How the October 2021 budget may affect your business or personal finances

The Chancellor, Rishi Sunak, presented his Autumn 2021 Budget and Spending Review on 27 October 2021.

Before taking any action based on the contents of this update, please contact us to discuss what the Budget announcements will mean for you and that consider your unique business or personal financial circumstances.

Impact on your personal taxes or finances

Income tax rates and allowances for 2022/23

As announced at the March 2021 Budget, the personal allowance will remain at its 2021/22 level of £12,570 for 2022/23, with the allowance being reduced by £1 for every £2 by which income exceeds £100,000. This means that if your income is more than £125,140 you will not receive a personal allowance for 2022/23. You may wish to consider making pension contributions or gift aid donations to preserve your personal allowance and avoid paying tax at the high marginal rate of 60% that applies on income between £100,000 and £125,140.

The rates of income tax remain unchanged, with the basic rate staying at 20%, the higher rate at 40% and the additional rate at 45%. The basic rate band remains at £37,700. The additional rate of 45% will continue to apply to taxable income more than £150,000.

The freezing of the thresholds may mean that if your income keeps pace with inflation, you may move into a higher tax band and pay tax at a higher marginal rate.

The married couple’s allowance, available where at least one spouse or civil partner was born before 6 April 1935, is increased to £9,415. The income limit, above which the allowance is reduced by £1 for every £2 by which income exceeds the limit until the minimum amount of the allowance is reached, is set at £31,400. The minimum amount of the married couple’s allowance increases to £3,640 for 2022/23.

The rates and thresholds applying in Scotland to the non-savings non-dividend income of Scottish taxpayers will be announced in the Scottish Budget on 9 December.

National Insurance increases

As part of the Government’s plan for health and social care funding, the rate of Class 1 and Class 4 National Insurance contributions are increased by 1.25% for 2022/23 only. This means that the main primary rate payable by employees will be 13.25% and the additional primary rate will be 3.25%, while the main rate of Class 4 contributions payable by the self-employed will be 9.25% and the additional Class 4 rate will be 3.25%. The rates payable by employers (secondary Class 1, Class 1A and Class 1B) are also increased by 1.25% for 2022/23, to 15.05%. The rates will revert to their 2021/22 levels from 6 April 2023 when the new Health and Social Care Levy comes into effect.

The upper earnings limit for primary Class 1 purposes (and the associated upper secondary thresholds) and the upper profits limit for Class 4 remain frozen at £967 per week (£4,189 per month, £50,270 per year) for 2022/23. The other thresholds are increased in line with inflation. As a result, the lower earnings limit increases to £123 per week, the primary threshold increases to £190 per week and the secondary threshold increases to £175 per week. A new secondary threshold for Freeport employees of £481 per week applies from 6 April 2022.

The increases in the National Insurance rates and changes to the thresholds will affect your take home pay. If you operate your business through a personal or family company, they will also impact on your profit extraction strategy.

We can help you determine your optimal salary level for 2022/23 and re-examine your remuneration strategy based on this and other budget changes.

The rate of Class 2 National Insurance, payable by the self-employed, is increased to £3.15 per week for 2022/23 and the small profits threshold rises to £6,725. The rate of voluntary Class 3 National Insurance contributions rises to £15.85 per week for 2022/23.

Health and Social Care Levy

A new levy, the Health and Social Care Levy, will apply from 6 April 2023. The funds raised for the levy will be ring fenced to meet health and adult social care costs. Payment of the levy is linked to earnings on which a qualifying National Insurance contribution is payable. This is a Class 1 (employee’s and employer’s) contribution, a Class 1A contribution, a Class 1B contribution and a Class 4 contribution. The levy is payable at the rate of 1.25% on the earnings on which a National Insurance contribution would be due.

However, unlike National Insurance contributions, an individual’s liability to pay the Health and Social Care Levy does not come to an end when the individual reaches state pension age.

Associated changes mean that from October 2023, a cap is introduced on the amount that an eligible person will have to contribute to the costs of personal care over their lifetime. This is to be set at £86,000.

We can advise on the impact of the Levy and what the costs cap will mean for you.

Dividend tax increases

As part of the funding plan for health and social care, dividend tax rates are similarly increased by 1.25% from 6 April 2022.

Anyone who operates their business through a personal or family company and extracts profits in the form of a small salary plus dividends will typically pay little or no National Insurance. As the Health and Social Care Levy is linked to National Insurance contributions, where this low salary strategy is adopted, they will either not pay the levy or pay it at a low rate. To address this and to ensure those operating through a personal or family company contribute towards health and social care costs, dividend tax rates are increased by the amount of the levy.

