Chancellor Sunak delivered his Autumn 2021 budget on 27th October. In reality, many of the many headlines had either been announced in advance of the budget or leaked to the press meaning that there was very little of substance revealed on the day.
Unsurprisingly, in the wake of the last 18 months and the cost to the country of fighting the pandemic, the focus for the immediate future is of rebalancing the nation’s budget. Measures such as freezing personal allowances and the thresholds at which higher rate tax becomes payable are “invisible” tax increases and will have the effect of significantly growing the governments tax take as we see the expected wage inflation over the next few years. The more blatant revenue raising measures include the planned increase in the main corporation tax rate from 19% to 25% in April 2023 which was announced earlier this year. It has been speculated that this decision may be at least partially reversed as the government deficit has not reached the levels that were feared, however, as of now there has been no hint from the Chancellor of such an about turn. The recent agreement reached by all major economies to set a minimum worldwide corporation tax rate of 15% is perhaps giving the UK government the confidence that they will not see a mass exit of businesses from our shores in the event of the planned for increase.
The other major revenue generator which will come into force in April 2022 is the 1.25% increase in national insurance rates, including on employers national insurance, which was announced in September. All businesses should be sure to include this cost increase in their 2022 budgets, it will be significant to large employers. At the same time, and of more direct relevance to the vast majority of small business owners, we will see the same 1.25% increase in the dividend tax rates. The basic rate of tax on dividends will thus increase from 7.5% to 8.75% with the higher going up from 32.5% to 33.75%. Consideration should be given to bringing dividend income forward to the 2021/22 tax year if at all possible. Employers should also be aware of the increases to the National Living Wage and National Minimum Wage which have been proposed by the Low Wage Commission and now agreed by the government. For employees aged over 23 this increase amounts to 6.6%, taking the rate to £9.50/hour, and this will be applicable from 1st April 2022. Again, businesses should factor this cost increase into their 2022 budgets where relevant.
There were no general positive measures for business announced as part of the budget. As a reminder the corporation tax super deduction remains in force and will do so until 31st March 2023 and we are pleased to see many of our clients taking advantage of this in the last 6 months or so. There were also some targeted business rates reliefs announced to businesses in England operating in retail, hospitality and leisure for 2022/23. It is hoped that the devolved governments will at least follow suit and offer this relief in Scotland, Wales and Northern Ireland.
Finally, we had the usual speculation in advance of the budget that capital taxes would be increased up or close to income tax levels. This duly prompted a flurry of activity from individuals looking to realise gains in advance of the budget, only to find that there will be no change to these capital tax rates in the coming year. Perhaps the Chancellor is happy to allow this speculation to arise knowing this it will bring forward some capital sales and the accompanying tax. Or are we just being cynical!
The Scottish executive will be announcing the Scottish income tax rates and bands for 2022/23 on 9th December as part of the Scottish budget and we will report again then in the unlikely event that anything is included in this which differs significantly from the approach taken by the UK Government budget.
As always, please do not hesitate to call your usual Drummond Laurie contact to discuss any aspect of the attached budget summary.