Reactions to the Chancellor’s 2021 Autumn Budget
28 October, 2021
On Wednesday 27 October, the Chancellor delivered his 2021 Autumn Budget along with a response to the latest economic forecasts and a Comprehensive Spending Review.
We've highlighted below some of the tax announcements of most relevance to Channel Island businesses:
Business taxes
Corporation tax
As previously announced, the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%, and there will be taper relief for businesses with profits between £50,000 and £250,000, so that their average rate is less than the main rate.
In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 and the rate of the Banking Surcharge will be set at 3% from April 2023 (the annual allowance for groups will also be raised to £100 million).
Capital allowances
The temporary Capital Allowances Annual Investment Allowance (AIA) of £1 million will be extended to 31 March 2023.
R&D tax relief schemes
Following the recent consultation, R&D tax reliefs will be amended to expand qualifying expenditure to include data and cloud costs, make sure that the R&D regimes are focused on encouraging investment in UK based R&D, and to target abuse and improve compliance. These changes will take effect from April 2023.
Business rates
A number of measures were announced providing relief in respect of business rates, including:
- Freezing the business rates multiplier from 1 April 2022 to 31 March 2023.
- Introducing a new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022/ 2023.
- Introducing 100% improvement relief for business rates.
- Increasing the frequency of business rate revaluations to every three years instead of every five years, starting in 2023.
- Extending transitional relief for small and medium-sized businesses, and the supporting small business scheme, for one year.
Residential Property Developer Tax (RPDT)
This new tax will apply from April 2022 on the profits from UK residential property development. RPDT will apply to companies and corporate groups which hold, or have held, interests in land/ property as trading stock, and which are subject to corporation tax on trading profits from residential property development activity. This will include non-UK tax resident companies, regardless of whether they are carrying on those activities through a UK permanent establishment or not.
The tax will be charged at 4% on profits of companies and corporate groups which exceed an annual allowance of £25m. The calculation of the profits subject to the tax will follow the corporation tax principles, but will exclude interest and other financing costs, and the availability of group relief and other losses will be restricted.
Qualifying Asset Holding Companies (QAHC) Tax Regime and Real Estate Investment Trusts (REITs)
With effect from 1 April 2022, a new framework for the taxation of holding companies that are used by funds and certain other qualifying investors will apply. These new rules, which cover the taxation of AHCs as well as payments made by AHCs, are intended to make the UK a more attractive location for such investors.
Targeted changes are also being made to the tax rules for UK REITs, including the removal of the listing requirement where at least 70% of the investors are “institutional investors”.
UK Funds Regime Review
The government continues its ongoing review of the UK’s funds regime. It will publish its response to the call for input on the broader elements of the UK funds regime review, as well as a consultation on options to simplify the VAT treatment of fund management fees.
Corporate Redomiciliation
The government intends to make it possible for companies to re-domicile and therefore easier to relocate their site of incorporation to the UK, and is consulting on how best to do this, together with views on whether to also permit re-domiciliations of UK companies to other territories.
Online Sales Tax
The government will continue its review into an OST. It will launch a consultation shortly.
Capital Gains Tax (CGT) payment on UK property disposals - time limit extension
The deadline for UK residents subject to capital gains tax (CGT) - e.g. individuals and trusts - to report and pay CGT payment after selling UK residential property will increase from 30 days after completion to 60 days. For non-UK residents within the charge to CGT on direct and certain indirect disposals of UK land - e.g. individuals and trusts (not deemed to be companies) - the deadline will also increase from 30 days to 60 days.
Personal taxes
The Health and Social Care Levy
As announced previously, legislation is being introduced for a new 1.25% Health and Social Care Levy. It will apply UK-wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self-Employed) National Insurance contributions (NICs), and to the main and additional rates. The Levy will be effectively introduced from April 2022.
From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age.
Dividend rates
As announced, legislation will be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%.
Tax Administration and Compliance
Basis period reform
Legislation in Finance Bill 2021-22 will reform income tax basis periods so businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, rather than the profit or loss of the accounting period ending in that tax year, regardless of its accounting date. The transition to the new rules will take place in 2023-24 and the new rules will come into force from 6 April 2024.
Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)
As previously announced, the rules will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025. In line with this one year delay, the new regime of penalties for the late filing and late payment of tax for ITSA will now come into effect on 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD, and 6 April 2025 for all other ITSA taxpayers.
Penalties
New penalties on promoters of tax avoidance, including on offshore promoters. This will allow HMRC to freeze a promoter’s assets and provide for the closing down of companies and partnerships that promote tax avoidance schemes.
Notification of uncertain tax treatment by large businesses
As announced on 20 July 2021, the government will legislate to introduce a new requirement for large businesses to notify HMRC when they take a tax position in their returns for VAT, corporation tax, or income tax (including PAYE) that is uncertain.
If you have any questions or would like to discuss any of the areas we covered in more detail, please do get in touch with your usual PwC tax contact or with one of the below directly.
Contact us
