James Nadal
6 minutes length
Posted: 27th October 2021

Rishi Sunak's Autumn Budget 2021: what do accountants need to know?

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Chancellor Rishi Sunak has delivered his Autumn 2021 Budget this afternoon.

Among the key areas he announced changes on were:

  • Business rates
  • Research and Development tax reliefs
  • Creative tax reliefs
  • Corporation Tax
  • National Live Wage

Later today, starting at 4pm, our panel of leading accountants will deliver their verdicts on the Budget. Book your place on our live webinar to hear reaction and analysis.

What did Chancellor Rishi Sunak announce?

Let’s take a look at the key points.

Income Tax Basis Periods

As is often the case, some of the more interesting details emerged from the official Treasury papers after the speech. This included reforms to basis periods. The Red Book stated that this will be included in the Finance Bill 2021-22.

Income tax basis periods will be changed so that “businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of its accounting date”.

Explaining the rationale behind this, the Treasury stated: “This removes the complex basis period rules, the need to charge tax on profits twice and the need for overlap relief.”

The new rules will come into force from 6 April 2024, officials said.

Business rates

Mr Sunak announced what he called the “biggest cut to business rates in 30 years”. Overall, he said this was reducing the burden of business rates in England by £7 billion over the next five years.

This included:

  • Freezing the business rates multiplier for a further year – described as a tax cut “worth £4.6 billion over five years”.
  • New investment incentives in England totalling almost £750 million, including tax relief for eligible green investments and a new ‘business rates improvement relief’.
  • A new 50% business rates discount for businesses in the retail, hospitality, and leisure sectors in England.

Research and Development and tax reliefs

R & D tax reliefs are not working as well as they should, Mr Sunak said. Having reviewed the reliefs, the Government is looking at solving the problems by expanding the scope of reliefs to include cloud computing and data costs.

He said at the moment we are subsidising billions of pounds of R&D tax relief that is not happening in the UK. So, from April 2023 the relief will have to subsidise investment at home, he said.

Mr Sunak also announced a rise in public investment in UK R&D to £20 billion by 2024-25, also pledging to support private R&D investment by increasing funding for core Innovate UK programmes, reaching circa £1 billion per year by 2024-25.

Corporation Tax

At the last Budget, it was revealed CT would rise to 25% from April 2023 for businesses with profits of £250k or greater. The Chancellor also revealed a ‘super deduction’ tax relief to help spur investment. Mr Sunak confirmed these points in today’s Budget.

He also revealed that he is extending the temporary £1 million level of the Annual Investment Allowance to 31 March 2023 to provide businesses with “more upfront support, encouraging them to bring forward investment, and making tax simpler for any business investing between £200,000 and £1 million”.

Capital Gains Tax

Many times over recent years Capital Gains Tax has been highlighted as a possible target for change. Mr Sunak didn’t mention CGT today, despite rumours that the current Capital Gains Tax rates may be tinkered with.

However, the Treasury papers do contain updates for CGT regarding the property payment window.

The papers state: “From 27 October 2021 the deadline for residents to report and pay CGT after selling UK residential property will increase from 30 days after the completion date to 60 days. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days.

“This will ensure that taxpayers have sufficient time to report and pay CGT, as recommended by the Office of Tax Simplification. When mixed-use property is disposed of by UK residents, legislation will also clarify that the 60 day payment window will only apply to the residential element of the property gain.”

Residential Property Developer Tax (RPDT)

The Chancellor didn’t mention this in his speech, having announced in February this year that a new tax will come in from April 2022 on the profits that companies and corporate groups derive from UK residential property development.

However, the Treasury papers did contain some detail, saying “the tax will be charged at 4% on profits exceeding an annual allowance of £25 million”.

The purpose is “to ensure that the largest developers make a fair contribution to help pay for building safety remediation”, the Treasury said.

Dividend rates

The speech didn’t mention dividend rates, but the Treasury papers did have some information, stating that, as per a September announcement, legislation will be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%.

The papers state: “The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate. The changes will apply UK-wide and will take effect from 6 April 2022. This change will ensure those with dividend income make a contribution in line with that made by employees and the self-employed on their earnings.”

National Living Wage

From April 2022 the National Living Wage (NLW) is increasing from £8.91 to £9.50 an hour.

The change forecasts a real-terms pay increase that will help support the living standards of millions of low paid workers, in line with what the Government said was its long-term ambition for the NLW to reach two-thirds of median earnings.

Creative tax reliefs

In help targeted at culture and the arts, Mr Sunak said he would extend tax reliefs for museums and galleries beyond the original date of March 2022 end through to March 2024.

Theatres, orchestras, galleries, and museums will see their tax relief from today to April 2023 doubled until returning to normal April 2024.

Tonnage tax

Shipping tonnage tax will be reformed to reward companies for adopting the UK shipping flag.

Vehicle excise duty

Vehicle excise duty is to be frozen for heavy duty vehicles

National Insurance

We already knew about the biggest tax change – the social care levy – to be paid for by raising National Insurance contributions. But it was left out of Mr Sunak’s speech.

“This measure provides for a temporary 1.25 percentage point increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions for the 2022 to 2023 tax year and revenue raised will go directly to support the NHS and equivalent bodies across the UK,” the Government has stated.

What did Rishi Sunak say about the economy?

Mr Sunak put an emphasis in his speech today on upholding sound and strong public finances.

He also said: “Today’s Budget delivers a stronger economy for the British people: stronger growth, with the UK economy recovering faster than our major competitors. Stronger public finances, with our national debt finally under control. Stronger employment, with fewer people out of work and more people in work.”

Growth

Growth forecasts from the Office for Budget Responsibility have risen as follows:

  • Economy is forecast to return to pre-COVID levels by the turn of 2021 – sooner than was predicted in Spring
  • Growth is now forecast up to 6.5% for this year and expected to be 6% in 2022
  • The assumption on scarring to the economy from the pandemic has been revised down from 3% to 2%

Key areas not mentioned

Among the important areas typically mentioned in the Budget, there was little or no mention of the following:

  • VAT
  • Income Tax
  • Income Tax thresholds
  • Inheritance Tax
  • Pensions lifetime allowance

How can IRIS help?

As the ally of accountants for 42 years, IRIS has always been ahead of the game on legislative change, helping to ensure accountants remain compliant.

Want more on how our accounting software can help? Visit this page.