We have analysed the Autumn Budget 2021 for the key changes relevant to small and medium businesses (SMEs). Please find below the key points which we feel may be of interest to our clients.
1) Payroll taxes / NIC
From April 2022 there will be a new employment tax of 1.25% for the Health and Social Care Levy to fund investment in the NHS and social care. This will increase both employee and employer NICs (class 1) and also the self employed will have to pay higher Class 4 NIC. From April 2023 it will also apply to the earnings of individuals working above the State Pension age.
2) Income tax / dividends:
The personal allowance threshold will not change and will stay at £12,570 per year and the higher rate tax will also still start at £50,270.
From 6 April 2022 the dividend tax rates will all increase by 1.25%.
To avoid higher rate of income tax in 2022-23, we would recommend a salary of £9,100 and dividends of £41,170. There will be £2,945 tax on total income of £50,270.
3) R&D tax credits
The previously delayed cap on the cash refund for R&D tax credits has now come into effect from 1 April 2021. The new cap is that a company can claim upto £20,000 plus 3 times its PAYE/NIC bill for the period. However, a company is exempt if its employees are creating/managing IP and it doesn’t spend more than 15% of qualifying R&D expenditure on subcontracting or externally provided workers to connected persons. Accounting periods commencing before 1 April 2021 will need to be split/apportioned into 2 periods before and after this date so that the new rules can be applied.
Data and cloud costs can also be claimed from April 2023.
4) Corporation tax
Reminder from the March 2021 budget:
An increase in the UK corporation tax rate from 19% to 25% was substantively enacted in May 2021 and will take effect from 1 April 2023. A new small profits rate of 19% will also apply to profits below the lower limit of £50,000 and profits exceeding the upper limit of £250,000 will be charged at 25%. Where a company’s profits fall between the lower and upper limits, it will be able to claim an amount of marginal relief, providing a gradual increase in the corporation tax rate.
5) Capital allowances / company cars
The government will legislate in Finance Bill 2021-22 to extend the temporary £1,000,000 level of the Annual Investment Allowance until 31 March 2023. So there is a tax deduction on 100% of qualifying expenditure on plant and machinery.
Company car tax: no significant changes, although the technical system for approving CO2 levels is being updated due to Brexit. Reminder that electric vehicles benefit in kind is scheduled to rise to 2% from April 2022. The cost of purchasing a brand new electric vehicle (not second hand) will have 100% tax deduction.
6) Other issues
Business rates: A new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a £110,000 per business cap. This won’t usually apply to office leases.
Capital gains tax property payment window: From 27/10/21 UK and non-UK residents selling UK residential property will have to report and pay CGT within 60 days of completion. For mixed use properties the deadline will also be 60 days for the residential element of the property gain.
Online sales tax: there may be a tax in future for E-Commerce sites, the government is consulting on it.
Pensions: There will be an increase to the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, the normal minimum pension age, from 55 to 57. This increase will have effect from 6 April 2028.
Making tax digital for Self Assessment:
Sole traders and landlords with income over £10,000 per year (doesn’t include rental properties held through a LTD company) will have to file through MTD from 6 April 2025. Every 3 months a tax return will need to be sent to HMRC showing the summary of business income and expenses. At the end of the year another final tax return will need to be submitted. The timing of the usual July/January payments is not currently expected to change.
Clampdown on promoters of tax avoidance
We generally advise our clients not to use aggressive tax avoidance schemes as these have regularly been found to fail, even when designed by tax barristers and large accounting firms. Companies or individuals can then find themselves with large tax bills to pay, even many years after they used the scheme.
There will be new penalties for anyone promoting or supporting tax avoidance schemes.
Recovery Loan Scheme – The Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses. Finance will be available up to a maximum of £2 million per business, supporting their recovery and growth following the pandemic. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover
Not a tax issue but many of our clients employ staff from overseas:
High-Skilled Migration – The government is implementing changes to the UK’s immigration system to attract highly-skilled people to the UK. This includes a new Scale-up Visa, launching in spring 2022, that will help the UK’s fastest-growing businesses to access overseas talent. The visa will be open to applicants who pass the language proficiency requirement and have a high-skilled job offer from an eligible business with a salary of at least £33,000.
Global Talent Network – Alongside immigration system reforms, the government will launch a Global Talent Network to bring highly skilled people to the UK in key science and technology sectors. This network will work with businesses and research institutions to identify UK skills needs and source talent in overseas campuses, innovation hubs and research institutions to bring to the UK. A concierge service will also be available to support people moving to the UK. The Global Talent Network will launch in 2022 in the Bay Area and Boston in the US, and Bengaluru in India. The government will also maintain the expanded Department for International Trade (DIT) Global Entrepreneur Programme.
The full text of the Autumn Budget 2021 can be found here. The Government have also published guidance about the changes to tax legislation which can be found here.