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The Autumn Budget 2021 – a new age of big government

Chris Thompson and Tom Biggs ACA CTA, review the Chancellor’s announcements from the latest Budget.

It was an Autumn Budget of significant spending declarations but notable for very little regarding taxation!

This perhaps was unsurprising, for the March Budget saw the freezing of tax allowances and thresholds for income tax, followed by the subsequent introduction of the health and social care levy. These policies alone meant large amounts of tax revenue would be raised over the next 5 years. So, in many ways the tax side for this statement was already done, providing the backdrop for more spending.

The real question therefore going into the Autumn was, given how the government had gone on a war like footing to tackle the COVID-19 pandemic, and how integrated it had become in people’s lives, would Chancellor Rishi Sunak attempt to row back on the role of the state? The answer seemed to be an unequivocal, no!

The increased capital expenditure and levelling up agenda results in an economy reliant on a bigger government, and that must be funded. Unsurprisingly therefore tax rises of late have resulted in the tax take reaching a 71 year high of 34% as a share of GDP. Furthermore, this is projected to rise to 36% by the 2026/27 tax year.

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Rising inflation however, is the proverbial elephant in the room, and although partially addressed, the government’s 5 year growth forecasts project a significant drop in GDP from 6.5% this year to 1.25% by 2026/27. This may be due to interest rates going up to deal with rising prices. Can such anaemic future growth fund this big government with its grand spending plans? And if not, could taxes really rise further from here in the future?  

A summary of the Autumn Budget 2021

An increase in the National Living WageMaking Tax Digital implementation dates
A cut to business ratesDividend tax increase confirmed
The Annual Investment Allowance extensionAlcohol duties reforms
An increase on when to pay Capital Gains Tax on property transactionsAir passenger duty
Basis period reform 

National Living Wage increase

There will be a 6.6% increase to the National Living Wage, rising to £9.50 an hour from 1 April 2022. This represents another increase in costs for employers alongside the previously announced health and social care levy (full details in the link), which is chargeable on employer NIC as well as employee NIC.

Young people and apprentices will also see increases in National Minimum Wage rates as follows:

Age groupCurrent minimum wage per hourMinimum wage per hour from 1 April 2022
21 – 22 years old£8.36£9.18
18 – 20 years old£6.56£6.83
16 – 17 years old£4.62£4.81
Apprentices£4.30£4.81

Of note, all of the increases are in excess of the expected CPI inflation rate next year of 4%.

A cut to business rates

Around 400,000 retail, hospitality and leisure properties will be eligible for the new, temporary, £1.7bn worth of business rates relief from April 2022. The business rates multiplier is also set to be frozen as of the 2022/23 tax year. Consequently business rates bills will be 3% lower.

A new business rates relief will be introduced from 2023. This will ensure organisations won’t face higher bills for 12 months if they’ve implemented ‘qualifying’ improvements to the property that they occupy.

Watch the video here

The Annual Investment Allowance extension

The Annual Investment Allowance will remain at £1 million until 31 March 2023. The temporary increase had been due to finish at the end of 2021. This will be welcome news for businesses looking to invest in qualifying plant and machinery and comes off the back of the previously announced super deduction which provides companies with a tax deduction of 130% of eligible qualifying expenditure up to March 2023.

The announcement will therefore be more beneficial to companies who have significant expenditure on special rate expenditure which would have otherwise only qualified for a 50% super deduction if not covered by the annual investment allowance already.

An increase on when to pay Capital Gains Tax on property transactions 

As of 27 October 2021 the deadline for reporting and paying Capital Gains Tax (CGT), following completion of the sale of UK residential property, will increase from 30 to 60 days. The same deadline increase will also apply to non-UK residents disposing of UK property.

Basis period reform

The previous basis period rules for unincorporated businesses will be reformed and legislated for in Finance Bill 2021/22. This will result in all business profits (or losses) for a tax year being calculated with reference to those profits and losses arising in the tax year itself, regardless of the business’ accounting date.

This will simplify what can often be a complex tax area. It will, in effect, reduce the need for profits to be taxed twice when a business is first started, or when a partner joins a partnership.

The transition to the new rules will take place in 2023/24 and the new rules will come into force from 6 April 2024. During the transition year, overlap relief can be used and any profit generated during the alignment of the basis period with the tax year will be able to be spread over a five-year period for tax purposes, starting with the tax year.

It is estimated that this reform will largely be tax neutral overall, although there will be an initial acceleration of tax collection as a result of the alignment.

Making Tax Digital implementation dates

The introduction of Making Tax Digital (MTD) was supposed to come into force from April 2023, for any taxpayers with businesses and/or property incomes of more than £10,000. There will now be a delay in this with the new dates for MTD will be as follows:

  • April 2024 for taxpayers who are sole traders or landlords
  • April 2025 for taxpayers who are classed as general partnerships

There will however, be some voluntary pilot schemes before 2024 and also voluntary signing up for taxpayers with profits of less than £10,000.

Dividend tax increase confirmed

Announced alongside the Health and Social Care levy, there will be an increase in the rates of dividend tax from 6 April 2022.

This will take the form of a 1.25% on each dividend rate and will be applied as follows:

Income tax bandDividend tax rate 2021/22Dividend tax rate 2022/23
Basic-rate(income of £12,570 – £50,270)7.5%8.75%
Higher-rate(£50,271 – 150,000)32.5%33.75%
Additional-rate(> £150,000)38.1%39.35%

The rationale behind this is to ensure that those individuals who earn through dividends, rather than employment or self-employment, make a corresponding contribution to help to fund additional health and social care spending.

Alcohol duties reforms

Drinks will be taxed according to their alcohol content, with higher strength products incurring proportionately more duty with a standardised set of bands.

Air passenger duty

A new domestic band for air passenger duty for 2023 will be set at £6.50 for flights between airports in England, Scotland, Wales and Northern Ireland. This doesn’t include private jets.

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