Autumn budget – what we already know

Published by Jo White on 11 October 2021

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With another budget fast approaching on 27 October, the customary crystal ball gazing has begun. As individuals, business owners, and accountants attempt to second guess the steps that the chancellor will take.

Whilst this is a time of uncertainty, one certainty we know from gazing into the crystal ball is that the chancellor will be making changes.

Given the record public borrowing to cope with the impact of the pandemic, as well as the government’s promises to increase public spending to ‘level up’ deprived regions; the chancellor has little option but to look for new ways to fund increased and increasing public spending.

But unlike some of the previous budgets, this one actually approaches with a greater degree of clarity for businesses over the future of certain taxes.

We have already received announcements in relation to the future of:

Corporation Tax

From 1 April 2023 the main rate of corporation tax rate will be increasing from 19% to 25%.

For companies with profits below £50,000 there will be a small profits rate of 19%. For companies with profits below £250,000 but above £50,000, they will pay corporation tax at the main rate, reduced by marginal rate relief.

Super-deduction

Currently, companies can benefit from enhanced capital allowances on plant and machinery.

This means that new general pool assets receive a deduction of 130% against profits, and new special rate assets receive a deduction of 50% against taxable profits.

From 1 April 2023, the super-deduction will expire. With tax reliefs on capital expenditure returning to the standard method of capital allowances.

Although the impact of this withdrawal should be counter balanced by the increase in corporation tax.

National Insurance Contributions:

From 6 April 2022 the main rates of national insurance will be increased by 1.25% for both employees and employers.

This means that the rates of NIC will be as follows:

NIC Class 2021/22 2022/23
Class 1 Primary 12% / 2% 13.25% / 3.25%
Class 1 Secondary 13.8% 15.05%
Class 1A 13.8% 15.05%
Class 1B 13.8% 15.05%
Class 4 9% / 2% 10.25% / 3.25%

The increase will also apply for those employees above state pension age, who usually do not pay NIC personally. This means that they will need to pay 1.25% going forward on their salaries.

From 2022/23 onward, HMRC are aiming to separate this surcharge out from NIC as new tax named the Health and Social Care Levy.

Dividend Rates of Income Tax

To prevent individuals avoiding the new levy by diverting salary into dividends, HMRC have also increased the rates of tax on dividend income for individuals with effect from 6 April 2022.

The marginal income tax rates on dividends of 7.5%, 32.5%, and 38.1% are increasing to 8.75%, 33.75%, and 39.35% respectively.

The £2,000 tax-free dividend allowance is unaffected by this change. But that is not to say that this allowance may not be curtailed in the budget.

Inheritance Tax

The nil rate band, the value of someone’s estate that is tax-free on death, is being frozen until 5 April 2026 at £325,000.

Whilst this adds certainty to the future of the nil rate band, it is noticeable that it will not increase in line with inflation.

Uncertainty Remains

Whilst we may already know the future of certain taxes or reliefs, we still are in the dark regarding many others, especially those that affect us personally.

HMRC have recently finished consultations in relation to the future of inheritance tax. The office of tax simplification has also released a report on the taxation of trusts. Although the recommendations from both reports are yet to be actioned.

Moreover, HMRC has also recently held consultations relating to operation and level of capital gains tax. Again, we are yet to see any findings implemented. So this may be another tax either ripe for reform or tax increases.

Others will also be keeping an eye on pension reliefs. In the last budget, the level of income at which an individual’s annual pension contribution allowance was tapered away was increased from £150,000 to £240,000. This was to remove the tax disincentive to doctors and consultants of taking on extra hours, which would cause their pension entitlement to breach their annual allowance. However, with the peak of the pandemic hopefully behind us, some may deem this allowance a little too generous.

Finally, whilst we know the future of the dividend rates of income tax, we do not necessarily know if the main rates of income tax and the tax thresholds will remain unchanged.

That is before we even mention VAT or Stamp Duty Land Tax.

So given everything that is yet to be confirmed, maybe it is worth not throwing that crystal ball away just yet after all.

Join our Budget question time – connecting the dots webinar on Friday 29 October 2021.

To discuss how the budget will affect you or your business, get in touch with our team today.

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