Today, Wednesday 27 October 2021, Chancellor Rishi Sunak has unveiled the contents of his Budget in the House of Commons. What is there to know?
State of the economy and public finances:
• Inflation in September was 3.1% and is likely to rise to average 4% over next year, OBR says
• UK economy forecast to return to pre-Covid levels by 2022
• Annual growth set to rebound by 6.5% this year, followed by 6% in 2022
• Unemployment expected to peak at 5.2% next year, lower than 11.9% previously predicted
• Wages have grown in real terms by 3.4% since February 2020
• Borrowing as a percentage of GDP is forecast to fall from 7.9% this year to 3.3% next year
• Borrowing as a percentage of GDP will then fall in the following four years to 1.5%
• Foreign aid spending projected to return to 0.7% of GDP by 2024-25
Taxation and wages
• Universal Credit taper rate will be cut by 8% no later than 1 December, bringing it down from 63% to 55% - allowing claimants to keep more of the payment
• Confirmation business rates to be retained and reformed
• A 50% business rates discount for the retail, hospitality, and leisure sectors in England in 2022-23, up to a maximum of £110,000
• Planned rise in fuel duty to be cancelled amid the highest pump prices in eight years
• Consultation on an online sales tax
• National Living Wage to increase next year by 6.6%, to £9.50 an hour
Alcohol Duty increase scrapped plus system reform
From midnight tonight, the duty rates for beer, cider, wine, and spirits will be cancelled, which is a cut tax worth £3bn over the next five years.
The government has ‘simplified’ the duty system for alcohol reducing the number of main rates from 15 to six with the new reforms planned to be introduced in February 2023.
The government will approach alcohol taxation by taxing drinks on their alcohol content with a standardised set of bands. These bands are alcohol with an alcoholic content of between 1.2-3.4%, an alcoholic content of between 3.5-8.4%, an alcoholic content of between £8.5% and 22%, then drinks with an alcoholic content of above 22%.
The government will also introduce new rates for low-strength drinks below 3.5% to encourage manufacturers to develop new products at a lower alcohol rate. The Chancellor stated that all products across these categories will pay the same rate of duty if they have the same proportion of alcohol content.
The government as introduced a small producer relief for cidermakers and other producers of lower alcohol rate drinks. This is aimed to allow a smaller producer to diversify their product range to include more products below 8.5% while still benefiting from reduced rates.
Residential Property Developer tax set at 4%
The new tax will be levied on the profits that companies and corporate groups derive from UK residential property development, to ensure that the largest developers make a fair contribution to help pay for building safety remediation.
The tax will be charged at 4% on profits exceeding an annual allowance of £25m.
Annual Investment Allowance (AIA) extended
The government will extend the temporary £1m level of the Annual Investment Allowance (AIA) to 31 March 2023. It was due to expire at the end of 2021 so this will give some smaller firms to take advantage of the tax break on investment.
This will provide businesses with more upfront support, encouraging them to bring forward investment, and making tax simpler for any business investing between £200,000 and £1m.
The AIA is a 100% capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit.
Businesses claim the AIA in respect of expenditure which would otherwise be eligible for writing down allowances (WDAs). Given at either the main or special rates, WDAs provide relief for eligible capital expenditure over a number of tax periods. The AIA therefore accelerates relief, typically simplifying processes for businesses and aiding their cashflow.
Business Rate cut for retail, hospitality and leisure sectors
Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23.
To support local high streets as they adapt and recover from the pandemic, the government is introducing a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022-23.
Up to 400,000 retail, hospitality and leisure properties will be eligible for the new, temporary £1.7bn of business rates relief next year. This will provide support until the next revaluation, which will take place every three years, helping the businesses that make UK high streets and town centres successful evolve and adapt to changing consumer demands.
The government is also freezing the business rates multiplier in 2022-23, a tax cut worth £4.6bn over the next five years. This will support all ratepayers, large and small, meaning bills are 3% lower than without the freeze.
From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy.
This will enable businesses to make improvements to their premises that support net zero targets, such as installing solar panels, and enhance productivity as employees return to the workplace.
