Autumn Budget 2021

Business Rates Review

There is some tinkering to the business rates.

This won’t affect many of our clients, but it seemed to be a partial review of business rates, but falling well short of the sort of reforms which had been called for.

Capital Allowances 

The current £1million limit due to end 1st Jan 2022 is extended until 31st March 2023.

I wrote this before the speech – this is extended most years.

Already Announced

Corporation Tax Rate

Corporation Tax up to 25% from April 2023 on profits over £250,000

Small profits rate of 19% for profits under £50,000

‘Tapering’ between the two bands, which means profits between £50,000 and £250,000 are paid at 26.5%.

This means the benefits of using a limited company are reduced, but for most situations the balance has not yet tipped towards a partnership or sole trader position. It does however make pension contributions a lot more attractive.

Losses Carry Back for 3 years

Corporation Tax losses can be carried back up to 3 years rather than the normal one year.

This applies to the year ending March 21 and March 22.

This allows a business with a large loss exceeding the previous year’s profit to obtain an immediate repayment of Corporation Tax, rather than having to roll the excess loss forward to a future year. This is a useful cash boost.

30 Day Payment Deadline for CGT extended to 60 days

From April 2020 all sales of residential property have to be notified and CGT paid within 30 days of sale, but this has been extended to 60 days.

This is helpful as we have had numerous issues filing these on time. The extension seems to acknowledge the considerable operational issues, but does not go as far as the many calls to scrap the scheme. There is a very considerable administration burden here in return for a mild acceleration in payments.

Already Announced, but worth reminding you of:

Extra 2% SDLT for Non-Resident Landlords

From 1 April 2021 the landlord’s additional rate of 3% SDLT rose to 5% for non-residents.

Corporation Tax Increase

For landlords considering incorporation please see Small Company section for details of the Corporation Tax moving to 25%.

The main change to personal tax on NI increases was announced in September as outlined below, there were no other material changes.

One omission was the expected rise in the Benefit in Kind rate for electric vehicles, which stays at 2%.

Already Announced

Higher Rates of NI & Dividends Taxes

NI increased by 1.25% from April 2022.

As announced in the budget warm up act on 7th September, NI is to increase across the board, which is broadly as follows:

• Employee’s NI up to 13.25% from 12% (basic rate),  and 2% to 3.25% (higher rate)
• Employer’s NI up from 13.8% to 15.05%
• Class 4 NI (self employed), up from 9% to 10.25%

Dividend Taxes also rise

• Basic rate, 7.5% to 8.75%
• Higher rate, 32.5% to 33.75%
• Additional rate 38.1% to 39.35%

The £12billion raised (about 10% of HS2) is allegedly for social care, but the reality is that tax from all sources is one “pot” and any allocations are purely theoretical.

The NI increase is particularly odd in that it will (from April 2023) be a brand new tax Levy, computed very similarly to NI, but extended to those over the pensionable age who don’t normally pay it. The extra amount raised from this extension will be a pittance, but means a huge amount of technical effort behind the scenes to collect this new tax.

It would have been technically very simple to raise income tax which also has a much broader base. The election promises for “no tax rises” seem to be long forgotten therefore it seems odd to invent a new tax on income rather than just raising income taxes.

It’s worth noting the effective rates of taxes on PAYE incomes are now 33.25% (basic rate to £50k) and 42.35% (higher rate to £150k), 52.35% (additional rate over £150k).

The taxes on pensions and savings are 20% / 40% / 45%.

Some further reading here

Frozen Personal Tax Allowances from 2022

All bands for Income taxes to be frozen until April 2025/26. There are some very small increases to the NI bands announced.

With inflation on the rise this is “fiscal drag” in action, increasing taxes in real terms (ie post inflation) by £19billion over 4 years by doing nothing. In particular by fixing this until 2025/26 this flatters forecasts and allows a “big ticket” increase just before the next election. You the voter are of course not supposed to spot the sleight of hand.

Capital Gains Tax 

No changes announced.

This is still “news” following the Office for Tax Simplification report in November 2020. It was widely expected that this area would be significantly reformed given the historic low rate of CGT at just 10% for basic rate tax payers, and 20% for higher rate on investments other than property, which is at 18% and 28% respectively.

The expectation is that rates would be moved up to approaching the normal marginal rates with the potential for the reintroduction of indexation allowance which adjusts the base cost of the asset for inflation.

