Autumn Budget Update 28th October 2021

Yesterday the Chancellor delivered his budget speech to the Houses of Parliament. As we predicted, much of what was said had been leaked / announced over the previous few days. Prior to the budget we had been nervous about what the Chancellor might do with some taxes, but he seems to be happy with the previous tax rises announced and even suggested that he would look to reduce taxes before the end of this parliament.

As always, the detail in the papers can come up with some other items not covered in his speech, but today we are bringing you the headlines. Over the coming weeks, we will update on the finer points as they are released, including any new items not covered in the main speech.

Much of the leaked news over the days leading up the budget speech had been about additional money being given to support various initiatives and Government Departments. This has left us wondering if there is indeed a magic money tree in Downing Street! The spending review will see an extra £150 billion given to Government Departments over the course of this parliament.

In terms of tax increases we saw very little. However, in previous announcements / budgets various sums had been banked and this budget felt like it was releasing money from his piggy bank. The numbers are very difficult to digest, but behind the budget there are some scary numbers, and the public debt now stands at £2.2 trillion. With inflation likely to increase, at least in the short term, interest rates will also come under pressure to increase. Roughly a quarter of the public debt is indexed link and a 1% increase in that will lead to an extra bill of £5 billion per year. You can see that the nation’s finances could look very ugly very quickly and at the same time business and personal finances could come under even more pressure.

With the above in mind, the Chancellor resisted calls to be more generous and continue with pandemic relief measures. There is some short-term help in some areas, but nothing massive. However, overall, by not increasing the tax burden further the budget should not limit the recovery from the pandemic, which was a concern in some quarters prior to his speech.

Some details and more specific items:

• Minimum Wage – One of the early leeks, minimum wage rates will increase substantially from April 2022

• Universal Credit – As we already knew, the Chancellor has removed the £20 a week additional support given as part of the pandemic support. Yesterday the Chancellor announced that the taper rate will be reduced from 63% to 55%. This allows claimants to keep more of their additional income, whilst working. Universal Credit is very complicated, but this is a positive change for many
• State Pension – As announced back in September the pension triple lock will be suspended in 2022. Instead, state pensions will increase by the higher of inflation or 2.5% (removing the average earnings component)
• Tax Rate Changes – Not much has changed and indeed much has been released in previous budgets and statements, but here is a summary of the position for the taxes that impact our clients
  • Income Tax – No changes to the rates in income tax. Personal allowances and the Higher Rate threshold will be frozen at 2021/22 rates until 5 April 2026
  • National Insurance – No changes announced yesterday, but as we already know the Health & Social Care Levy will come in from April 2022 (additional 1.25%). Remember this will also impact Dividend Tax by the same amount
  • Capital Gains Tax – Annual Exemption Rate will be frozen until April 2026
    • Resident Property Sales – From April 2020 any taxable gains arising from residential property sales (does not impact those selling private residence) have been subject to a 30-day reporting and payment requirement. This has been difficult, and the Chancellor yesterday extended this deadline to 60 days
  • Inheritance Tax – No changes and rate bands frozen until April 2026
  • Corporation Tax – No changes. In the March budget the Chancellor announced that Corporation Tax rates will rise to 25% (from 19%) for profits of more than £250,000. For profits between £50,000 and £250,000 there will be taper relief between the current rate of 19% and the new rate of £250,000
  • VAT – No changes and the VAT rate on tourism and hospitality will return to 20% from April 2022 as it stands
  • Annual Investment Allowance – The Chancellor extended the £1 million allowance for capital purchases. Currently from April 2023 this will go back to £200,000 (fine for most of our clients) and the 130% super deduction will end
• Business Rates – This deserves its own section. Business Rates are a major cost to some businesses (retail, hospitality, etc). The Chancellor has fallen short of completing a reform to Business Rates as he could not afford to lose the £25 billion a year that they generate to the public coffers. This wider reform is still pending, but some changes were announced:
  • Business Rates multiplier frozen until April 2023
  • 50% rates relief for retail, tourism, and leisure in 2022/23 (extending current reliefs in place)
  • Business Rates revaluations to be completed every 3 years, instead of the current 5
  • Transitional relief extended for a further year to April 2023
  • From April 2023 (until April 2035) exemptions will be brought in to support investment in green technologies, this includes exemptions for solar panels and wind turbines, which currently are rateable
  • The Treasury will continue to consider the introduction of an online sales tax
• Other Changes
  • Fuel duty will be frozen for a further year
  • No measures announced to assist with rising costs of gas and electricity bills
  • Overhaul of alcohol duty. No immediate increases have been brought in, instead changes have been made that will result in increasing duties on higher-strength drinks and lower duty on lower-strength drinks. This includes duty reductions on sparkling wine and draught beer!
  • Air Passenger Duty – Domestic flights could get cheaper due to the changes, but long-haul flights will increase in price because of increased duty
  • Research & Development Tax Relief Schemes – Doesn’t affect many but some changes being made to ensure that data and cloud computing costs now also qualify for relief. There will also be changes to ensure that investments encourage UK based R&D

These are the items that we think impact on you as clients. Rest assured we will be looking at the detail further and will report as required.

Smarter Accounting COVID Policy

We have continued to review our Office policy in relation to Covid and have chosen to remain largely closed for face-to-face meetings at this point. This is to ensure the continued safety of our staff and clients.

We have been managing to operate for the last 18 months with this policy without issues and therefore we will continue to offer other options such as video conferencing, telephone calls or outside meetings. Where other options are unavailable, we have started to do face to face meetings in the office, but these are by appointment and exception only.

Tax Return Deadlines

The 2020/21 tax return season is well upon us. The deadline for the filing of returns is still 31 January 2022. Due to various Coronavirus support schemes (rates related grants, self-employment income support scheme, etc) we are seeing some cases where unexpected larger than normal tax bills are coming to light. All we can suggest is that clients get their records to us as soon as they can, so that we can at least give early notice of such liabilities.

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Best wishes and stay safe