The Adams Moore Guide to the Autumn Budget 2021
The message from the Chancellor when delivering the Autumn budget last week was that we are entering a ‘post-covid age of optimism’. So what changes were announced in the Budget, and what could they mean for “you and your Business”.
Income Tax and National Insurance Contributions
- The personal income tax allowance will remain frozen at £12,570 from April 2022 to April 2026. We do not see any need to change Directors PAYE Salary payments
- The higher rate income tax allowance threshold will remain frozen at £50,270 from April 2022 to April 2026
- Additional rate income tax threshold remains fixed at £150,000
- From April 2022 the rate of National Insurance contributions across all classes (except class 2 and class 3) will change for one year. The amount of the contribution will increase by 1.25% which will be spent on the NHS and social care across the UK
The tax-free dividend allowance is unchanged at £2,000, however the rates at which you pay tax on dividends are to increase by 1.25% for each category of taxpayers for 2022 – 23, the same as the NI rate above.
We will continue to work out the most tax efficient way to take PAYE and Dividends for Directors and Shareholders, but our initial findings are that no change is required.
- Dividend ordinary rate (for dividends included within the basic rate band) increased to 8.75%
- Dividend upper rate (for dividends included within the higher rate band) increased to 33.75%
- Dividend additional rate (for dividends included above the higher rate band) increased to 39.35%
The corporation tax rate will remain at 19% for now, but from April 2023 the applicable corporation tax rates will be 19% and 25%.
Businesses with profits of £50,000 or below will still only have to pay 19% under the small profits rate. However, for profits between £50,001 and £249,999 there will be a marginal rate of tax between 19% and 25%; the closer your profits get to £250,000 the higher this will be until £250,000 profits is reached.
If your business generates profits of £250,000 or greater, all profits will be taxed at the full 25% rate.
Capital Gains Tax
Capital gains tax annual exempt amount (after personal income tax allowance) has been frozen at £12,300.
Also, from 27th October 2021, the deadline for residents and non-residents to report and pay CGT after selling UK residential property increases from 30 days after the completion date to 60 days. This is a welcome measure for our clients, giving more time to report and pay CGT.
The lifetime limit on gains eligible for entrepreneurs’ relief will remain at £1M for qualifying disposals. This is welcome when looking at exit or retirement.
The pension lifetime allowance will remain at its current level of £1,073,100 until April 2026.
Annual Investment Allowance (AIA)
Annual Investment Allowance allows businesses (including sole traders and partnerships, as well as limited companies) to deduct the full value of an item that qualifies for AIA from their profits before tax, therefore reducing the overall tax bill. AIA can be claimed on most plant and machinery, whether it be brand new or second-hand in most cases but cannot be claimed on cars. So even if the plant and machinery doesn’t qualify for enhanced capital allowances mentioned below, it could still to qualify for AIA!
The Annual Investment Allowance of £1M was due to end by December 2021, however the Chancellor announced that this will now be extended until 31st March 2023. Businesses therefore have longer to consider bringing forward capital investments of between £200,000 and £1M, accessing upfront support by claiming tax relief on such costs in the year of investment.
Enhanced Capital Allowances: Super Deduction
From 1st April 2021 until March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments that would ordinarily qualify for 18% main rate writing down allowances
- a 50% first-year allowance for qualifying special rate assets that would ordinarily qualify for 6% special rate writing down allowances
The super-deduction will allow companies to effectively cut their corporation tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.
It is important to note that both of these enhanced capital allowances are only available to companies subject to corporation tax and only expenditure on brand new plant and machinery qualifies.
Extended Loss Carry Back for Businesses
There will continue to be more flexibility around carrying back trading losses over three years. Broadly speaking, before this extension was announced the rules only allowed trading losses to be carried back one year without restriction.
This extension applies only for losses incurred by companies for accounting periods ending between 1st April 2020 and 31st March 2022, and for individuals for trade losses of tax years 2020/21 and 2021/22.
Employment Allowance Reform
The employment allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000 per tax year.
The Employment Allowance itself is to remain at £4,000 but continues to be limited to employers with an employers NIC bill below £100,000 in the previous tax year.
Business rates in England will move to a more frequent revaluation cycle of every three years from 2023, previously this only happened every five years.
A new temporary relief of 50% (up to £110,000) will be introduced for retail, hospitality and leisure properties in 2022/23. The rate multiplier will also be frozen for 2022/23.
From 2023 a new rates investment relief will also be available to ensure qualifying property improvements do not result in a higher rates liability for a year following improvements, to support investments in green technologies, improvements to productivity and expansion of premises.
Recovery Loan Scheme
The Recovery Loan Scheme has been extended six months until 30th June 2022 for small and medium sized enterprises and from 1st January capped at a finance level of £2M per business, previously up to £10M was available per business. The government guarantee will also be reduced to 70% from 1st January, this was previously 80%.
Making Tax Digital
It was confirmed that Making Tax Digital measures for Income Tax Self-Assessment will apply from April 2024 for all unincorporated businesses and landlords with total business or property income above £10,000 per year. General partnerships will not be required to join until April 2025.
- VAT registration threshold of £85,000 will not change for a further period of two years from 1st April 2022
- VAT deregistration threshold of £83,000 will also remain the same for a further period of two years from 1st April 2022
- The reduced rate of VAT of 12.5% will end on 31st March 2022 for the hospitality sector returning to the standard rate of VAT of 20% from 1st April 2022
If you have any questions at all, on how this affects you or your business, please do not hesitate to contact us.