Some Key Allowances for 2022/23, based on what we know at the moment. This may change in March 2022.

• Employees NI Threshold increases from £9,568 to £9,880
• Employers NI Threshold increases from £8,840 to £9,100

What hasn’t changed?

• Personal allowance stays at £12,570
• Higher rate threshold stays at £50,270
• Corporation Tax stays at 19%, but goes up for profits over £50,000 from April 2023
• Personal CGT allowance frozen at £12,300 until 2025/26
• VAT threshold frozen at £85,000 to 2023/24
• Mileage stays at 45p for business use of private car under 10,000 miles, and 25p for additional miles
• Insurance Premium Tax – stays at 12% (after rapid rises)
• IHT threshold remains at £325,000
• £100,000 threshold for loss of Personal Allowance remains (frozen since 2010)

Its the 3rd outing now for Rishi in budget mode, which given his first announcement was he would only be having one a year, seems to be swiftly forgotten. We appear to be back to two and a bonus one whenever they feel like it. Indeed so keen has he been to announce everything his team was asked to resign by the speaker for the constant pre-briefings.

Westminster was back to being packed, although some MP’s don’t need to wear masks as apparently the virus respects the fraternal spirit. Mog seemed to be on his own on that one as most of the front bench of Tories were busy virtue signalling. Ironically Starmer was not in the house today as he has contracted Covid.

Given the upcoming COP26, I was surprised to see almost no Greenwashing. Indeed it seemed quite the reverse. One unexpected outcome was instead of making high carbon activities more expensive, (for example adding VAT to flights), fuel duties were frozen once more and air passenger tax for domestic flights halved. I didn’t even spot the already leaked policy of £150 million a year for 30,000 heat pumps (22 million gas connected home in the UK) getting another airing. The heat pump policy seems to mirror the swiftly abandoned green homes policy last year which promised 600,000 grants and delivered 47,500 according to the National Audit Office. Oddly enough this failed policy from the distant past of last year didn’t make the speech. Nor did the widespread fraud on the Bounce Back loan scheme (as devised by Sunak) or today’s mauling from the public accounts committee for the £37bn spent on Track and Trace. All yesterday’s news, even if some of it came out today.

Speech wise it went on for a full 80 minutes with virtually nothing to say. Rishi droned on about honesty and trust, and investment, ‘levelling up’ (still no idea what that is other than an empty slogan) and spent far too long name checking various marginal constituencies and other random towns. There was the now traditional reannouncement of pretty much every penny that has been pledged in the past 5 years, so it was largely impossible to work out what might have been ‘real’ new money and what was ‘as already announced’, but that I suspect is the entire point.

Our son-in-law of a multi billionaire chancellor certainly looks to be looking after his friends in the banking world.  One of his big ticket changes was a reduction in the Bank Levy from 8% to 3% of company profits, saving the banks a cool billion a year. One wonders if he will follow in his predecessor’s footsteps in getting a completely unconnected but highly lucrative ‘consultancy‘ once out of office. The lack of movement on CGT (which I know many of my clients will be keen not to happen) also suggests he is keen to look after his fellow multi-millionaires.  The current ultra low rates were introduced by none other than George Osborne, with no consultation in April 2016 and largely benefited investment houses and those who control capital, and the richest in our society who can engineer payments in capital and not income.

No doubt the newspaper headlines will go on reforms to alcohol duties which didn’t seem to be much other than some reshuffling of the existing system, with an odd “brexit” tag to it which I really didn’t follow, as the EU rates of duties on alcohol are generally lower than the UK and whilst there is a common framework, down to member states. As my assistant pointed out, 3p off a pint of beer in a pub would be “buy 133, get one free”.

The quote of the day goes to the response from Rachel Reeves (Shadow Chancellor)  “At least the bankers on short-haul flights sipping Champagne will be cheering this budget today”. Her response was very measured and for once the red team seems to be well on form, outlining the long list of failures in the last few years and gave the most coherent response I can recall from across the Chamber after nearly 20 years of reporting on these things. Curiously she was not even supposed to be doing this had Keir Starmer not contracted Covid.

So there we have it, the green budget that wasn’t, the usual empty platitudes and Labour doing the best they have done for years when the boss is off sick. In the background there is a huge increase in taxes for PAYE earners through the higher NI rate and “fiscal drag” totalling £90 billion over the next four years. Almost one HS2.

