Autumn Budget 2021
Policy announcements being drip fed into the public domain prior to them being shared with parliament is becoming quite the norm. As a result, Rishi Sunak was given a bit of a dressing down by the deputy speaker prior to his speech. So for much of what was announced yesterday we had been collectively sounded out already.
The Autumn budget comes in a climate of accelerated growth (6.5% this year), but with the populace facing a sharp rise in the cost of living (inflation expected to hit 4% - OBR). Unemployment and borrowing projections are vastly more positive than expected, but increases in taxation will go ahead as planned.
In an apparent break from low-tax, free-market, lean-government principles, the level of tax and spend has been deemed as necessary due to the ‘unprecedented crisis’ caused by the pandemic, coupled with a policy of centrally stimulated growth rather than an austere approach to economic recovery.
The budget speech itself in the House of Commons attempts to lay the framework for the government’s fiscal policy for the next year and beyond. When it comes to the specific details around changes to the underlying legislation, these tend to be presented in the official Treasury papers circulated shortly afterwards.
So who might be pleased, and who might be peeved…
Potentially those workers on lower incomes, because of the changes to universal credit and the rise in the minimum wage. For those out of work, the budget appears to provide little comfort to address the impact of rising inflation. Taxes will go up across the board in the form of National Insurance Contributions and Dividend tax (07 Sep - Health and Social Care Reforms) as well as corporation tax (03 Mar - March Budget 2021) and this won’t go unnoticed for some.
National Minimum Wage (NMW) & Universal Credit (UC)
The government’s aim was to achieve a National Minimum Wage of two-thirds of the nation’s average (median) earnings.
The rise of the National Minimum Wage from £8.91 to £9.50 has accomplished this objective and will help support the living standards of millions of low paid workers.
Around 5.8 million households claim Universal Credit whilst in work. For every £1 that claimants earn, 63p is cut from their claim. This is called the taper rate. The ability to retain a portion of Universal Credit whilst in work, incentivises those claimants able to work, to work.
From 01 Dec, the amount cut from claims will fall from 63p to 55p meaning claimants will retain more of their claim whilst in work. The temporary Universal Credit uplift of £20 per week which expired earlier in the year was not restored.
Research & Development tax relief
I watch with admiration how some clients use their businesses as a tool to innovate. And as such they are rewarded with well-deserved and generous tax relief. As a reminder, businesses that incur expenditure that qualifies for this relief are afforded an additional 130% (230% in total) of deductions against their taxable profits.
By way of a simple example, an architectural business may spend £100,000 developing a breakthrough piece of design software. They will be able to deduct £230,000 from their taxable profits which, in the case of a company, will provide just short of £25,000 of additional tax savings.
Further reading - Claiming Research and Development tax reliefs - GOV.UK (www.gov.uk)
However, it’s effect overall has been called into question with instances of abuse and much of the subsidy supporting overseas expenditure. Updates from the Budget will attempt to ensure that only domestic innovation qualifies, with certain other caps and exceptions introduced to address fraud.
Finally on R&D, the government have confirmed that development of data and cloud-computing will now qualify.
This is the tax charged on limited company profits. From Apr 23 the rates will rise from 19% to 25% for businesses with profits in excess of £250k. For businesses with profits of £50k or less there will be no change. For businesses with profits between £50k and £250k there will be a new system of tapered relief.
Whether this change will impact you depends on how much profit you generate, how much profit you choose to retain and how much profit you opt to reinvest in your business and your employees.
Governments will naturally incentivise investment at the moment. The more you choose to spend (say on a new piece of machinery), the lower your profits, and the lower your tax bill.
National Insurance Contributions
A 1.25% increase in a range of NI categories. See sections 1 and 2 of: 07 Sep - Health and Social Care Reforms
Income tax on dividends
A 1.25% increase in all rates of income tax on dividends. See section 3 of: 07 Sep - Health and Social Care Reforms
All of these tax changes will influence our own personal financial strategies next year. I’ll be working on recommendations to share with you prior to the start of the next tax year.
The ever popular banking industry were afforded a 5% tax break from Apr 23.
Because of the intrinsic importance of the banking sector and the potential risks it poses on the UK financial system and wider economy (see 2008 financial crisis), banks are currently asked to contribute an additional 8% tax on profits. These revenues are held as a provision to prop up our economy should our national regulatory framework fail us (again). This surcharge has been reduced to 3%.
The UK Finance sector is one of the industries in which we are a prominent force globally. This surcharge cut aims to retain that standing.
Other points of note
Basis periods – businesses profits will be assessed over the course of tax year irrespective of their accounting period. This doesn’t include Companies or Charities. Basic period rules and overlap relief were needlessly complex and penal so this is a welcome change.
Capital Gains Tax – an increase in the report and pay window for those selling property from 30 days to 60 days.
No apparent updates on Income tax, VAT, Inheritance tax or Pensions.
Air passenger duty – a cut on air passenger duty on domestic flights. Good for levelling up and the Union. Bad for the environment.
If you have any queries or concerns around how this budget will affect you and your families, please get in touch for a chat.