2022 Spring Budget Headlines
The Chancellor announced the Government’s tax plan to support the UK economy, businesses and families in both the short and the medium term.
Key measures the Chancellor announced as part of the plan include:
an increase to the National Insurance Primary Threshold for Class 1 NICs and the Lower Profits Limit for Class 4 NICs from 6 July 2022, aligning it with the equivalent income tax personal allowance which is set at £12,570 per annum
from April 2022, self-employed individuals with profits between the Small Profits Threshold (SPT) and the Lower Profit Limit will not pay Class 2 NICs, while allowing individuals to be able to continue to build National Insurance credits
the Employment Allowance will be increased by £1,000 from 6 April 2022 to £5,000, which will benefit around 495,000 businesses
an immediate reduction in duty on diesel and petrol from 6pm on 23 March 2022, by 5 pence per litre, for 12 months.
2021 News Headlines
The Chancellor gave his Budget speech on 27 October 2021, the same day that the Spending Review was published.
Full documents can be found here ;
The economic outlook appears, on the face of it, to be a little more positive than many of us would have expected at this time last year, with economic growth expected to return to Pre - Covid levels by 2022. On the other hand, it is noted that inflation is expected to peak at 4% next year and there were no measures to assist consumers with rising energy costs.
Many of the major tax changes had been announced prior to the Budget documents being released on 27 October, but are included here alongside highlights of the Budget that we think are most relevant to our clients. This is necessarily brief and is not intended to represent tax advice, but please contact us if you wish to discuss any of the issues particular to you or your business.
HEADLINE RATES & ALLOWANCES
As announced in the March 2021 Budget, the current personal tax bands will be frozen until April 2026.
The personal allowance will remain at £12,570.
The basic rate band remains at £37,700, thus giving a higher rate tax threshold of £50,270 until April 2026. Additional rates will apply from £150,000.
The basic, higher and additional rates of tax will remain at 20%, 40% and 45% respectively.
Rates for dividends remain at 7.5%, 32.5% and 38.1% for the remainder of 2021-22 but as announced recently, these rates will rise to 8.75%, 33.75% and 39.35 % with effect from April 2022.
It is also confirmed that the upper dividend rate will be used for charging tax under the loan to participator in close companies rules.
The starting rate band for savings will remain at £5,000.
Capital Gains Tax
The annual capital gains exemption will remain at £12,300 until April 2026. The exemption for Trustees will remain at £6,150.
National Insurance Contributions
The upper earnings limit and the upper profits limit for Class 1 and Class 4 NIC will remain aligned with the higher rate threshold for income tax until April 2026.
However, for the 2022-23 tax year, NIC rates will be raised by 1.25% under the previously announced Health and Social Care Levy.
Class 2 NIC, for the self-employed, and Class 3 Voluntary contributions will increase in line with inflation to £3.15 and £15.85 per week respectively, with effect from April 2022.
NIC Employment Allowance
The NIC Employment allowance, available to smaller businesses, is to remain at £4,000
Fuel and Van benefits 2022-23
These benefit in kind charges will rise in line with the September Consumer Price Index.
The van benefit will increase to £3,600 and, the van fuel benefit will increase to £600 and car fuel benefit will increase to £25,300
The ISA annual subscription limit remains at £20,000 per annum.
Likewise, the annual subscription limits for Junior ISAs and child trust funds will remain at £9,000 per year.
As previously announced, the headline rate of Corporation Tax will remain at 19% but increase to a maximum of 25% with effect from 6 April 2023.
From 1 April 2023 we will return to a more complicated Corporate Tax regime, whereby there is effectively a tapered rate of CT depending on profit levels. Companies will ‘small profits’, that is below £50,000, will continue to pay CT at 19%. Companies with profits in excess of £250,000 will pay at the main rate of 25%. For those Companies with profits which fall between those brackets, there will be a tapered CT rate, rising from 19% to 25% depending on profit levels.
Close investment holding companies will become liable to CT at 25% from 1 April 2023 regardless of their profits.
The Annual Investment Allowance will remain at £1m until 31 March 2023.
The VAT taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000 until 31 March 2024.
The Standard Lifetime allowance will be frozen at £1,073,100 until April 2026.
The nil rate band for Inheritance Tax and residence nil rate band will be frozen at £325,000 and £175,000 respectively, until 5 April 2026
The Chancellor’s final statement related to those in receipt of Universal Credit. Low income households will be able to keep more of those benefits, as the income taper rate (that is, the amount of benefit withdrawn in relation to income earned) is reduced from 63p in the £1 to 55p in the £1.
There is also an increase to the work allowance which affects certain claimants with children or those with disabilities. This work allowance will be increased by £500 to a maximum of £515.
This may be small comfort to those low income families who lost the temporary £20 per week ‘top up’ payment, which has been withdrawn with effect from October,
The changes announced today, will be brought in no later than 1 December 2021.
We welcome the increase in the National Minimum wage which rises by over 6.6% to £9.50 for those aged 23 and over.