From 6 April 2022, the ordinary dividend tax rate will be 8.75% (currently 7.5%), the upper dividend tax rate will be 33.75% (currently 32.5%) and the higher dividend tax rate will be 39.35% (currently 38.1%).

The increase in the dividend tax rates will also impact on your profit extraction strategy. As the increase does not come into effect until 6 April 2022, it may be useful to review your dividend policy for 2021/22 to decide whether it is worth taking more dividends in 2021/22 to take advantage of the current, lower, rates. Whether this is beneficial will depend on your personal circumstances. We can help you decide.

The increases in the dividend tax rates will also affect you if you receive dividends from investments in shares.

Increase in the minimum pension age

The normal minimum pension age (NMPA) is the age at which most pension savers can access their pensions without incurring an unauthorised pension tax charge (unless they take their pension earlier due to ill-health). Registered pension schemes cannot normally pay benefits to members until they reach the NMPA (except in the case of ill-health).

The NMPA is to increase from 55 to 57 from 6 April 2028.

The change will affect you if you were born on or after 6 April 1973. If affected, you will need to wait until age 57 to access pension benefits without suffering an unauthorised payments charge (unless the scheme has a protected pension age). This will need to be considered in your ongoing retirement planning.

If you were co-ordinating your business exit planning with your 55th birthday, this will also need to be rescheduled.

Contact us to discuss what this change may mean for you.

Longer payment and reporting window for residential capital gains

If you sell a property that has not been your main residence throughout the period that you have owned it, for example, an investment property or a second home, you will have to pay capital gains tax if the chargeable gain exceeds your available annual exempt amount. The tax is payable at the residential rates of 18% where income and gains fall within the basic rate limit and at 28% once this has been used up.

The time limit for reporting residential capital gains and making a payment on account of the tax due is increased from 30 days to 60 days from Budget Day (27 October 2021).

If you have recently disposed of a residential property which has not been your main home throughout, we can help you.

Impact on your business taxes or finance

Extension of the AIA temporary limit

The Annual Investment Allowance (AIA) is a capital allowance that allows unincorporated businesses and companies to claim a deduction of 100% of the qualifying expenditure up to the amount of the annual limit. The AIA limit was temporarily increased from its permanent level of £200,000 to £1 million on 1 January 2019. Following an extension of one year, it was due to return to its permanent level of £200,000 from 1 January 2022.

However, the Chancellor has announced a further extension of the temporary limit, and the AIA will remain at £1 million until 31 March 2023. This removes the pressure to undertake capital expenditure by 31 December 2021 to benefit from higher limit.

Super-deductions

Companies can also benefit from a super-deduction of 130% of the amount of any expenditure that would otherwise qualify for main rate writing down allowances at 18% where the expenditure is incurred between 1 April 2021 and 31 March 2023. This is a better option for companies than the AIA.

Companies can also benefit from a 50% first-year allowance for expenditure within the same window that would otherwise qualify for a special rate writing down allowance of 6%. The AIA will trump the first-year allowance, but once the AIA limit has been used, it could be worthwhile claiming a first-year allowance.

We can help you plan your capital expenditure to optimise your capital allowances claims.

Business rates

Changes were announced in respect of business rates.

The business rates multipliers are frozen for a second year until 31 March 2023. The small business multiplier is set at 49.9p and the standard multiplier at 51.2p. Different rates apply in London and in Wales. The freezing of the multipliers will mean that your business rates will not increase in 2022/23.

Eligible retail, hospitality and leisure properties will benefit from a 50% relief in their business rates for 2022/23, subject to a cap of £110,000 per business.

A relief is also being introduced for improvements to business properties which will delay the start date of higher business rates triggered by the improvements for 12 months. The Government are to consult on how to implement the relief, which will take effect from 2023 and will be reviewed in 2028. If you are planning improvements to your business premises, this may benefit you.

From 1 April 2023 until 31 March 2035, a targeted business rates exemption will apply for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief will be available for eligible heat networks. This is to support the decarbonisation of non-domestic buildings.

From 2023, business rate revaluations will take place every three years rather than every five years.

Transitional relief for small and medium-sized businesses is extended for one year, which will restrict bill increases to 15% for small properties (i.e., those with a rateable value of up to £20,000 or up to £28,000 in Greater London), and to 25% for medium properties (i.e., those with a rateable value of up to £100,000).