I normally publish the following tables to give typical extraction strategies undertaken by small Limited Companies. These give the maximum director’s bonus and dividend combinations for company directors to each key “stop” point, of (a) staying basic rate; (b) preserving child benefit; and (c) loss of personal allowance at £100,000 gross income.

This is getting more complex as time goes on, so please treat this as a “loose guide” as your circumstances may of course be different.

The standard salary amount for single director firms for 2022/23 will increase from £8,840 to £9,100, or £9,880 if you have two directors, or one director and an employee. The comps are all based on single director set ups.

Directors Wishing to Stay Basic Rate

Increase in tax: £446 for no extra drawings.

Directors Wishing To Retain Full Child Benefit

Increase in tax: £443

Directors Wishing To Preserve Personal Allowances

Increase in tax: £1,068

Alternative Way of Looking at Extractions for Your Limited Company

Your gross income (dividend+salary+other income) should be:

£50,000 if you want to keep all your child benefit

£50,270 if you want to stay basic rate

£100,000 if you want to preserve all your personal allowance

£150,000 if you want to avoid the additional (45%) rate of tax

You can then use the following rules of thumb for how much tax to keep back:

This again I am afraid. To recap, back in 2015 it was announced that from April 2018 (ie 3 and a half years ago) all business (including landlords) with a turnover over £10,000 were supposed to be filing quarterly figures in addition to the annual tax return. After numerous delays, the date I reported last time of April 2023 has been extended to April 2024.

Why does this heavily delayed project matter? Well HMRC have bet every penny they have on this system (£2 billion apparently) which seeks to replace the current tax return with……..numerous small returns of taxes.

It seems HMRC is very slowly realising what it’s getting into with small trader record keeping and the infinite complexities involved, which they normally steer well clear of. Even getting the quarterly filing working will be a massive task. Replacing the tax return is a much larger problem and seems to be years away in development terms, which I imagine will mean filing *both* the normal return and the MTD elements for many years.

The mantra from HMRC is that this will make tax administration more modern and efficient. Their most recent paper on the transitional costs of this has been pulled apart from all sides with considerable derision in the accounting press. The accounting press is normally quite respectful towards HMRC, and the linked article is one of dozens of highly critical, if more careful, statements from accountants and their representative bodies. The project lumbers on regardless with only last week this latest missive of platitudes from those at the top.

The rather blunt response from accountants is that any gains are from record digitisation. Digitisation has by and large happened anyway, and clients not using it by definition probably would not benefit. I personally find this very authoritarian to have methods imposed on tax payers, rather than record keeping being the tax payer’s choice.

For any business with a turnover over £10,000 you will be expected to:

• Keep your records digitally (HMRC want to you use paid for software, but excel is permitted)
• File records quarterly (in year) for every business stream you have
• Still file a version of the normal tax return at the year end

This draws in (say) a consultant who bills £1,000 a month alongside a day job, or a landlord with rents of £950/month. It will also mean multiple returns if you have more than one business stream. For example if you are a landlord and a sole trader then you have two returns per quarter. And it gets worse if you have property held in different ratios as each combination is a new return. Many traders could be filing multiple quarterly returns and would need to run multiple versions of accounting software to achieve this with attendant fees.

So what do I need to do?

The main action point is to ensure all your business banking flows through a dedicated bank account, rather than muddling it up with private finances. Bank feeds (your bank sending data to software of some kind) seems to be the main way we can make this an efficient process.

If you are thinking about using software, talk to me. There are some simple tools some clients like to use that don’t come with the hefty £30/month subscriptions of the products advertised on TV.

From our side we hope to be able to set up a system to push low quality data towards HMRC but it’s unclear at this stage how that will look. You won’t (initially, but  it’s on the horizon) be taxed on these figures. Therefore quality of the data can be very low indeed without any of the normal accounting adjustments. Indeed the data is ignored when it comes to the final tax return, so it’s an awful lot of effort to push junk data into a dead-end system. Hence the new nickname “MTU” Making Tax Up.

One final word, you might recall that for the VAT elements we were told this would raise taxes. Accountants pointed out this was unlikely and our experience suggested that the increase in digitisation is more likely to lead to an overclaim of more VAT as software often auto-populates VAT on a whole category of expenses.

And the verdict? Accountants were right. The latest figures showed an increase not a decrease since MTD was implemented of the ‘gap’ of receipts from VAT expected vs that paid over.

‘Fancy that’ as Private Eye might say.