Autumn Budget 2021 - Expert Summary

French Duncan


 

Our expert team have provided some specific insights into the Budget announcements, and some of what HASN'T been announced (yet!).  Use the links below to jump forward, or just scroll from here...

 

 

VAT Insights

The Autumn Budget was largely uneventful as far as notable new VAT legislation was concerned. Unless that is, you are a dentist who imports prostheses or are considering setting up business in a free zone.

Free Zones

The 2021 Spring Budget announced the location of eight Freeports in England, following a Government consultation exercise. These have been introduced to offer a potential boost to UK trade following the UK’s exit from the EU earlier this year.

Free zones offer authorised businesses operating within them an opportunity to trade free from VAT, customs and excise duty on goods and related services whilst those goods are within a free zone.

However, with effect from 3 November 2021, a VAT exit charge will be introduced. This will apply to goods that have benefitted from VAT relief whilst in a free zone, and no onward taxable supply of the goods has been made within three months of them exiting the free zone.  

The purpose of the exit charge is to ensure that businesses trading within free zones adhere to the free zone rules and procedures, and don’t benefit from an extended and unintended tax advantage over businesses that trade outside these zones.

Import of Dental Prostheses

The Government announced plans to extend the current VAT exemption for dental prostheses supplied by registered dentists and other dental care professionals to include imports of these items.

Supplies of dental services by registered practitioners are exempt from VAT, meaning no VAT is charged on their services, but equally no VAT can be recovered on VAT costs they incur. The exemption also applies to the supply of dental prostheses. However, the exemption does not extend to the import of these goods.

By introducing an exemption to the import of prostheses to the UK and NI (including supplies between the UK and NI under the Northern Ireland Protocol) the intention is to prevent a potential increase in the cost of these supplies reaching the end consumer. The exemption will be backdated to 1 January 2021.

Second-hand Motor Vehicle Export Refund Scheme

The Government has announced plans to introduce a Second-hand Motor Vehicle Export Refund Scheme. The scheme aims to allow businesses that move used cars from Great Britain to Northern Ireland or the EU for sale, to be able to claim a refund of VAT following export.  

Previously, second-hand car dealers in NI could not use the second-hand margin scheme if moving cars from GB to NI and therefore were forced to account for VAT on the full value of the sale price. This made the cars more expensive for the public and potentially placing the business at an economic disadvantage. Plans to introduce a VAT refund scheme should help to even the playing field between NI second-hand car dealers and those trading elsewhere in the UK.

Other VAT matters

VAT registration threshold:

  • There was no increase to the VAT registration or de-registration thresholds announced. Therefore, the current turnover threshold of £85,000 is likely to remain in force until 2023 or 2024.

Reduce VAT rate for Hospitality and Leisure:

  • The gradual increase in the reduced rate of 5% (introduced in July 2020) came to an end on 30 September. The intermediary rate of 12.5% is effective from 1 October to 31 March 2022, with a return to the standard rate of 20% being effective from 1 April 2022. 
  • Having prior notice of these rate changes continues to allow businesses in this sector to implement a degree of cash flow planning. It also helps them to prepare in advance for the required updates to their accounting packages to deal with the new rates.

Making Tax Digital for VAT:

  • From 1 April 2022 all VAT registered businesses, regardless of turnover, will need to comply with the MTD rules. This will bring a vast number of voluntarily registered businesses within the MTD net. In turn, this may prove an unpleasant prospect for many who may choose to opt-out of VAT registration rather than comply.

VAT Penalty Reforms:

  • With effect from 1 April 2022, businesses that pay their VAT liability late will find themselves subject to a new, harmonised, points-based penalty regime. At first glance, the new measures appear less onerous than the existing default surcharge regime (because no penalty is incurred where a return is paid late but within 15 days of the due date).  
  • However, an initial 2% penalty will be incurred where the tax is paid between 16 and 30 days late, increasing to 4% for continued late payment from day 31 onwards. In addition, interest charges will be levied daily, in line with the current charges levied concerning ITSA returns. According to the policy paper, the aim behind a points-based system is to avoid harshly penalising an occasional failure if a business has good compliance record overall, compared to those which have persistently poor compliance.

 

If you have any queries about the VAT elements of the Budget please contact Maria McConnell.