23+ 21-22 18-20 Under18 Apprentice
April 2021 8.91 8.36 6.56 4.62 4.30
April 2022 9.50 9.18 6.83 4.81 4.81
Pensions Tax Relief
Following a consultation in 2020, the government will now introduce a fairer system for lower earners who fund their pension schemes via a Net Pay Arrangement. This will apply from April 2024. This is to correct an anomaly whereby employees who contribute to schemes where they receive tax relief at source, automatically receive a 20% top up on their contributions, even if they pay no income tax. In contrast, those contributing to net pay schemes receive tax at their highest rate, which for low earners could be 0%. A top up payment will be made to the pension fund, equivalent to the 20% tax relief.
Delayed Access to Pension Benefits
The government will legislate in Finance Bill 2021-22 to increase the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, the normal minimum pension age, from 55 to 57. This increase will have effect from 6 April 2028.
Scheme Pays Reporting
As announced in the government’s Tax Policies and Consultations Command Paper published on 23 March 2021, the government will introduce legislation to extend Scheme Pays reporting and payment deadlines. This will allow an individual to ask their pension scheme to settle their annual allowance charge of £2,000 or more from a previous tax year by reducing their future pension benefits. The changes will have effect from 6 April 2022.
Health and Social Care Levy
The 1.25% health and social care levy, together with an equivalent increase in the dividend tax rates, will apply from April 2022. This will apply to employment and self-employment income. Although it has been introduced as a new tax, it will be collected in 2022-23 by increasing national insurance contribution rates for employees, employers and the self-employed by 1.25%, thereby collected via PAYE or the self-assessment system.
From April 2023 (assuming HMRC has implemented a sufficient system to do so) the levy will be distinct from national insurance contributions. The scope of the charge will still be limited to employment and self-employment income, but it will also then apply to individuals above the state pension age who are working.
To ensure that an equivalent tax increase will also apply to income drawn as dividends, the dividend tax rates will also be raised by 1.25%, from 7.5%, 32.5% and 38.1% to 8.75%, 33.75% and 39.35% respectively.
Residential Property Developer Tax
A new residential property developer tax (RPTD) will apply to the profits of companies carrying out residential property development in the UK.
These companies will be subject to RPTD at 4% of profits in excess of £25m per year. Deductions for financing costs will be available and the use of losses will be restricted.
It is intended that the collection of this tax will be incorporated into the existing Corporate Tax regime.
These rules are not intended to apply to the build to rent market.
This will apply from April 2022
Reform of income tax basis periods
Following a consultation in 2021, HMRC confirm that they will go ahead with reforming how trading income is allocated to tax years. They state that the aim of this is to simplify the system, by aligning the way these profits are taxed, in line with other forms of income such as property and investment income.
Currently, trading profits and losses are allocated to a tax year based on their accounting year. For example, if your trading accounts are for the period ended 31 October 2021, that entire year’s profit is taxable in your 2021-22 Tax Return. This allows the self-employed to defer tax payments in early years of trading, it can also result in complexity and ‘overlap relief’ where the same profits are taxed twice.
Under the reform, the ‘current year basis’ rules will be replaced with a ‘tax year basis’. Self-employed individuals with an accounting date other than the end of the tax year will be required to apportion profits or losses from different accounting periods to fit in with the tax year. There will be a transitional year in 2023/24, in which all businesses will have their basis period moved to the end of the tax year and any overlap relief given. This may accelerate profits into an earlier year for some self-employed individuals, although there will be a mechanism to spread the excess profits over a number of years.
We will be in touch with all our clients to whom this may apply, in Spring 2022, to discuss the impact of these changes and options available.
These changes are a precursor to the introduction of Making Tax Digital for Income Tax, which will apply to some self-employed and landlords with effect from April 2024. Again, we will be in touch to discuss how this may apply to you and your business, once more detailed guidance has been provided by HMRC.
The rate of the banking surcharge will decrease rom 8% to 3% from 1 April 2023. The surcharge applies to profits in excess of the surcharge allowance, and this allowance will increase from £25million to £100m.
Whilst this appears at first glance to be a tax cut, it is noted that banks will still pay a higher rate of tax than currently, due to the rise in standard Corporation Tax.
Reform to Research & Development (R&D) tax relief following consultation
The reform of the existing R&D tax reliefs are designed to incentivise organisations undertaking R&D in the UK. Full details of the reforms and next steps for the R&D review are still to be published. The headline reforms announced are:
Cloud computing and data costs will now be included within qualifying expenditure
The Government will seek to better support and incentivise UK activity
Measures to tackle abuse and improve compliance
Easing of Corporate re-domiciliation
The government have recognised that in order to compete with other global centres in a Post Brexit world, some changes are required to allow companies to redomicile to the UK without the need for a new Corporate Identity. This will allow continuity of business, reduce administration and negate the need to incorporate a new entity in the UK. Corporate identity, structure, assets, contracts, and intellectual property will remain unchanged. It is intended to bring new investment and growth opportunities to the post-Brexit UK economy.
