Tax overview

There were measures to assist the lower paid and areas of the economy that have particularly suffered from the impact of COVID restrictions and national lockdowns, with cuts in business rates for the retail, hospitality and leisure sectors and enhanced cultural tax reliefs for theatres, orchestras, museums and galleries.  Measures to encourage investment in infrastructure and innovation activities in the UK were also announced.  The Chancellor took the opportunity to capitalise on the UK’s new found flexibility following its departure from the EU, announcing changes to the UK’s tonnage tax regime and Air Passenger Duty, although the proposed exemption for domestic flights and the cancellation of the planned rise in fuel duty seem a little at odds with the Government’s green agenda ahead of the COP26 summit.

As ever, there were further measures announced to clamp down on promoters of tax avoidance and those who support them. And it wouldn’t be a truly British Budget without mentioning alcohol, with the Chancellor announcing a major overhaul of the outdated alcohol duty regime, including tax cuts on certain drinks and a “draught relief” on beer and cider served from pumps to give a boost to the British pub.

This briefing highlights the Budget’s key tax related announcements that may affect Bristows’ clients.

Personal tax

There was a fair amount of speculation around an increase in the rate of capital gains tax, particularly given its notable absence from the Spring Budget earlier this year. However, the speculation once again amounted to nothing.

The Finance Bill 2021-22 will implement an increase in income tax applicable to dividend income by 1.25%, with effect from 6 April 2022. This increase will apply to each rate and the new rates will be as follows:

• 8.75% for the dividend ordinary rate;
• 33.75% for the dividend upper rate; and
• 39.35% for the dividend additional rate.

The basis period rules for the self-employed and partners will be simplified in the Finance Bill 2021-22. Currently, the rules are based on a business’s accounting date, which can create overlapping basis periods and double taxation complications. Under the new rules, a business’s profit or loss for a tax year will be disconnected from the accounting date, and simply be the profit or loss arising in that tax year itself. The new rules have also been delayed by a year, meaning that they will come into force from 6 April 2024.

Corporate and business tax

Given the increase in the corporation tax rate to 25% from 2023 that was announced in the Spring Budget earlier this year, it’s not surprising that we didn’t see any drastic new business tax measures in today’s Budget. However, the amendments to the surcharge on banking companies will be of particular interest to those in the financial sector, in particular the cut from 8% to 3%. The cut is intended to balance the corporation tax increase by keeping contributions from banks higher than other sectors without affecting the competitiveness of the UK’s banking sector.

Cross-border group relief has been abolished. This measure repeals legislation that permits UK companies in certain circumstances to claim group relief for losses incurred in the EEA. This removes post-Brexit inconsistencies and inequality between the treatment of groups with EEA-resident companies and those with non-UK companies resident elsewhere in the world.

In the 2018 Budget, the limit on the Annual Investment Allowance for qualifying expenditure on plant and machinery was temporarily increased from £200,000 to £1,000,000. This temporary increase, which was due to expire at the end of the year, will be extended until 31 March 2023.

From 1 April 2022, large businesses adopting an uncertain position in their returns for VAT, corporation tax, or income tax (including PAYE) will be required to notify HMRC of this position. A position will be uncertain where the tax treatment applied by a company is not in accordance with HMRC’s known position, or where a provision has been made in a company’s accounts for the uncertainty. If the tax advantage from the uncertain position is expected to be over £5m for a 12-month period, the taxpayer will be required to notify HMRC. The measure aims to improve HMRC’s ability to become aware of potentially incorrect tax approaches at an earlier stage. A third trigger relating to the possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects is being considered by the government, and may be included at a later date.

The Budget also included the announcement of some changes that we can expect to come into force in the future.

One such change is the reform of R&D tax reliefs. The scope of qualifying expenditure subject to relief will be expanded to include cloud computing and data costs, but the reliefs may also become subject to a territorial restriction to subsidise more effectively innovation happening in the UK. Any such restriction on R&D tax reliefs will have to be very carefully implemented to ensure that there are no unintended negative consequences for those who carry out R&D outside the UK for legitimate reasons, for instance life sciences companies carrying out clinical trials needed for licensing approvals. These changes will take effect from April 2023 and further details from the government are expected in due course.

Another proposed change is the introduction of a corporate re-domiciliation regime. This regime would make it possible for companies to re-domicile, making it much easier to relocate to the UK. The government has published a consultation on this proposal.

The government also announced that they will begin the consultation process and explore the arguments for and against the introduction of an Online Sales Tax.

There was a welcome announcement for sole traders and landlords with income over £10,000 – they will now be given an extra year to comply with the Making Tax Digital for Income Tax Self Assessments, with the program now being introduced from 6 April 2024.

Employment

As previously announced in September, the National Insurance Contribution (NIC) rates will increase by 1.25% for the 2022 to 2023 tax year. This increase to NICs will only last for one year, and from April 2023 onwards it will be replaced by a 1.25% health and social care levy that will apply in the same way. Existing NICs relief for employers will continue to apply to the health and social care levy. The revenue raised from the increased NICs and the levy will be used to support UK health and social care bodies, including the NHS.

Real estate tax

The Finance Bill 2021-22 will establish the previously announced Residential Property Developer Tax (RPDT), which is a new 4% tax on the profits that the largest residential property developers make in excess of the £25m annual allowance. This tax applies specifically to UK residential property development and will apply from 1 April 2022 for profits that arise in accounting periods ending on or after that date.

Changes are also being made to the deadlines for Capital Gains Tax (CGT) payments on property disposals. Following certain disposals of an interest in a UK residential property, a CGT return must be delivered and payment made on account of CGT. Under the current rules, this must be done within 30 days of completion of the disposal. An extension of that deadline from 30 days to 60 days was announced today. These changes will have effect on qualifying disposals that complete on or after 27 October 2021.

If you would like further information in relation to any of these measures, please contact a member of our tax team.