 


Wealth Management

One of the biggest things that caught our attention wasn’t a policy announcement at all. We were intrigued by the Chancellor’s comment at the start of the Budget that he expects inflation to average around 4% next year. Given that it was 3.1% in September, continued inflationary pressure is not good news for savers. Interest rates on cash have been poor for a while now – an example of this is NS&I slashing their rates earlier in the year - but with inflation potentially on the rise, that 0.5% interest rate just isn’t going to cut it. More to the point, cash savings will be losing (more) value in real terms, and the money we have squirrelled away could be worth LESS in a few years.

A potential solution to this problem, assuming cash rates remain poor, is to consider investing some of your cash, if you can afford not to touch it for a minimum of five years. Investment in companies (stocks and shares), who normally have control of their pricing strategy if not their costs, can be a good way to ensure your money maintains its value. Any investment comes with risk, however, so you should ensure that if you are considering an investment, it is right for you and your family.

 

Please contact Gavin Macphee or Andrew Reynolds with any Wealth Management related queries.

 

Personal Tax, what has & hasn't changed (yet)

What HAS been announced?

While many of the below had been unveiled during previous announcements, the November 2021 Budget has confirmed that, amongst others, dividend income tax rate rises and the Health and Social Care Levy will be implemented on the dates as indicated below.

A high-level summary of the main areas impacting personal tax has been provided below. As always, if you wish to discuss how these changes or any other areas may impact you or your business, please get in touch.

Dividend tax rates:

  • What are Dividend tax rates?
    • From 6 April 2022, the rates of income tax applicable to dividend income will increase by 1.25% across all levels. This will result in dividend income tax rates increasing to 8.75% (7.5%), 33.75% (32.5%) and 39.35% (38.1%) for basic, higher and additional rate taxpayers, respectively. 
  • What actions can be taken to minimise dividend tax owed? 
    • Owner-managed business owners who are considering declaring and making dividend payments after 5 April 2022 may want to consider accelerating these payments and paying them before 5 April 2022 to reduce the impact of the new tax rate rises. However, care will need to be taken should such an increase result in their taxable income breaching the £100,000 taxable income threshold as this will result in a reduction in their tax-free personal allowances.

Health and Social Care Levy

  • What is the Health and Social Care Levy?
    • From 6 April 2022, the Health and Social Care Levy will be implemented resulting in National Insurance Contributions (NICs) rising by 1.25% for employees to 13.25% (12%) and 3.25% (2%), employers to 15.05% (13.8%) and the self-employed across all bands to 10.25% (9%) and 3.25% (2%). The Levy will not apply to Class 2 or Class 3 NIC. The Levy will be collected through PAYE (employees and employers) and the Self-Assessment Tax Return (self-employed), respectively. 
    • From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated and will also apply to income from employment or self-employment of individuals working above State Pension age, and National Insurance contribution rates will return to their 2021 to 2022 levels.
  • What actions can be taken to minimise the impact of the Health & Social Care Levy?
    • Given the wide remit of the increase, there will be limited steps that employees can take to reduce their exposure, however, it could make salary sacrifice schemes to, amongst others, increase pension contributions or low emission cars even more attractive for employees where their employers provide these options. 
    • For self-employed individuals and partnerships, who are subject to Class 4 NIC, there may be an ability to control taxable profits by bringing forward capital expenditure that qualifies for capital allowances. However, further thought should be given on whether this is the correct commercial decision for their businesses. 
    • Interestingly, the anomaly that landlord’s profits escape the charge, continues to apply. 

Basis Period Reform:

  • What is Basis Period Reform?
    • From 6 April 2024 (rather than 6 April 2023), amongst others, all sole traders and partnerships which operate with an annual accounting date which is not 31 March or 5 April will be moved so that it aligns with the tax year-end. 
    • Special rules will be introduced to ensure that where higher profits arise in the 2023/24 tax year as a result of these changes, the additional profits can be spread over 5 years to reduce the impact. 
    • What actions can be taken to minimise the impact (if any)? Unfortunately, this is only a deferral and so those businesses impacted will need to carefully consider the impact that this change may have on cash flow in the transition period when it is finally introduced. This could be managed through qualifying capital expenditure, however, the introduction of the spreading provisions should reduce the potential impact on cash flows. 

Increasing Normal Minimum Pension Age

  • What is it?
    • From April 2028, the age at which individuals can access their pension funds, without incurring a penalty, will increase from 55 to 57 years old. 
  • What actions can be taken to minimise the impact (if any)?
    • While this is still a few years away, those who fall in the age bracket that will be caught and were planning to access their pension funds may need to defer their retirement plans or review alternative options for accessing the equivalent amount of capital. 

