Autumn Budget 2021

The Chancellor delivered an upbeat Budget speech with a clear focus on recovery and spending to “build back better”. He was in part able to do this because the big tax rise bombshell, the Health and Social Care Levy, anticipated to raise a huge £12 billion each year, had already been announced by the Prime Minister in September. Also, the forthcoming increase in Corporation Tax from April 2023 had been included in the Spring Budget. This left Rishi free to talk about more popular measures such as improving the NHS and supporting the hospitality sector.

Readers will have noticed a growing tendency for Budget measures to be pre-announced, a fact that has clearly irritated the Deputy Speaker, Dame Eleanor Laing. She told Rishi that he should save the announcements for MPs first, adding that she looked forward to hearing “the remainder of your announcements”!

Another familiar aspect of this Budget was the fear beforehand of sweeping (and potentially expensive) changes to Capital Gains Tax (CGT), Inheritance Tax and pensions tax relief. Once again, these changes have not happened, although it is hard to imagine that the fears will not one day prove to be correct.

Research & Development (R&D) tax relief

As part of the government’s commitment to supporting science and innovation, there are some changes to the already generous R&D tax relief rules.

The definition of qualifying expenditure will be expanded to include data and cloud costs, in order to support modern research methods.

UK companies claimed R&D tax relief on £47.5 billion of R&D expenditure in 2019, but of this amount only £25.9 billion related to R&D carried out in the UK. Going forward, the R&D tax reliefs will be reformed to refocus support towards innovation in the UK.

Plans yet to be announced will tackle abuse of and improve compliance with the R&D tax relief rules.

The legislation for these changes will be included in the 2022-23 Finance Bill and will take effect from April 2023. Further details of what these changes will look like will be announced later in the autumn.

Extension of Annual Investment Allowance

The temporary £1 million limit for the 100% Annual Investment Allowance for qualifying expenditure on plant and machinery will be extended to 31 March 2023, having previously been due to reduce to its usual level of £200,000 on 31 December 2021.

Cross border group relief abolished

Many years ago, the UK group relief rules allowed UK resident companies to claim losses from other UK resident group companies only. These rules were successfully challenged under EU law and therefore the rules were changed to permit UK companies in certain circumstances to claim group relief for losses incurred in the EEA.

Leaving the EU has allowed the government to abolish this cross border group relief so that EEA resident companies will now be treated the same as non-UK companies resident elsewhere in the world.

This change will have effect for company accounting periods ending on or after 27 October 2021. Transitional arrangements will apply for accounting periods which straddle this date.

Window for paying CGT on residential property widened

From 27 October 2021, the deadline for reporting and paying CGT on the disposal of UK residential property by UK residents will be extended from 30 days to 60 days from the completion date. A similar increase applies to non-UK residents disposing of property in the UK.

This will be very welcome news as many taxpayers have struggled to meet the 30 day deadline.

Basis period reform

If you’ve always found income tax basis periods confusing you’re not alone! The good news is that new rules will come into force from 6 April 2024 to reform the basis periods so that the profit or loss of a business for a tax year will be the profit or loss of the tax year itself, regardless of its accounting date.

The not so good news is that 2023-24 will be a transitional year, which is likely to be at least as complicated as the current rules if not more so! Legislation will be included in the 2021-22 Finance Bill so we wait to see the details. We can then start considering what actions businesses should take in anticipation of the change.

A reminder of the Health and Social Care Levy

As announced in September, a 1.25% increase in all Class 1 and Class 4 National Insurance Contributions (NICs) rates will apply from April 2022, to fund investment in the NHS and social care. From April 2023, this 1.25% levy will be separated out from NICs and will then also apply to individuals working above State Pension age.

There will also be a 1.25% increase in dividend income tax rates from April 2022 and a corresponding increase in the s455 charge on loans to participators in close companies.

How can we help?

If you have any questions or would like to discuss what the Budget means for you, let us know.