Recovery loan scheme

The recovery loan scheme, which was due to end on 31 December 2021, has been extended by six months and will now run until 30 June 2022. If you need funding to help you recover from the impact of the pandemic, speak to us to see if this will be the right type of funding for you.

Freeport sites announced

Freeport tax sites benefit from a range of tax incentives to encourage businesses to operate from a Freeport Tax Site. The first tax sites will be in sited in Humber, Teesside, and Thames. If you are planning to start a new business or relocate to any of these sites, we can explain the tax advantages that may be available to you.

Making Tax Digital

The next key date in the Making Tax Digital (MTD) calendar is 1 April 2022. VAT registered business with turnover below the VAT registration threshold of £85,000, who have not joined MTD for VAT voluntarily, will be required to join from the start of their first VAT accounting period which begins on or after 1 April 2022. If you fall into this category, we can help you get ready for this change which will involve maintaining suitable digital records and submit digital VAT returns in an appropriate format.

As previously announced, the start date for MTD for Income Tax Self-Assessment (ITSA) has been put back by one year. It will now apply to sole traders and landlords with income of more than £10,000 from 6 April 2024. This will involve the submission of quarterly digital reports, and an end of period statement and final declaration.

However, MTD for ITSA will not apply to general partnerships (i.e., those without corporate partners) until 6 April 2025. A later, as yet unspecified start date applies to other partnerships (i.e., those with corporate partners or LLPS). It is therefore possible to push MTD ITSA further into the future by entering into a qualifying partnership arrangement.

We can help you understand what MTD for ITSA means for you, and when you will need to comply.

Basis period reform

To pave the way for the introduction of MTD for ITSA, the basis period rules are to be reformed for self-employed traders.

Currently, the profits that are assessed for a tax year are those for the accounting period ending in that tax year. For example, if you prepare accounts to 31 December, the profits for the year to 31 December 2021 are assessed in 2021/22.

However, this is all to change and the profits that will be assessed in the tax year will be those for the tax year (i.e., profits from 6 April to 5 April or, where preferred, 1 April to 31 March). As with MTD for ITSA, these reforms have been delayed by one year. A tax year basis period will apply from 6 April 2024, with 2023/24 being a transitional year.

If you do not currently prepare accounts to 31 March (or 5 April), you may want to consider changing your accounting date. We can explain how the rules will work, and how the transitional year changes will affect you.

If you have any questions regarding the budget then email us office@wfrancisandco.co.uk or call us on 01242 370298.

The Chancellor, Rishi Sunak, presented his 2021 Budget on 3 March 2021. The extent to which the measures will affect you will depend on your personal circumstances.

Impact on individuals 

Personal allowance and income tax thresholds frozen

The personal allowance is increased in line with inflation to £12,570 for 2021/22. However, it will remain at this level for the next five years, until April 2026. The basic rate band will also remain at £37,700 for the next five years, freezing the starting point for paying higher rate at £50,270 until April 2026.

If your income increases during this period, for example, your pay rises in line with inflation, you may find that you move into the higher rate band, paying tax on some of your income at 40% where previously you were a basic rate taxpayer.

The basic rate of tax will remain at 20%, the higher rate at 40% and the additional rate at 45%.

Covid support continues

The Coronavirus Job Retention Scheme is extended until 30 September 2021. This means that if you have been furloughed or flexibly furloughed, you will continue to be paid 80% of your normal wages for your unworked hours, subject to the cap of £2,500 per month.

If you are self-employed and your business has been adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme.

Pension lifetime allowance frozen

The pension lifetime allowance will not be increased in line with inflation over the next five years. Instead, it will remain at its current level of £1,073,100 for 2021/22 to 2025/26. This may affect you if you already have pension savings at or near this level. If this is the case, you should review the amount of your pension pot before making further tax-relieved contributions.

Pension savings more than the lifetime allowance are taxed at 25% if the excess is taken as a pension, and at 55% if it is taken as a lump sum.

SDLT threshold to remain at £500,000 until 30 June 2021

The temporary increase in the SDLT threshold to £500,000 will remain in place until 30 June 2021. It will then fall to £250,000 until 30 September 2021, returning to the standard amount of £125,000 from 1 October 2021. If you are looking to move to a new house or to buy an investment property, there is still time to benefit from the higher threshold.

These comments refer to rates in England and Northern Ireland, the devolved administrations of Wales and Scotland may set alternative rates.

Inheritance tax nil rate band to remain at £325,000

The inheritance tax nil rate band will remain at its current level of £325,000 until April 2026. The residence nil rate band, available where your main residence is left to a direct descendant, also remains at its current level of £175,000 until April 2026. This should be considered when undertaking inheritance tax planning.

