In the second budget of 2021, a little under 8 months on from the March budget, the Chancellor updated us on the economy, inflation, spending and taxation.
From a taxation perspective, the new announcements were minimal with the main changes already announced in March, and the 1.25% increase in National Insurance announced in September. There are some “hidden” tax increases with the freezing of personal allowances and thresholds – normally these would increase with inflation or adjust with “political policy” e.g. improve before an election!
Inflation is currently 3.1% and expected to rise to 4% in 2022 – driven by the current excess of demand over supply in many areas (e.g. Transport) and also the high fuel and energy prices. I expect this to be an interesting figure to keep an eye on as we all face inflation challenges in wages (skill shortages in many areas) and shortages in supplies.
There was much talk of funding for the state in terms of departments and workers (both to receive increases – levels not defined), and a raft of new initiatives and pots of money for multiple initiatives. I find it next to impossible to distinguish between existing spend and real extra spend, so don’t pay much attention to the vast array of “good news” stories.
What about funding the COVID-19 spend? It seems to me that the government have simply “revised” their maximum borrowing levels to include the Covid-19 debt, thus there is no repayment (of any substance). It’s all about balancing the books in the future and most of that is based on economic growth rather than increasing the rates of tax – this is what the brains say has the greatest effect (I tend to agree despite not considering myself an economic expert). This was the “big news story” for me from today’s budget.
- £9.50 National Living Wage (age 23 & over) from April 2022 – we’ll await the small print to see how the younger are affected.
- Duties – fuel and alcohol. No changes from April 2022
- A “simplification” of alcohol duties from 2023 from 15 to 6 duty rates depending on the alcohol strength.
- With a 5% reduction on Draft beer (3p per pint) from 2023
- Business rates
- 50% 1 year discount for Retail & Leisure (up to £110k).
- No increases in business rates for 12 months for building improvements.
- Corporation Tax – the cap on Annual Investment Allowance of £1m to be extended to March 2023 (was set to reduce from December 2021).
Announced September 2021
- National Insurance – Increases by 1.25% from April 2022
- Paid by both employers and employees
- Paid by self-employed
- In effect also paid on dividends – dividend tax rates increase by 1.25% to 8.75% for basic rate taxpayers and 33.75% for higher rate taxpayers.
Announced Budget March 2021 (Highlights)
- Corporation Tax to increase to 25% from April 2023 for large companies
- If annual profits under £50k – no change (19%)
- For profits of £50-250k, there will be a taper for the increase from 19% to 25%.
- Income Tax Thresholds – no change
- Personal allowance remains at £12,570 and higher rate threshold at £50,270
- No change in Income tax rates (just the increases in dividend tax rates announced in September)
- VAT – no increase in VAT rates, and registration threshold to remain at £85k.
- CGT, IHT & Pension Limits – No changes to thresholds.
- Investment “Super Deduction” – can claim 130% offset to tax for investments in Capital Equipment. This for a £1,000 investment you can claim £1,300 as a tax cost. Lasts until 31st March 2023.
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