The Government is consulting on the regime, including any required changes to tax laws and the rules currently exist for companies that migrate control to the UK.
There are already tax reliefs in place to assist creative industries such as museums, galleries and orchestras. The Government have confirmed that this will be extended to 31 March 2024. There will also be a temporary increase in rates of relief for production which begins after 27 October 2021. The relief works, broadly, by allowing an additional 80% deduction on qualifying expenditure, providing that each activity meets the relevant criteria.
There will also be a film tax relief intended for production companies that have to release via a streaming service, rather than in cinemas or theatres (dependent on the Co and it’s activities meeting certain criteria)
Online Sales Tax
A consultation will be launched shortly, as the Government have already announced that it will seek to legislate on tax reporting for UK digital platforms.
There will be a one year 50% Business Rates Discount for the retail, leisure and hospitality sector.
From 2023 all business will be able to make property improvements without having a business rates increase for 12 months
There will also be more frequent valuations for Business rates purposes.
CAPITAL GAINS TAX (CGT) AND INHERITANCE TAX (IHT)
Perhaps surprisingly, this Budget offered no significant changes to CGT or IHT.
Reporting and Paying Tax on Residential Property Disposals
The deadline for reporting specific property disposals, and for paying tax on any gain arising, will be extended from 30 days after completion to 60 days. This is a welcome reprieve and follows significant lobbying within the industry and recommendation from the Office of Tax Simplification.
To remind you, if you sell a residential property and capital gains tax may be due, please advise us as soon as possible. This disposal needs to be reported within 60 days of completion, and an estimate of the tax is payable on the same date.
No significant announcements have been made in relation to VAT but some points to note;
A minor measure to be introduced aims to ease the movement of second-hand motor vehicles between Great Britain and Northern Ireland.
A consultation has been announced on options to simplify the VAT treatment of fund management fees.
There will be additional VAT rules in place for VAT registered businesses that are authorised to operate in the free zone of a Freeport. These measures are to ensure that where goods leave a free zone and there is no qualifying onward supply of those goods (or if there is a breach of the rules of the free zone customs procedure) then VAT will be due.
Freeports are due to begin operating in November 2021.
The VAT taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000 until 31 March 2024.
The new late submission and late payment penalties for VAT will still come into effect for VAT registered businesses from accounting periods starting on or after 1 April 2022, as announced at Spring Budget 2021.
The stamp duty land tax holiday that ended on 1 October 2021 has not been extended.
Vehicle excise duty rates for cars vans and motorcycles are to be increased in line with RPI with effect from, 1 April 2022.
Fuel duty rates will remain frozen for 2022 and 2023.
There will a cut to duty on sparkling wine, draught beer and cider
There will be tax relief for small brewers producing alcohol at less than 8.5% ABV.
Planned increases on duty for hospitality businesses have cancelled.
There will be a reduction air passenger duty on domestic flights.
As we can see, this was not the ‘green’ Budget that we might have expected given the attention around the 2050 Net Zero target, as well as being mere days before COP26 kicks off!
New rules for trading with Europe
We have received the following guidance from HMRC.
New customs and tax rules for trading with the EU started on 1 January 2021. To continue trading with countries in the EU, there are actions businesses must take, to make sure they’re compliant and minimise costs and delays.
Before they attempt to move their goods, they’ll need to:
Get ready to make customs declarations, these are now needed for all exports from the UK and if you’re importing controlled goods. If you import goods that are not controlled, you may be able to delay making their declarations for up to 6 months.
Get expert help, HMRC recommend that you get a contract in place as soon as they can with a customs intermediary like a freight forwarder or customs broker. This is especially important if you’re exporting or importing controlled goods, as you will not be able to delay their declarations. Accountants are not experts in customs procedures and there are specialist agencies who deal with declarations although of course we will help where we can.
Make sure you know how to classify the goods, and how you’ll evidence their origin, your customs intermediary will also be able to help you ensure the goods are classified correctly. If you do not classify your goods correctly or if you do not accurately record the origin of the goods in the customs declaration, you may be charged the wrong amount of tax or duty. If you choose not to hire an intermediary, you will need to do this yourselves.
Follow safety and security requirements for your goods, you do not need to make an entry summary declaration for goods that you import into Great Britain from the EU between 1 January and 30 June 2021. If you’re moving goods outside the UK, you will need to make an exit summary declaration if you’ve not fulfilled safety and security requirements with a customs export declaration, unless the goods are covered by the limited temporary waiver or are going directly into Northern Ireland from Great Britain. Check if you need to make an entry summary declaration.
If you are preparing to move goods under the Northern Ireland Protocol, they can register for the free Trader Support Service.
If you need further help, you can:
attend one of HMRC's free webinars
watch a short film about importing and exporting
use the transition checker to understand HMRC processes for importing, exporting or customs relief
call the Customs & International Trade Helpline
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