Impact on the self-employed

Two further grants available under the SEISS

If you are self-employed and you continue to be adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme (SEISS).

The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500. It can be claimed from late April.

The fifth and final grant covers the period from May to September 2021. The amount of the grant will depend on the impact that Covid-19 has had on your profits. If your turnover has fallen by 30% or more because of Covid-19, you will be able to claim a grant equal to 80% of your average profits for three months, capped at £7,500. However, if your turnover has dropped by less than 30%, you will be entitled to a reduced grant of 30% of three months’ average profits, capped at £2,880. The final grant can be claimed from late July.

Remember, you can only claim the grant if you have been adversely affected by the pandemic.

Grants received under the scheme are taxable and must be considered in working out your profits.

Help for the newly self-employed

Support under the SEISS was not available to traders who commenced self-employment in 2019/20 – to qualify a tax return had to be filed for 2018/19. However, as the deadline for filing the 2019/20 tax return has now passed, you may be eligible for the fourth and fifth grants if your 2019/20 tax return was filed by midnight on 2 March 2021. To qualify, your business must be adversely affected by the pandemic and your profits from self-employment must be at least 50% of your income and less than £50,000.

Carry-back period for losses extended

The period for which losses may be carried back is temporarily extended from one year to three years. For unincorporated businesses, the extended carry-back will apply to losses made in 2020/21 and 2021/22. Losses must be set against a later period before an earlier period.

If you have suffered losses due to Covid-19, carrying back losses for up to three years may generate a most welcome tax repayment.

Impact on small companies

Tax-efficient extraction of profits

For 2021/22, the primary threshold for Class 1 National Insurance purposes increases to £9,568, the secondary threshold to £8,840 and the personal allowance to £12,570.

If you extract profits by taking a mix of salary and dividends, the optimal salary level for 2021/22 (assuming you have not used your personal allowance elsewhere) will be equal to the primary threshold of £9,568 (equivalent to £797 a month) if you are not entitled to the employment allowance. This will be the case if you are a personal company with only one employee who is also a director. At this level, you will have a little bit of employer’s National Insurance to pay, but this will be outweighed by the associated corporation tax deduction.

If you can claim the employment allowance, for example, if your company is a family company with at least two employees, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Any further profits can be extracted as dividends but remember you can only pay dividends if you have sufficient retained profits to pay them from. Dividend tax rates remain at 7.5%, 32.5% and 38.1% for 2021/22.

Three-year carry back for losses

Companies, like unincorporated businesses, can benefit from a measure allowing losses to be carried back for three years, rather than for one year. For companies, this applies to losses incurred in accounting periods ending between 1 April 2020 and 31 March 2021 and to losses for accounting periods ending between 1 April 2021 and 30 March 2022. Losses carried back must be used against a later period before an earlier period.

This measure may provide you with earlier relief for losses suffered because of the Covid-19 pandemic and generate a useful tax repayment at a time where cash flow is tight.

Super-deduction for investment expenditure

Companies that invest in plant and machinery in the period from 1 April 2021 to 31 March 2023 will be able to benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%.

Investments in assets qualifying for special rate capital allowances benefit from a 50% first year allowance (although claiming the annual investment allowance instead where this is available will be more beneficial).

If you are looking to invest in plant and machinery, it can be advantageous to do so within this window to benefit from the super-deduction. However, it is not available where contracts were agreed before Budget day.

Future increases in corporation tax

To help meet some of the costs of the pandemic, companies with profits of £250,000 or more will pay corporation tax at a rate of 25% from 1 April 2023. A lower rate of 19% will apply to companies with profits of £50,000 or less. Companies with profits of between £50,000 and £250,000 will pay corporation tax at the 25% but will be able to claim marginal relief. The thresholds will be proportionately reduced to take account of associated companies and short accounting periods.

Extension of the Coronavirus job Retention Scheme

If you have furloughed or flexibly furloughed employees, you will be able to continue to claim grant support under the Coronavirus Job Retention Scheme until the end of September.

Until the end of June, you can claim 80% of your employee’s normal pay for their unworked hours, subject to the cap of £2,500. However, while your employees must continue to receive 80% of their normal pay for their furloughed hours, you can only claim 70% from the Government in July and 60% in August and September. You must pay the remaining 10% in July and the remaining 20% August and September. As now, you must meet the employer’s National Insurance and employer pension contributions on all payments to employees.

The scheme will come to an end on 30 September 2021.