Pension – Scheme Pays election

  • What is it?
    • From April 2022, where an individual has exceeded their pension annual allowance of £40,000 and incurred a charge of £2,000 or more, legislation will be introduced to extend the Scheme Pays reporting and payment deadlines so that the pension fund rather than individual pays the charge. This will be retrospective from 6 April 2016.
  • What actions can be taken to minimise the impact (if any)?
    • While this is welcome news, it is not clear how many people will benefit given that such charges may already have been settled. 

Capital Gains Tax Reporting for Residential Properties

  • What is changing in Capital Gains Tax reporting?
    • For residential property sales completing on or after 27 October 2021, the time limit for reporting a gain and paying the CGT to HMRC will be extended from 30 days to 60 days. 
    • The change will apply to both UK resident and non-UK resident individuals directly or indirectly disposing of UK residential properties. 
  • What actions can be taken to minimise the impact (if any)?
    • This is welcome news and gives taxpayers more time to review the historical position where properties have been owned for a long period of time. However, it is still a relatively short period to make the CGT payment, therefore, advising us ahead of the disposal should continue to be a priority. 

What HASN'T changed in the Autumn Budget 2021 (there’s still hope)

There was a lot of chatter about what taxes might change ahead of both the Spring and Autumn Budgets, so let us address the three main questions we were being asked:

Is Capital Gains Tax changing?

  • There have been no changes to CGT rates or reliefs...yet. But Capital Gains Tax changes in 2022 cannot be ruled out.
  • The headline rate of 20% continues to apply on disposals at a gain and only rises to 28% on the disposal of residential properties or carried interests. 
  • Similarly, several CGT reliefs, including Business Asset Disposal Relief (BADR) (formerly Entrepreneurs Relief) and Investors Relief remain unchanged which will be welcome news to business owners and investors, respectively, who are hoping to exit in the short to medium term. 
  • On the basis such reliefs have not been claimed previously, such reliefs enable sellers to access the 10% CGT rate on qualifying disposals of up to £1m (BADR) and £10m (Investors Relief). 
  • Similarly, subject to meeting the relevant conditions, CGT gift relief continues to be available to enable business interests to be passed during the transferor’s lifetime without triggering a CGT liability. This is such an important relief where there is a desire to give autonomy to the next generation and introduce these key individuals as business owners. 

Is Inheritance Tax changing?

  • Again, despite widespread discussions and reviews over the past 2 years, there are still no changes to IHT Rates or reliefs. Therefore, the headline rate of 40% remains where an Estate is valued at over £325,000 and is potentially extended to £175,000 if there is a qualifying main residence.  
  • A number of valuable IHT reliefs, including Business Property Relief and Agricultural Property Relief, remain unchanged which will be welcome news to business owners who already qualify for such valuable reliefs. One benefit continues to be that on undertaking succession planning involving such businesses, either during lifetime or on death, the value of such businesses in the transferor’s Estates can potentially be shielded from IHT at a rate of up to 100%. 

Is there going to be a Wealth Tax?

  • Many will be breathing a sigh of relief as the widely rumoured introduction of a wealth tax has not materialised. Given the administrative difficulties of introducing such a tax, it is likely felt that such a step may be too far at this stage without proper consultations being carried out. 

 

If you have any Personal Tax related queries, please contact Michael Jamieson, Stephen Oates or any member of our Personal or Corporate Tax teams. 

 

 

Corporate Tax changes & thoughts

Business Tax Measures.

For the majority of businesses, there were no major changes. The main changes were announced in the March 2021 budget. As a reminder of these changes:

Super-deduction:

  • Companies can claim a super-deduction for the costs of qualifying plant and machinery bought between 1 April 2021 and 31 March 2023. This allows them to reduce their taxable profits by 130% of the costs of such plant & machinery. The effect of this is that for each £1000 spent, they can save £250 in tax (no small saving). This is an enormous increase on the usual rate of allowances of 18% per annum.
  • There are certain restrictions but there is no doubt that this is a major incentive for investment in plant and machinery across the whole economy. There is a corresponding but more limited increase in the allowances for other types of plant & machinery which normally only qualify for allowances of 6% per annum.
  • During the same period as the Super-deduction applies, 50% of the cost can be claimed in the year the expenditure, with the remainder at 6% per annum. Unfortunately, these incentives only apply to companies and not to a sole traders or partnership businesses.

