The Chancellor presented his budget on 27 October 2021 and labelled it 'a stroner economy for the British people'. When he presented the previous budget in March, people were hoping that covid-19 would be beaten by now but unfortunately its still wiith us, So once again the Chancellor had a difficult balancing act between the necessary spending and his stated traditional Tory values. What we got was a budget which many commentators declared was a budget which most labour supporters would wish for.
The full details of the budget can be found here. But to avoid the 200 or so pages we have picked out the major issues that affect tax payers and businesses in the UK.
Basis period reform
The government has confirmed the introduction of basis period reform to simplify the system for taxing self-employed people and business partnerships. The change, which will apply from 2024/25 with a transition year in 2023/24, will change the way profits are calculated for a tax year. This will now be based on the profits arising in the tax year itself, rather than on the profits of a 12-month set of accounts ending in the tax year.
There are some major reforms to the way tax liabilities are calculated for the self employed including those involved with partnerships. These are a few years off but are well worth looking at now
The Government say the simplification will significantly reduce the burden of calculating overlap taxation and relief, and remove the tax deferral advantage possible under the old rules. Trading income will now be taxed on the same basis as property and investment income, creating a more consistent and aligned system that will greatly reduce the opportunity for error and confusion for businesses.
It will, however, mean that during that transitional year businesses who use a non-tax year accounting period will face a significant increase in their tax bill.
Changes to annual investment allowance (AIA)
The Annual Investment Allowance (AIA) limit of £1,000,000 for qualifying expenditure on plant and machinery has been extended to cover purchases made during the period from 1 January 2022 to 31 March 2023. The limit was originally set to return to £200,000 from 1 January 2022.
This measure is intended to have positive outcomes for businesses by supporting and encouraging business investment, particularly those ineligible for the super-deduction, and by simplifying the tax relief for such investment.
Corporation tax increase
Corporation tax increase to 25% from April 2023 was confirmed as going ahead
Capital Gains Tax payment deadline on property disposals extended from 30 days to 60 days with effect from today
The payment deadline extends from 30 days to 60 days for making Capital Gains Tax (CGT) returns and associated payments on account when disposing of UK land and property and is effective for disposals that complete on or after todyas budget.
Retrospective legislation has been introduced to confirm HMRC’s entitlement to raise discovery assessments for certain tax charges; most notably failure to declare a High Income Child Benefit Charge.
Taxpayers that have a 'high income' need to make sure that they know the rules on claiming child benefit. See here
for the full details
Where individuals fail to report and pay certain tax charges to HMRC, existing tax legislation provides that HMRC may issue “discovery” assessments to recover the tax owed. This measure does not change this policy but makes a technical clarification to clarify the law to provide legal certainty and maintain the status quo.
Implementation of VAT rules in free zones.
This measure will enable the operation of free zones in Great Britain by introducing an additional element to the VAT free zone model. This is a VAT exit charge for goods that have benefited from a zero-rated supply and where, after the goods leave the free zone procedure, there is no onward taxable supply of the goods within a time limit. It also makes consequential amendments to other legislation.
Increases in income tax on dividends
Confirmation of the previously announced increase to the rate of income tax applicable to dividend income in line with the health and social care levy.
The traditional view of the 'tax effectiveness' of dividends compared to salary for small businesses has been eroded again. and in the future we expect more increases which may totally change the way that small business owners remunerate themselves
This measure increases the rate of income tax applicable to dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.
The changes will apply UK-wide and will take effect from 6 April 2022.
A new residential property developer tax
This measure will introduce a new tax on company profits derived from UK residential property development. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the Corporation Tax returns of those companies liable to the new tax.
Van benefit charge and fuel benefit charges for cars and vans
This measure increases the van benefit charge and the car and van fuel benefit charges by the Consumer Price Index from 6 April 2022. The flat-rate van benefit charge will increase to £3,600; the multiplier for the car fuel benefit will increase to £25,300; and the flat-rate van fuel benefit charge will increase to £688.