Summary of 2021 Budget

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Our good friends at LB Group recently analyzed the latest budget and shared with us the key points below.

 

Rishi Sunak, the Chancellor of the Exchequer, recently revealed the country’s 2021 budget to strengthen the economy of the British people in a post-COVID-19 pandemic era. The new budget plan included but is not limited to an increase of corporation tax rates effective 1 April 2023 and an additional increase of National Insurance and Dividend Tax of 1.25%, which starts on 6 April 2022. For precautionary reasons over inflation and a possible increase in borrowing costs, there are no big changes in creating a significant tax reform package, including no increase in the capital gains tax and no substantial change to pension tax relief. However, it is still a fluid economic situation, and it is a challenge to predict the future of taxation post any pandemic. The only thing that remains unchanged in the economy is the constantly changing economy. For sure, the budget will be adjusted and changed in the future – it is inevitable. But for now, we can assure you that few changes are happening at this very moment or will be happening shortly.

 

Below are some of the recent tax changes at a glance:

 

  1. Tax Rates and Allowances

As mentioned above, the corporation and National Insurance dividend taxes will be increased in 2022/2023. However, the personal allowance, capital gains allowances, and the inheritance tax nil rate bands will stay frozen until April 2026. It is a nice solution now but worrisome for others due to the “fiscal drag” effect that may cause a decrease in consumers’ spending power and an increase in paying tax afterwards.

 

  1. Corporation Tax

The corporation tax will increase 25% effective April 2023 for companies with profits of more than £250,000. Companies with a profit between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief. Companies with profits of £50,000 or less will pay the small profits rate and continue to pay the corporation tax at 19%.

 

  1. Dividend Income Tax

Although there is no change on the £2,000 dividend allowance, taxpayers with investment portfolios and owner-managed businesses will have to pay an increase of dividend income tax and dividend trust tax of 1.25% as of 6 April 2022. At that time, the basic rate taxpayer of dividend income will be 8.75%, 33.75% for a higher rate, and 39.35% for an additional rate and dividend trust taxpayers.

 

  1. Basis Period Reform

Business owners must align their accounting year-end to the tax year – 31 March and 5 April, effective 2024/2025 tax year. However, the transition period will apply in the 2023/2024 tax year. It seems that businesses can take advantage of the overlap relief. Although on the other hand, business is more likely forced to provide immediate tax payment in a short period of time with overwhelming tax calculations.

 

  1. Capital Gains Tax (CGT) Reporting and Payment

The CGT from residential property disposal by a UK and non-UK resident is extended from its current 30 days requirement to 60 days effective 28 October 2021. Still, any disposals occurring on or before 27 October 2021 is due within 30 days. Be aware, however, in a case where there is disposal of a “mixed-use” property by UK residents, the 60 days extension only applies to the residential part of the property.  Also, be aware that the CGT related to land and property in general, for residential and commercial property’s gain or loss, is more complicated for non-UK residents as many of the provisions fall under real-time CGT reporting.

 

  1. Residential Property Developer Tax

The rate of residential property developer tax will increase to 4% in addition to the current 19% corporate tax rate. This 19% will increase to 25% by April 2023, as mentioned above.  The new rate of residential property developer tax will not apply to a developer who makes property developer profit below £25 million.

 

  1. Research and Development (R&D)

Effective April 2023, the R&D relief is expanded, including data and cloud costs for businesses operating in the UK. Overseas operation is excluded, and specific details will be released shortly.

 

  1. Annual Investment Allowance (AIA)

The AIA of the temporary £1m limit is extended to 31 March 2023. Businesses can claim 100% tax relief on qualifying investments. Businesses can also benefit under the super-deduction where companies can invest in plant and machinery assets and deduct the cost up to 130% against their taxable profit.

 

  1. Recovery Loan Scheme (RLS)

The RLS is extended to 30 June 2022. Medium to small businesses will be able to receive finances up to £2m per application. The government will guarantee 70% of all funds – a reduction of 10% from the previously guaranteed 80%.

 

  1. Online Sales Tax

The government continues to consult on an Online Sales Tax for online retailers. If approved, its revenue will be used to reduce business rates for in-store retailers in England.

 

  1. Cross-border Group Relief

All non-UK residents, including European Economic Area (EEA) resident companies, will not allow claiming a group relief related to their business losses in EEA and other international countries for the beginning accounting on or after 27 October 2021.

 

  1. Hospitality and Leisure – Companies Relocation

It is now easier for business owners to relocate to the UK to boost the economy since there is a business rate cut for the hospitality and leisure industry. This type of industry has been hit the hardest during the pandemic, and its recovery is vital in strengthening back the British economy. It does make sense to provide a considerable discount on business rates for the next 18 months to 90% of anticipated eligible business owners, which included at a minimum, 50% off on their business rates bills in 2022/2023 up to a maximum of £110,000. However, it doesn’t stop there. The business rates multiplier will be 3% lower for the 2022/2023 tax year as the government will be freezing such rates.

Additionally, there is a new business rate for business owners who spent their cost on qualifying property improvements, such as upgrading their business property where their business operated. Effective 2023, their rates will be locked for increasing higher business rates for 12 months after spending on qualified property improvements. Although it is not a major relief per se, it is quite a nice break for the hospitality and leisure industry overall.

 

Conclusion

As we are now well into the recovery phase of the pandemic, everyone, government included, wishes to get the UK economy back up and running. While there doesn’t appear to be massive changes in the 2021 budget, simple steps may hold for now as we emerge from what may possibly be described as one of the most unprecedented and unpredictable eras of our time!

 

 

 

 

 

 

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