From 2023, the government will introduce exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a new 100% relief for eligible heat networks, to support the decarbonisation of buildings.
60-day capital gains tax payment window
From 27 October 2021 the deadline for residents 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, this deadline will also increase from 30 days to 60 days.
This will ensure that taxpayers have sufficient time to report and pay CGT, as recommended by the Office of Tax Simplification.
When mixed-use property is disposed of by UK residents, legislation will also clarify that the 60-day payment window will only apply to the residential element of the property gain.
R&D Tax Relief criteria to prioritise UK-based investment
The Chancellor stated that the UK has the second-highest R&D relief spending in the world ‘but it is not working.’ He stated that businesses claimed £48bn in the tax relief last year but nearly half of this was not conducted in the UK, with only £22bn invested here.
The relief criteria is also expanding to cover cloud computing and data R&D.
The Chancellor also confirmed that the government will increase research and development (R&D) spending to £20bn a year by 2024-25, with the spending also including funding for EU programmes.
The government plans to increase the R&D spending from £14.8bn this year to 16.1bn in 2022-23, to 19.4bn in 2023-24.
The spending for the Department for Business, Energy and Industrial Strategy (BEIS) the spending is split into the groups which are core research, innovate UK and EU programmes Association.
The investment for R&D funding is aimed to help the UK ‘better support cutting-edge research methods’ and ‘refocus government support towards innovation’.
Tax Relief for creative and cultural industries to rise
The government is to raise the rates of three corporation tax reliefs that are collectively referred to as the ‘cultural reliefs’. These are the theatre tax relief (TTR), orchestra tax relief (OTR), and museums and galleries exhibition tax relief (MGETR).
The rates for the theatre tax relief for non-touring will be 45% and for touring 50%. The orchestra relief tax will be 50% and the museum and galleries exhibition tax relief will be 45% for non-touring and 50% for touring. The Chancellor stated that this is a relief worth nearly £250m.
This is a rise of the current reliefs which are between 20% to 25%.
The relief is a temporary measure to help these industries recover from the Covid-19 pandemic and is planned to last for two years and five months beginning from 27 October 2021.
The rates will be tapered down from 1 April 2023 down to 30% for non-touring and 35% for touring before returning to the normal levels from 1 April 2024. The specific relief measures for museums and galleries, which was due to expire in March, will be extended by another two years.
The Chancellor also announced the extension of the Recovery Loan Scheme in this sector until 30 June 2022, with a 70% government guarantee for lenders on loans up to £2m this is to ensure that lenders continue to have the confidence to lend to SMEs.
Road Tax rises except for HGVs
The vehicle excise duty (VED) for HGVs will be frozen until April 2023, while also suspended is the HGV road user levy for another 12 months from August 2022.
There are also plans to invest £32.5m in roadside facilities for HGV drivers on the road, frequently criticised as being totally inadequate.
The government will uprate road tax rates for cars, vans and motorcycles in line with the retail prices index (RPI) from 1 April 2022.
Pension top-up rate for low earners
In the Budget, the government confirmed that it will introduce a system to make top-up payments for contributions made in 2024-25 onwards directly to low-earning individuals saving in a pension scheme using a net pay arrangement.
These top-ups will help to better align outcomes with equivalent savers saving into pension schemes using Relief at Source.
Making Tax Digital for Income Tax
Despite a one-year delay to implementation, it is important to start preparing for Making Tax Digital for income tax self-assessment (MTD for ITSA) now that regulations have been made.
These provide that unincorporated businesses, the self-employed and landlords (with turnover over £10,000) will be required to:
• keep income and expense records digitally;
• use MTD compatible software to submit digital quarterly updates and end of period statements; and
• submit a final declaration for each tax year.
Start date
The introduction of MTD for ITSA has been pushed back several times, most recently in recognition of stakeholder feedback and the challenges faced by businesses and their representatives because of the pandemic.
The MTD for ITSA provisions are to apply for a business being carried on immediately before 6 April 2023 for persons, excluding partnerships, from 6 April 2024.
Based on a government announcement MTD for ITSA is to apply for general partnerships from 6 April 2025 and for other partnerships (such as limited liability partnerships and those with corporate partners) from a date yet to be set.
