“Today’s Budget does not draw a line under Covid-19; we have challenging months ahead," Chancellor Rishi Sunak
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Overview
In yesterday’s Autumn Budget, Chancellor Rishi Sunak resisted the temptation to increase taxes to recoup the money spent on emergency support schemes during the coronavirus pandemic.
Instead, Sunak is basking in the warm glow reserved for generous chancellors, following yesterday’s announcements, thanks in large part to cutting the Universal Credit taper rate by 8%, bringing it down from 63% to 55%.
The Chancellor also gave a boost to struggling businesses with premises, revealing a five-point revamp of business rates in England. He will start by cancelling the multiplier for 2022/23 and has confirmed that, from April 2023, revaluations will become more frequent, taking place every three years instead of every five years
This time around, the Treasury took the unusual step of announcing some key measures in advance of the Budget.
Several key tax rates and thresholds were frozen last spring, remaining so until 2025/26 and the National Living Wage increase of 6.6% was widely publicised long before Budget Day.
Last month, it was announced that the pensions triple lock (the commitment to increase the value of the State Pension by at least 2.5% each year) would be suspended for a year amid rapidly rising inflation. The Office for Budget Responsibility has predicted that inflation, as measured by the Consumer Prices Index, will average at 4% over the next year.
Then came the news of the health-and-social-care levy in the form of a 1.25% National Insurance Contributions (NICs) increase from April 2022, which, along with a corresponding 1.25% increase in tax on dividend income, was seen as unfair by many directors of owner-managed businesses.
These directors, many of whom take income from dividends, felt that they had already received limited government support during the midst of Covid-19 and are now being asked to cover the cost through tax and NICs for themselves and their employees.
In his speech on 27 October 2021, the Chancellor also announced a residential property developers’ tax of 4% that will be levied on corporate developers with annual profits of £25 million or more.
Plenty of crowd-pleasing measures were also announced; alcohol duties, for example, will be” radically simplified”, while pub landlords will be toasting the new “draught relief” that lowers, by 5%, the duties that apply to draught beer and cider.
No real mention of climate change was made by the Chancellor, except for what could be seen as the surprising decision to introduce a cheaper, domestic band for air passenger duty. This will be sure to raise some eyebrows at the upcoming COP26 climate conference in Glasgow.
As ever, there were a handful of policy changes not detailed in Mr Sunak’s speech but, rather, hidden away in background papers. We have looked these over and, in our full report, highlighted several items of note, such as changes to reporting requirements affecting Capital Gains Tax.
Overall, the Chancellor remains in spend mode, with little hint of what might be in store as the UK economy continues to recover and the national debt demands to be paid.
Below we have put together an overview of the main announcements. For more detail, read our full Budget Report here
Key personal announcements
Capital Gains Tax property payment window extended
Not included in the speech, but an important announcement nonetheless, was a change to the property payment window for Capital Gains Tax.
The deadline by which any Capital Gains Tax on the sale of UK residential property must be reported and paid has increased from 30 to 60 days after the completion date.
This takes immediate effect, applying as of 27 October 2021.
Universal Credit taper rate cut
This Budget's ‘rabbit from a hat' came at the end of the speech - an 8% reduction to the taper rate for Universal Credit.
The measure will allow claimants to keep an additional 8p for every £1 they earn.
National Living Wage increases to £9.50
The National Living Wage will increase from 01 April 2022, from £8.91 to £9.50 an hour - an increase of 6.6%.
This increase was already agreed by the government ahead of the Budget, in response to proposals from the Low Pay Commission.
Read our full Budget Report here >
Key business announcements
Business rates reform
The publication of a long-awaited review of business rates brought with it a series of measures to adjust the system.
This included a 50% cut to rates for eligible retail, hospitality and leisure businesses in 2022 to 2023, up to a cap of £110,000.
Additionally, the rates multiplier will be frozen for 2022 to 2023, which the Treasury says will save businesses in England £4.6 billion over the next five years.
Other reforms included the introduction of a new investment relief for green technology, an improvement relief for businesses expanding their properties, and a move to three-yearly revaluations from 2023, instead of five years as it stands now.
Taken together, Mr Sunak said the measures announced in the Budget amounted to a £7bn cut to business rates.
Annual investment allowance extended
The annual investment allowance will remain at its current level of £1 million until 31 March 2023, instead of ending on 31 December 2021 as planned.
The allowance, which allows companies to deduct qualifying capital allowances from their profits before tax, previously stood at £200,000 but was raised from 01 January 2019 onwards to encourage investment.
R&D tax credit changes
The Chancellor also announced plans to reform R&D tax reliefs, by including data and cloud costs as qualifying expenditure, as well as refocusing the reliefs on activity in the UK.
Details on these changes have not yet been released, but the government says these will form part of its "further tax administration and maintenance announcements" later in the autumn.
Read our full Budget Report here >
Other announcements
Mr Sunak revealed a range of changes to duties on air travel and alcohol, while freezing fuel duty for the 12th consecutive year.
Fuel duty
The future for fuel duty would have been on the minds of many watching the Chancellor, given that fuel prices are at their highest level in eight years.
Unprepared to "add to the squeeze on families and small businesses", Sunak announced the planned rise in fuel duty would be scrapped, saving UK drivers a total of £8 billion over the next five years.
Air passenger duty
To address the fact that people tend to pay more to fly within the UK than they do to travel abroad, the Chancellor announced air passenger duty would be cut on domestic flights from April 2023 by 50%.
With the upcoming COP26 climate summit, Head of the Environmental Justice Commission at the Institute for Public Policy Research, Luke Murphy, described the move as an "own goal" for the government's environmental policy.
However, Sunak also announced an increase in air passenger duty of £91 for long-haul flights over 5,500 miles so that "those who fly furthest will pay the most".
Alcohol duty
To simplify alcohol duties, the Chancellor announced that the government will slash the number of duty rates from 15 to six, ensuring the strongest alcoholic beverages are taxed the most.
To reflect the drinking habits of the modern British public, Sunak also said he would cut the 28% duty applied to traditionally higher-end beverages, such as prosecco and English sparkling wine.
‘Draught relief' will also be applied to draught beers and ciders to cut duty by 5% and help struggling pubs and "encourage drinking in safe environments".
Emma McClarkin, Chief Executive of the British Beer and Pub Association said:
"Pub goers will also be toasting the Chancellor for announcing a 5% lower duty rate on draught beer worth £62 million, however, the overall beer duty rate in the UK remains among the highest in Europe.
"It is vital for Britain's brewers, a world-class homegrown manufacturing success story, that the overall beer duty burden is reduced - not just duty on draught beer in pubs."
Read our full Budget Report here >
Get in touch
If you would like to discuss how any of the measures announced may affect you or your business, give us a call today on 01483 205890.