 

If you need any more information regarding matters discussed in this report, please call 01242 370298 or email office@wfrancisandco.co.uk

On Wednesday 11 March 2020, the Chancellor of the Exchequer announced in his budget £7 billion of extraordinary measures to help support businesses and individuals who will be affected by the COVID-19 Coronavirus outbreak.

A brief summary of the Budget in respect of the Coronavirus is as follows:

  • The cost of statutory sick pay (SSP) for Coronavirus-related absence will be covered for businesses with fewer than 250 employees. SSP will be available to all those advised to self-isolate even if they haven’t yet presented with symptoms, people will soon be able to obtain a sick note by contacting 111 rather than having to go to the doctors.
  • For businesses with fewer than 250 employees, the cost of providing statutory sick pay to any employee of work due to Coronavirus will, for up to 14 days, be refunded by the government in full.
  • Those on contributory Employment and Support Allowance (ESA) will be able to claim from day one instead of day eight.
  • HM Revenue & Customs will “scale up” the Time To Pay service, which enables tax owed to be paid in instalments, allowing businesses and the self-employed to defer tax payments over an agreed period of time. A dedicated helpline with 2,000 staff has now launched.
  • Business rates will be abolished for shops, cinemas, restaurants and music venues with a rateable value of less than £51,000.
  • Extending this, 100% retail discount to others in the leisure and hospitality sector: museums, art galleries and theatres, caravan parks and gyms, small hotels and B&Bs, sports clubs, nightclubs, clubhouses and guest houses.
  • For small businesses currently eligible for the small business rate relief, there will be a £3,000 cash grant per business, representing a £2 billion cash injection to 700,000 small businesses.

Information correct as at 11 March 2020.

If you have any questions please get in touch by emailing office@wfrancisandco.co.uk or call 01242 370298.

A quick summary of the main points to come of the 2013 budget:

  • Date set for increase in the personal allowance to £10,000.
  • New scheme for tax free childcare.
  • Further reduction in the main rate of corporation tax to 20% from 1st April 2015.
  • Employee-shareholder contracts will be exempt from income tax and NIC for the first £2,000 of shares received.
  • The introduction of an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 NIC liability from April 2014.
  • A capital gains tax re-investment relief for gains made in the tax year 2013/14 where the gain is invested in Seed Enterprise Investment Scheme shares.
  • Significant non-tax measures have been announced to tackle long term problems in the housing market and are covered in the Other Matters section of this summary.

2013 Budget Summary

A quick summary of the main points to come out of the 2012 Budget:

  • The Income Tax basic personal allowance is to be increased to £9,205 in 2013/14, and the higher rate threshold reduced by £1,025 to £41,450. 2012/13 basic personal allowance is £8,105.
  • Age allowance to be frozen from 2013/14 and then phased out
  • Additional rate of income tax reduced to 45% from 2013/14
  • 7% Stamp Duty Land Tax to be brought in for residential properties valued at over £2million and new measures to counter ownership through companies
  • Child benefit will be phased out where income is over £50,000
  • The main rate of Corporation Tax is being cut to 24% from April 2012 and to 22% by April 2014
  • Voluntary cash basis to be based on turnover for tax on profits of small unincorporated businesses.

The basic points to come out of the 2011 Budget were as follows:

-The individual personal allowance for 2011/12 will be £7,475 representing an increase of £1,000 each as previously announced.
-For 2012/13 this will increase by a further £630 to £8,105.
-The 40% band will start at the lower level though of £42,475 this year and 50% will be charged on income over £150,000!
-The lower rate of corporation tax is being reduced to 20% (applicable on profits below £300,000)
-Full rate of corporation tax is reduced by 2% to 26% this year, and will fall by a further 1% p.a. over the next 3 years
-Lifetime limit for Entrepreneurs’ Relief for capital gains tax on the disposal of business assets is increased from £5 million to £10 million.
-R&D tax credit for small and medium sized enterprises will be increased to 200% from April 2011 and to 225% a year later.
-The main rates of National Insurance will increase by 1% from 6/4/11 as previously announced. The primary threshold for employers NI will be £139 per week, and the secondary threshold will become £136 a week. Employees will not pay NI on earnings below £139 per week.
-From April 2011 losses on furnished holiday lettings will only be offset against income from the same business and so cease to be treated as trading losses allowable against other earned income.
Approved mileage rates which employers can pay employees is increased to 45p per mile (from 40p) for the first 10,000 miles. The excess over 10,000 p.a. will still be at 25p per mile.
-Capital Gains annual exemption increases to £10,600.
-VAT registration threshold will increase from £70,000 to £73,000 from 1/4/11.