Exemptions
The primary legislation provides an exemption for trustees of charitable trusts, trustees of exempt unauthorised unit trusts, the underwriting businesses of Lloyds members, distributions to shareholders in real estate investment trusts and participants in open-ended investment companies.
The secondary legislation provides details on exemptions for:
• the digitally excluded;
• those who meet one of the two income exemptions;
• non-resident companies;
• trustees (including executors or administrators of estates); and
• the foreign business income of a person who is not domiciled in the UK.
Under the exemption for the digitally excluded, a person or partnership will be exempt if:
• the person or each of the partners have a religious objection to the use of electronic communication; or
• it is not ‘reasonably practicable’ for the person or partner to use electronic communications or to keep electronic records due to age, disability, location or any other reason;
• the person gives notice to HMRC that they are digitally excluded and explains why; and
• HMRC confirm they are satisfied that the person is digitally excluded.
HMRC’s guidance says that if they have already confirmed that a person is exempt from MTD for VAT, then they will not need to apply for an exemption for MTD for ITSA.
Income exemption
A person or partnership will be exempt from using MTD for ITSA for a tax year if:
• they were not required to use MTD for ITSA in respect of the previous tax year; and
• the amount of the person’s qualifying income for the most recent tax year in relation to which the self-assessment filing deadline fell before the start of the tax year is not more than £10,000.
A person’s qualifying income for a tax year is the total income, before any deductions, which, for each business carried on by the person in that tax year, are included in that person’s tax return for that tax year.
Income exemption for a person required to use MTD for ITSA for three tax years
A person or partnership will be exempt from using MTD for ITSA for a tax year if:
• the person was required to use MTD for ITSA in respect of each of the three previous tax years; and
• the person’s qualifying income for each of those three tax years was not more than £10,000.
A person’s qualifying income for a tax year is:
• the total income, before any deductions, which, for each business carried on by the person in that tax year, are included in that person’s tax return for that tax year; or
• where the tax year has ended but the filing deadline for the tax year has not passed, so much of the amounts of income, before any deductions, as are included in the quarterly updates for that tax year for each business carried on by the person.
Records
In addition to existing record keeping requirements, a person required to use MTD for ITSA must keep digital records for each business.
The digital records must be recorded by the earlier of:
• the quarterly deadline for the quarterly period in which the digital record falls; or
• immediately before the person provides the quarterly update for the quarterly period in which the digital record falls.
Retailers can elect instead to retain the digital records specified in a ‘retail sales notice’ in respect of their retail sales, where such a notice has been made by HMRC.
Quarterly updates
The basic requirement is that a person must provide updates as follows:
Quarterly update period Quarter period covered Quarter period covered
1 6 April – 5 July 5 August following quarter end
2 6 July – 5 October 5 November following quarter end
3 6 October – 5 January 5 February following quarter end
4 6 January – 5 April 5 May following the quarter end
A person can instead elect to use calendar quarters in which case the updates are required as follows:
Quarterly update period Quarter period covered Submission deadline
1 1 April – 30 June 5 August following quarter end
2 1 July – 30 September 5 November following quarter end
3 1 October – 31 December 5 February following quarter end
4 1 January – 31 March 5 May following quarter end
End of period statements
A person must provide an end of period statement for each income source. This must include:
• end of period information, such as accounting adjustments and any reliefs claimed; and
• a declaration that the information in the statement is correct and complete.
End of period statements are to be submitted by 31 January after the end of tax year.
Final declaration
The final declaration replaces the self-assessment tax return. In it a person will tell HMRC about any personal income and submit claims for reliefs.
Final declarations are to be submitted by 31 January after the end of the tax year.
Conclusion
Now that the start date for the first wave of MTD for ITSA and the detailed rules have been legislated, taxpayers and all stakeholders have the certainty needed to plan for these significant changes.
This guide is for general information only and does not substitute specific advice. You should not rely on it as specific advice and Peria & Co cannot accept any liability for its contents. If you need guidance please contact us at info@peria.co.uk or call us on +44 (0)1932 849023.