Corporation Tax Rate:

  • These are due to an increase from the current rate of 19% to 25% from 1 April 2023 for companies with profits of more than £250,000. The rate stays at 19% for profits of £50,000 or less. There is a sliding scale between £50,000 and £250,000. This is a major increase as companies have been used to a relatively low rate of tax. Indeed several years ago, there had even been plans to reduce the rate to 17%.
  • After the rate has gone up to 25%, the value of traditional tax-saving investments like capital allowances will become even greater.
  • As companies approach 31 March 2023, they may well be looking at ways in which they can legitimately accelerate income or defer expenditure to delay the impact of the 25% rate. This will need great care as not all companies have 31 March as their year-end. 
  • The rate remains at 19% for the year 1 April 2022-31 March 2023.

Changes just announced.

Annual Investment Allowance:

  • The annual investment allowance (AIA) will remain at £1m until 31 March 2023. This enables businesses to claim 100% of the cost of all qualifying plant & machinery as a deduction in calculating their taxable profits, up to a maximum of £1m. Unlike the super-deduction, this is available to sole traders and partnerships as well as companies. This is significantly better than the usual rate of 18% or 6% pa. The AIA was brought in some years ago as a temporary measure. It remains to be seen whether it will be extended again after 31 March 2023. There is no doubt that it is a major boon to the smaller businesses as it ensures that in very many of these, all of their qualifying expenditure on plant & machinery will qualify for the 100% rate.
  • There is also an increase in funding for core Innovate UK programmes, reaching circa £1 billion per year by 2024-25, over £300 million more per annum than in 2021-22.

Research and Development (R&D) tax relief reform:

  • Qualifying expenditure will be expanded to include data and cloud costs. Further changes will be announced in due course. These will be legislated for in the Finance Bill 2022/2023 and will take effect from April 2023.
  • [As above, note there is also an increase in funding for core Innovate UK programmes, reaching circa £1 billion per year by 2024-25, over £300 million more per annum than in 2021-22.]

UK Residential Property Developer Tax:

  • A new tax is being introduced on company profits from UK residential property development. This will only apply to the largest developers. This is a 4% tax on profits of more than £25m. This is in addition to the normal corporation tax which means that from 1 April 2023, such profits will suffer a tax rate of 29%. The new tax will apply from 1 April 2022 and will cover profits arising after that date. This tax is intended to help fund the Governments Building Safety Package set up in the light of the cladding scandals.

Online Sales Tax:

  • A consultation will take place shortly to explore the pros and cons of such a tax. It will be interesting to read the discussion of the many smaller UK online sales businesses that are paying all the required UK taxes.

Business rates review (England only).

N.B. Business rates have been devolved to Scotland, Northern Ireland and Wales. It remains to be seen whether the Administrations in these jurisdictions replicate these proposals.

The government announced at Budget 2020 that it would conduct a fundamental review of the business rates system in England, to improve the current business rates system and look to the long term. The Final Report was published on 27 October 2021, and sets out the following Government commitments:

  • A new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23 - to support the local high street. Over 90% of retail, hospitality and leisure businesses will get up to 50% off their business rates bills in 2022/23. This equates to roughly double the pre-COVID relief for 2020/21, and now includes other businesses such as hotels, gyms and bowling alleys.
  • Cutting business rates for all businesses by freezing the multiplier for 2022 to 2023.
  • A new relief to support investment in property improvements, designed to encourage businesses to invest in expanding their properties and improving them for customers and employees.
  • New measures to support green investment and decarbonisation of non-domestic buildings. This includes exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks (that have their own rates bill).
  • Moving to three-yearly revaluations from 2023., aimed to make the system fairer.
  • Extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023 to provide stability to small businesses ahead of the 2023 revaluation.

 

If you have any Corporate Tax queries, or want to discuss how the above might impact your business, you can contact Barry Laurie or any of our Corporate Tax team here.  

 

 

HR thoughts - it's all about the National Living Wage rise.

The announcement of a significant hike to the National Living Wage in October 2021’s budget briefing did not come as a big surprise…it had already been trailed as a headline grabber days earlier which was met with some consternation by opposition parties as an improper sequence of events. 

What's the new National Living Wage?

Rishi Sunak confirmed the 59 pence minimum pay increase for all workers aged over 23 will become a legal requirement from April 2022, along with other increases for workers aged below 23. In 6 months time, employees who are currently paid at £8.91 per hour will see their pay jump up to £9.50 per hour, but this announcement is not necessarily the good news story that it seems on the face of it – we take a critical look at this change below.   

