UK Autumn Budget 2021: Highlights
UK Chancellor Rishi Sunak presented the Autumn Budget 2021 before Parliament on October 27, 2021. Welcoming an improved economic outlook, the Chancellor announced several measures and support funds to help the economy continue to recover from the effects of COVID-19. It is proposed to keep the key rates unchanged – no changes in the corporation tax rate for 2022 (19%); Income tax and personal allowances, pension allowances, the VAT rates, and thresholds to remain the same as well. However, the corporate tax rate will rise to 25% in the year 2023.
The highlights of the 2021 budget are as follows:
Changes for companies, employers and employees:
Ø Increase in the National Insurance Contribution (NIC) rates
The national insurance rate is increased by 1.25% for 2022-2023 for Class 1 (contribution paid by employee and employer) and Class 1A and 1B (paid by employer). This increase in NICs will only be in effect for a year, after which it is to be replaced by a health and social care levy at 1.25% that will be applied in the same way.
Ø Increase in National Living Wages
The minimum wages will rise from April 2022 for workers of all age groups. The National Living Wages for all the workers above the age of 23 years is set at GBP 9.50 per hour (previously GBP 8.91).
Ø Proposed Increase in Corporation Tax
As announced during the Spring Budget presented in March this year, the Corporation Tax will increase from 19% to 25% from April 2023. However, the budget also announces a proposed cut in surcharge on banking companies from 8% to 3% from April 2023.
Ø New Residential Property Development Tax
It is proposed to introduce a new tax effective April 2022 on the profits of companies and corporate groups that derive profits from the development of residential properties in the UK. The tax will be charged at 4% on profits made by a residential property developer in excess of annual allowance of GBP 25 million.
Ø Abolishment of Cross Border Relief: This abolishment means that UK-based companies will not be able to claim relief for losses incurred by associated group entities in the European Economic Area (EEA). This change is pursuant to Brexit to neutralize the differences between the treatment of Groups with EEA resident entities and those having of company’s resident in other countries.
Ø Notification to HMRC about Company’s position
From April 1, 2022, large businesses are required to notify HMRC about any tax position taken in their returns for VAT, corporation tax, or income tax (including PAYE) that is uncertain. An uncertainty is defined with reference to two criteria – a tax treatment which is contrary to HMRC’s interpretation or where the company has made provision in its accounts for the uncertainty. The Government is also considering introduction of a third criterion – in which a considerable possibility of a tribunal or court finding the taxpayer’s position to be incorrect in material respect, exists.
The measure will affect large businesses with either:
- Turnover of more than GBP 200 million annually.
- A balance sheet total of over GBP 2 billion.
Reporting is required only if is the tax advantage is above the threshold of GBP 5 million for a 12-month period.
Ø Business rates and Restart
Business rates are charged on offices in the UK. The Government sets two multipliers: a) the small business (non-domestic rate) multiplier meant for small businesses and b) the non-domestic rate multiplier meant for other businesses. The multiplier rates are important for payment of bills sent by the local council to businesses in February or March each year.
The business rates multiplier is again frozen from April 1, 2022 to March 31, 2023. A 100% improvement relief for business rates, will take effect in 2023 and will be reviewed in 2028. Business rates revaluations are proposed to happen every 3 years, instead of 5.
Changes for individuals:
Ø Tax on Dividend Income: The income tax rate is set to increase by 1.25% on dividend income effective from April 6, 2022. The new income tax rates post such increase are given below:
| Income Tax Band | Tax Rate for the year 2021-22 | Tax Rate for the year 2022-23 |
| Basic Rate | 7.5% | 8.75% |
| Higher Rate | 32.5% | 33.75% |
| Additional Rate | 38.1% | 39.35% |
Proposed Changes:
The below changes or measures are proposed and open for either consultation or comments.
Ø Re-Domiciliation of Corporations: The introduction of this regime will allow entities to easily relocate to the UK.
Ø Introduction of Online Sales Tax: The Government will initiate consultation with stakeholders to explore merits and demerits of online sales tax.
Ø R & D tax relief: The scope of expenditure subject to relief may be expanded to cover cloud computing and data cost, but the relief may be made subject to territorial restriction.
Implications
Companies should take note of the increase in National Insurance Contribution rates and adjust their payroll process accordingly. Companies also need to take note of the proposed increase in corporate tax rate from April 1, 2023, though the current corporate tax rate remains unchanged. Abolition of relief for losses in EEA can increase the tax bill for affected companies.