Freeths Budget Comment
Whilst Autumn Budget 2021 announced a number of spending giveaways, it was relatively light on new tax measures. In particular, the much-feared increases to rates of capital gains tax, inheritance tax and self-employed national insurance contributions did not materialise. Also absent were new restrictions on pensions tax relief or the introduction of a wealth tax.
Significantly, during the course of his speech, the Chancellor said that his goal was to reduce taxes and that by the end of this Parliament he wants taxes “to be going down not up”, which might be read to indicate that we have now reached the high-water mark of levels of taxation. Save for companies which will be subject to higher rates of corporation tax on their income, profits and gains from April 2023, individual business owners may take more comfort around future taxation policy on share sales.
An interesting question was whether, as a pre-COP26 Budget, the Chancellor would announce a series of measures designed to take us closer to reaching our carbon net zero targets. Whilst this was always in doubt given the inflationary pressures in the economy and high fuel prices, it was disappointing that we did not see any significant changes at all beyond a new “ultra long-haul band” to Air Passenger Duty, covering destinations with capitals located more than 5,500 miles from London.
For certain quarters, it is also important to mention that the rate of alcohol duty on sparkling wines (including Prosecco and Champagne) will be reduced (though the rates on high alcohol drinks, like Scotch, will go up).
The main business measures announced were—
Employers, employees and business owners
– Health and Social Care Levy. As already announced on 7 September 2021, the Government has legislated for a new 1.25% Health and Social Care Levy, to fund investment in the NHS and social care to take effect from April 2022, when national insurance contributions for working age employees, self-employed people and employers will increase by 1.25% (with corresponding increases to the rates of income tax on dividends). From April 2023, the Levy will be formally separated out and will also apply to income from employment or self-employment for individuals above State Pension age.
Property developers
– Residential Property Developers Tax (RPD). As announced on 10 February 2021, the Government will legislate to introduce a new tax on company profits derived from UK residential property development. The Government has announced that RPD will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the corporation tax returns of those companies liable to the new tax. RPD will take effect from 1 April 2022 for relevant profits arising on or after this date.
Investment
– Research & Development (R&D) tax relief reform. Following a consultation launched at Spring Budget 2021, the Government announced that R&D tax reliefs will be reformed to 1. expand qualifying expenditure to include data and cloud computing costs, 2. re-focus support towards innovation in the UK (as opposed to overseas), and 3. target certain abuse and to improve compliance. The changes will take effect from April 2023. Further details and next steps will be announced in due course.
– Business Rates. Despite calls for abolition or root and branch reform,there will simply be some tweaks to business rates. Firstly, there will be more frequent revaluations every three years, with the new revaluation cycle delivered from 2023. Secondly, the Government will introduce a new investment relief to encourage businesses to adopt green technologies like solar panels and a new ‘business rates improvement relief’ from 2023. Following on from the business rates pandemic support, the Government has also announced, for one year, a new 50% business rates discount for businesses in the retail, hospitality, and leisure sectors.
– Qualifying Asset Holding Companies. As previously announced, and as part of a wider review of the UK funds regime to enhance the UK’s competitiveness as a location for asset management and for investment funds, from 1 April 2022 the Government will introduce a regime for the taxation of qualifying asset holding companies (QAHCs) and certain payments that QAHCs may make. A QAHC must be at least 70% owned by diversely-owned funds, or certain institutional investors, and mainly carry out investment activity with no more than insubstantial ancillary trading.
– Re-domiciliation regime. The Government intends to make it possible for overseas companies to move their domicile to and relocate to the UK by enabling the re-domiciliation of overseas companies and has launched a consultation on its proposals.
– VAT treatment of fund management fees. The Government will consult on options to simplify the VAT treatment of fund management fees.
Green taxes
– Air Passenger Duty. From 1 April 2023 the Government will introduce a new domestic band for Air Passenger Duty (APD), covering flights within the UK, to support UK connectivity. In addition, the Government will introduce a new ultra long-haul band, covering destinations with capitals located more than 5,500 miles from London. For the tax year 2023 to 2024, the rates for domestic flights will be £6.50 for those travelling in economy class, £13 for those travelling in all other classes, and £78 for those travelling on aircraft with an authorised take-off weight of 20 tonnes or more with fewer than 19 seats. The rates for the short and long-haul bands will increase in line with RPI, meaning a real terms freeze. The economy rate for the ultra long-haul band will be set at £91, £4 greater than the long-haul band, £200 for those travelling in all other classes and £601 for those travelling on aircraft with an authorised take-off weight of 20 tonnes or more with fewer than 19 seats.
Costs of doing business and compliance
– Online Sales Tax. The Government will consult shortly on an Online Sales Tax. The consultation will explore the arguments for and against the introduction of an Online Sales Tax.
– Alcohol Duty reform. The Government has published a consultation on its detailed proposals for alcohol duty reform. This builds on the findings of the previous call for evidence, held in Autumn 2020, the response to which has been published alongside the consultation. The consultation will close on 30 January 2022.
– Making Tax Digital for Income Tax Self Assessment (ITSA). As announced on 23 September 2021, the Government will give sole traders and landlords with income over £10,000 an extra year to prepare for Making Tax Digital (MTD). MTD for ITSA will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025.
Written by Jaspal Pachu, Tax Partner, Freeths’ Tax and Incentives Team
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