A lot of financial pundits including us were expecting last week’s budget to be a heavy hitter when it came to raising taxes.
However, in the end this was not the case.
The Office of Budget Responsibility’s recent announcements of a rebounding economy has given Rishi Sunak the confidence to delay tax rises. But there must be a tax increase at some point. The debt from the pandemic must be repaid. There is no getting away from it.
Rishi Sunak is anticipating a level of recovery by 2023-24 and he says we will see progress when it comes to our national debt. So, how is he going to do that?
We already know about the rise in Corporation Tax from April 2023. From this date the main rate of tax will rise from 19% to 25%.
So, what else was announced during the Budget last week?
- Basis periods to be abolished in 2024
We knew Making Tax Digital (MTD) was coming, but as you know this has been delayed until April 2024.
The government has decided (with pressure from HMRC) from the same day the reform of the “basis period” will come into effect.
HMRC wants everyone’s tax quarters under MTD to be the same i.e., standard quarters by the time we come to quarterly filing.
Currently the self-employed pay tax on their accounting profits depending on where the year-end falls withing the tax year. For example, if your year end is 31st December 2020, it falls in the 2020-2021 tax year and the figures will be used in the 2021 tax return.
The proposals are:
- From April 2024 that the “tax year basis” will come into place.
- Those business who do have an accounting date of 31st March/5th April will need to apportion the profits to fit in the tax year.
- This could mean using provisional figures in the tax returns .
- In preparation for the new rules, 2023/24 will be the transition period during which your year end will be moved to the end of the tax year and “overlap relief” claimed.
There may be potential problems because the amount of profit subject to tax in 2023/24 could be enormous depending on your business performance over the last few years.
In the budget the Government recognised this problem when cash-flow is tight for a lot of people. It has now proposed that the “extra profit” – could be paid off in the year or spread over 5 years or you can choose the period over which you want to spread the profits up to five years.
This is a very complex area and if you are self-employed we would highly recommend that you speak to your Accountant about this.
Some factors to consider when selecting what period to spread the potential extra profits:
- The threat of tax rates rises could mean you choose to pay the tax off earlier.
- If you are claiming child benefit, you will not want to jeopardise this and how about the pension allowance.
- Abolition of cross border group relief
Over the last couple of years, a lot of businesses have set up Companies in Europe in order to make business easier after Brexit.
From Budget Day (27 October 2021) losses from group companies in the EEA region can no longer be relieved against profits in the UK for another group company, and vice-versa.
- Annual Investment Allowance extension
This is extended again so you can have 100% allowance on any capital expenditure up to a total of £1m. We are not sure why because the super deduction gives allowance at 130% and will have a better uptake but none the less it is here.
- Introduction of Residential Property Developer Tax
A new 4% additional tax for those building new domestic properties. The minimum threshold is £25m but it is an additional tax on top of the corporation tax.
This money is going to be ring fenced and it is going to be used for repair items such as cladding etc after the Grenfell disaster. However, it is most likely to be reflected in higher house prices when prices are rising anyway.
- Introduction of Health & Social Care Levy (HSCL)
The initial introduction of this tax will start in April 2022 but as part of the National Insurance regime. You can find out the full details of this new tax here
The announcement of this new tax was made in September. All National Insurance rates will increase by 1.25% from April 2022.
From April 2023 it will be known as a new tax (Health & Social Care Levy). The justification of a new tax is because NIC is normally for those that are of earnings age and therefore excludes pensioners. The new HSCL will come from April 2023 which will catch those pensioners.
Employment Allowance will cover the HSCL so the current £4,000 allowance you have available will continue to be available to you over the next few years.
Dividends will also attract the same 1.25% from April 2022. So, there may be case for moving forward the dividend payment between now and March 2022. This will obviously depend on your financial and personal tax position so seek advice first.
- Increasing normal minimum pension age
Currently you can take 25% of your pension fund at the age of 55 years without any tax implications. This age has now been pushed back to 57 years. The affected date is 6th April 2028 for this change.
If this affects your upcoming plans you need to talk to your Financial Advisor.
- Capital Gains Tax on property deadline extension
Deadlines for residential property owners has been extended from 30 days to 60 days. This is a huge relief because as it allows some extra time to complete all the formalities.
You are now allowed 60 days to report the sale and pay the tax.
Full details of the reporting, including how to report can be found in our latest capital gains tax blog
- Discovery Assessments
Normally HMRC is allowed to discover any potential missing information relating to your tax affairs within a certain time frame. This is the power given to them by the Taxes Management Act to “discover” an anomaly into your tax affairs within 4 years.
Discovery powers have now been extended to include information such as the amount of Child Benefit you claim, Gift Aid & Pension Contributions you make.
HMRC can now apply this new rule with immediate effect and can go back 4 years.
Whilst not a very taxing Budget, there were new taxes introduced, principally the Health & Social Care Levy and a new way of working in the future such as the changes in the basis period.
Many expected the Chancellor to increase the rate of Capital Gains Tax, which he didn’t do, at least not now. Watch out for this again in March 2022.
We think the next Budget in 2022 will see a mix of tax rises because if he leaves it any later, it will be too close to an election.
We have a window of opportunity now to help you to review personal and business tax positions for the changes that have been announced already in this Budget and for the future rises we expect. Call your normal director at Myers Clark to help you further.
If you are not yet working with us yet, please contact Priya at firstname.lastname@example.org