The Chancellor of the Exchequer stated that his 2021 Budget would start the work of preparing for a new economy post COVID-19. With a focus on departmental spending increases and investments in infrastructure, many of which were pre-announced, what are the main tax impacts for business and individuals?
There were a few focused changes for certain sectors, but most businesses will be pleased that there are only minor changes to corporation tax, income tax and VAT. More information is likely when the Finance Bill is published on 4 November 2021.
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Following a review of business rates in England, the Government has decided to keep most of the regime intact. The main changes included:
- revaluations every three years;
- exemptions for plant and machinery used in onsite renewable energy production such as solar panels;
- freezing the multiplier for 2022/23;
- a new one year relief for eligible property improvements; and
- a new temporary 50 percent relief up to £110,000 per business for eligible retail, hospitality, and leisure businesses.
A consultation will be published shortly considering the arguments for and against an online sales tax which could fund reductions in business rates. Whilst these changes will provide some reductions in business rates, this is not the radical reform that some were looking for.
It was confirmed that a new residential property development tax will be introduced from 1 April 2022 at rate of 4 percent on relevant group profits over £25 million. Residential property profits will be calculated on the same basis as corporation tax, with a restriction for finance costs.
From 1 April 2023 the banking surcharge is to decrease to 3 percent with an allowance of £100 million to help support challenger banks. This will mean that the banking surcharge will be at a lower rate than the new residential property development tax.
There are significant temporary increases in the cultural tax reliefs for theatres, orchestras, and museums for the period to 31 March 2024, with the museums and galleries exhibition relief extended until that date. A relaxation in film tax relief is also introduced from 1 April 2022 which will enable relief to be claimed where the film is released on streaming services rather than in a cinema provided that the criteria for high end TV relief is also met.
The changes to expand R&D tax relief to include cloud computing and data costs from 1 April 2023 will be welcomed by business, but the restriction to only include UK costs will mainly adversely impact large corporate groups. Other changes to target abuse and improve compliance will be set out in due course.
The introduction of a lower domestic rate of air passenger duty in 2023 will be welcomed by regional airports and individuals travelling between the UK regions; but may send the wrong message ahead of the climate change conference in Glasgow.
The most radical change is to alcohol duty which is simplified, again from 2023, based on a series of rates per percentage alcohol, with a draught relief for pubs and other similar establishments. This reduces the rates for sparkling wine, such as Champagne and English sparkling wine, but increases the rate for higher strength ciders and red wine – the key is that in general higher strength means more duty is paid.
This will help craft brewers and pubs, particularly linked with the changes in business rates. However, with the temporary 12.5 percent VAT rate for hospitality going back up to 20 percent in April 2022, aligned with the increases to the national living wage, and the 1.25 percent increase in employer’s NIC (to fund social care prior to the introduction of the separate Health and Social Care Levy from April 2023), there will be increased cost pressure next year.
From an individual tax perspective, there was little change following the 1.25 percent health and social care levy and 1.25 percent increase to the dividend tax rates announced a few months ago. The new digital reporting under Making Tax Digital for Income Tax has been delayed until April 2024. As a part of this, following consultation one major change is to basis periods, so that business profits would be charged to income tax as they arise from month to month, rather than the current rules based on accounting periods. This will also come into full effect for the 2024/2025 tax year, with a 2023/24 transitional year. There is a relaxation in the reporting and payment deadline for capital gains on UK residential property from 30 to 60 days.
In the run up to the Budget there was speculation that there could be reform of the taxation of work, taxation of wealth or capital gains, or additional taxes to help the change to a greener economy. There was no mention of these areas, nor any commentary on future international corporate tax changes to reflect the OECD proposals for a minimum 15 percent global tax rate and a reallocation of profit to customer jurisdictions. The Government announced last week that the digital sales tax would be repealed once these international rules came into force.
In summary, with significant tax raising measures previously announced including the corporation tax increase to 25 percent from 1 April 2023, the inflation impact of freezing of personal allowances and rate bands, and the new health and social care increases, there was little need for the Chancellor to raise additional taxes in this budget. This was a holding budget enabling the Chancellor to wait for the uncertainties in the economy to be resolved, before returning to a tax cutting budget in the run up to the next general election.