The Autumn Budget was presented today, 27th October 2021, in starkly different circumstances to this time last year, with over 90% of the adult population now fully vaccinated from COVID 19. However, uncertainties still remain with respect to a potential resurgence of COVID 19, and with respect to the Brexit process.

Here are some insights from our budget commentary which will be released in full tomorrow.

Corporation Tax

To follow from the consultation launched at the 2021 Spring Budget, and as part of the change to reflect modern research methods, the government have announced that data and cloud costs will be included as part of qualifying R&D expenditure. These changes are expected to take effect from April 2023. Further details and next steps will be published by the government in relation to these changes in the coming months.

Comment from our tax experts:

As this is likely to increase the amount of qualifying R&D expenditure companies can claim, naturally, this addition is welcome. However, given the recently implemented R&D tax credit cap the further details to be announced will need to be considered carefully. It also remains the case, especially following the previously announced increase in the corporation tax rate (from April 2023), for companies to carefully decide whether carrying forward a loss is more beneficial than surrendering it for R&D tax credits.

Employment Tax

On 7 September 2021 the Prime Minister announced the government’s plan to tackle the growing problems with the funding of social care. The plan, confirmed in the Budget, is a two-pronged approach.

The first is a 1.25% levy on Class 1 (employer and employee) and Class 4 (self-employed) National Insurance Contributions (“NICs”). NIC Classes 2 and 3 will remain unchanged. The levy will be introduced from April 2022 with a general increase in NICs of 1.25% for working age individuals and employers. Then, from April 2023, once HMRC’s systems are updated, the 1.25% levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age, and NIC rates will return to their 2021-22 levels.

The second part of the plan is a general increase of 1.25% in dividend tax rates. This will apply UK wide for dividends paid after 6 April 2022. The updated rates will therefore be 8.75% for the basic rate, 33.75% for the higher rate and 39.35% for the additional rate. The Trust dividend rate will also increase to 39.35% to remain in line with the additional rate. The £2,000 dividend allowance will remain in place.

Comment from our tax experts:

The issue of social care has been growing over many years with some suggesting the country is facing a crisis. Then Prime Minister Theresa May put forward her plan to fix social care in 2017 but this was widely rejected, dubbed the ‘Dementia Tax’ and was ultimately dropped. The levy is the current government’s solution to the problem and is projected to raise £12bn per year which is to be ring fenced for health and social care.

The government’s position is that the levy has been introduced on NICs and dividends to spread the cost between employees, businesses and those who receive income from businesses in the form of dividends. However, opponents of the plan claim that a flat increase in NICs hits the poorest earners just as much as the highest earners and is therefore a regressive tax increase at a time when inflation is already digging into the budgets of individuals and businesses alike. They also point out that the last manifesto promised not to increase NICs.

Ultimately, this is a fairly large tax increase that will leave both individuals and businesses with less money and with an additional administrative burden. Businesses may want to look at additional ways to reduce their NIC liabilities such as offering employees salary sacrifice opportunities or low tax benefits such as electric vehicles. This may even be sufficient for all concerned to look again at employees’ employment status and consider whether trading via a personal service company, having regards to the anti-avoidance legislation, produces a more favourable outcome.

Other

The government intends to greatly simplify the alcohol duty regime by reducing the number of categories by more than half, aligning similar products and ABV rates in a much more common sense-based approach. Reduced duty rates will be applied to lower alcoholic volume products with a new common small producer relief for beverages below 8.5% ABV. The new rates are hoped to encourage responsible drinking and reduce the impact on health. On top of this pubs will receive the benefit of the new draft relief for draft beers and ciders, in an attempt to encourage responsible drinking.

Comment from our tax experts:

The Chancellor spent a significant part of the Budget referring to this reform, for what in the end only represents a 3p saving on a pint. Given there was press speculation that prices would rise about around 10 times as much as businesses passed on higher employment costs, it is perhaps questionable whether all the hype was merited.

This is welcome news for a sector that has suffered tremendously through the pandemic, but it doesn’t end there – while the above is under consultation the duty rates on beer, cider, wine and spirits will be frozen for another year.

It seems that the government not only wants to help people back into work but to have a pint afterwards!

Where to download the full budget commentary?

Our full Autumn Budget Summary is now available!

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