  • Firstly, there is the fact that inflation is likely to rise to 4% next year which suddenly makes a 6.6% increase less of a captivating headline, and that’s before those receiving the increase quantify their rising household bills with the current energy crisis and food supply chain issues. 
  • Let’s also not forget that with the end of the furlough scheme, some employers are still feeling the pinch, particularly in those sectors that have not returned to pre-pandemic trading levels. When it is implemented in April 2022, this bumper non-optional pay increase could be the nail in the coffin for some businesses who have been hanging by the skin of their teeth for 2 years.  
  • The difference between the National Living Wage (formerly the National Minimum Wage) and the ‘real living wage’ has been a source of confusion for employers for many years, and the waters have just got muddier. The National Living Wage mandated by the government will be the same as the voluntary living wage set by the Living Wage Foundation. This alignment is only temporary with the real living wage set to increase in mid-November 2022, and it is likely to be pushed up to a level that some employers will no longer be able to sustain. 
  • The war for talent across many typically low paid sectors, such as care and hospitality, has been abundantly clear in recent months. A combination of COVID and Brexit has resulted in there not being enough people to fill vacancies, and increasing pay rates is just about the only thing in an employer’s armoury – with this rate rise, the challenge will get even harder because it will level the playing field once again, and potentially force further wage increases to attract talent. 

Finally, paying staff is one of the most important activities for any business, and with that pay scales can be a tricky balancing act where employers need to weigh up skill levels and experience and build in incremental pay stepping stones as people progress through the business.  

  • Developing the right pay structure can take years to develop, and in the case of this year, one government budget with a monumental minimum wage increase to topple it overnight. 

What impact might the new National Living Wage have on businesses?

It’s not all doom and gloom though, there’s no doubt that the increase will be seen as a positive for employees in low paid work, and will take those working a typical 37.5 hours per week up to an annual salary of £18,525 which could drive increased spending to boost the economy in the UK’s post-COVID recovery.   

 

Please contact our HR & Payroll teams who can help with any HR issues or Payroll queries on enquiries@fdhrservices.co.uk or 0141 221 2984. 

 

 

Corporate Advisory - Grants, Loans & other support.

Recovery Loan Scheme

The Chancellor announced that the Recovery Loan Scheme will be extended by six months to 30 June 2022, having already seen total funding of over £1bn offered to businesses by the scheme’s diverse range of accredited partners. 

  • You can apply to the scheme if Covid-19 has affected your business. You can use the finance for any legitimate business purpose – including managing cash flow, investment and growth. However, you must be able to afford to take out additional debt finance for these purposes.
  • A lender can provide up to £10 million as one of the following facilities:
    • Term loan
    • Overdraft
    • Invoice finance
    • Asset finance
  • Under the scheme, lenders won’t take any form of personal guarantee for facilities of £250,000 or less.
  • If you’re borrowing more than £250,000, the lender has the discretion to decide whether to take personal guarantees. However:
      1. the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied
      2. no personal guarantees can be held over Principal Private Residences.

For further details, visit: Recovery Loan Scheme - British Business Bank (british-business-bank.co.uk)

Global Britain Investment Fund

The chancellor has announced £1.4bn in grants in its new 'Global Britain Investment Fund' as the government looks to attract international companies to invest in Britain. 

The fund includes £354m to support investment in life sciences manufacturing, £817m for the electrification of UK vehicles and their supply chain, and up to £230 million for the offshore wind sector.

Regional Funds

The investment push from the budget also saw more than £1.6bn for the British Business Bank's regional funds, which provide debt and equity finance to small and medium enterprises. The British Business Bank will work alongside Devolved Administrations’ to deliver this support, with £150m of this funding being allocated to Scottish businesses.

Regional Angels Programme

  • £150m additional spending for the Regional Angels programme, which aims to increase the availability, supply and awareness of early-stage, angel equity investments across the UK. This is an application process run by the British Business Bank who are seeking to partner with angel investors who are focused on early-stage investments in smaller businesses.

Start-Up Loans

The government announced that it will provide funding for 33,000 Start-Up Loans over the next three years. See details at: Start-Up Loans - small businesses can borrow up to £25,000

Business Rates

Whilst there were updates announced relating to England, the Scottish government has already committed to rates relief for the hospitality and retail sectors.

 

If you have any Grants related queries please contact one of our Corporate Advisory team.

 

Looking for more detail?

In addition to the summaries written above we also have a full BUDGET REPORT available to download by clicking here.  This includes information about all the Chancellor's announcements across the UK.

 

 

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