and have a salary of at least £33,000.

The income tax personal allowance and higher rate threshold remain frozen and the additional rate threshold remains at £150,000. Whilst the personal allowance is available to all qualifying UK taxpayers, Scottish and Welsh taxpayers are subject to tax on non-savings and non-dividend income based on rates, and for Scottish taxpayers bands, set by the Scottish and Welsh Parliaments. These will be announced in the Scottish and Welsh Budgets in December 2021.

Pension tax relief for low earners in Net Pay Arrangements

The take home pay of individuals with taxable income below the personal allowance can be affected by the method of tax relief operated by their pension scheme. In summary, employees contributing to Relief at Source (RAS) schemes receive a 20 percent top-up on their pension contributions, even if they pay no, or a lower rate of, income tax. In contrast, employees contributing to a Net Pay Arrangement (NPA) scheme receive relief at their marginal rate, which for those with taxable earnings at or below the UK personal allowance is nil. To address this anomaly, the Government will introduce direct top-up payments for affected NPA scheme members. These will start to be paid from 2025/26 in relation to contributions made in 2024/25 onwards.

If you would like to discuss any of these points, please do not hesitate to contact your usual KPMG contact, or one of the following:


Corporate Tax:         

Peter Chapman           (0121 335 2782)

Simon Robinson          (0782 5682 425)


Employment Tax:     

Paul Moreels                (0191 401 3703)

Anne-Marie Boden       (0207 694 2626 / 07917 403 625)