October 21 Budget – What does this mean for me? (And what was in the small print?)
There were lots of points to note in this autumns budget, but aside from the headlines, this budget was scarier than any Halloween ghost story or movie. Here we examine what this budget has in store for small business owners and for us individually.
Budget Business Tax Summary
· The Annual Investment Allowance will be held at £1 million pounds for another year (to April 23).
· Employers National Insurance will be increased by 1.25% from 13.8% to 15.05%. We’re told this is a temporary increase, but if history is anything to go by, expect to see this extended and become permanent. This is being billed as a health and social care levy but could just as accurately be described as a tax on jobs.
· Possibly the biggest impact on some businesses will be the changes to business rates. The business community has been crying out for root and branch reform to the broken business rates system, but they’ll have to keep on waiting. However, there have been some welcome changes. The rates have been frozen at 49.9p and 51.2p. An additional 50% business rates relief will be available for retail, hospitality and leisure properties for 2022-23 up to a cap of £110,000 per business. Business rates revaluations will take place every 3 years rather than 5 and renewable energy and storage equipment will attract 100% business rates exemptions.
· Residential Property developer tax (RPDT)– you may have heard this one before, but the chancellor confirmed that RPDT unveiled earlier this year, will come into effect from April 22. This will work in a similar way to the bank levy, although not at the same rate. An additional 4% of corporation tax will be charged on companies earning profits of more than £25m from UK residential property development.
· Tonnage tax – Reforms to tonnage tax sees companies registering in the UK and flying the Red Ensign being rewarded.
· VAT – This was a bit of a silent budget on VAT. Temporary reductions in VAT will finish in April 2022 as expected. The only other news on the VAT front was that thresholds will remain unchanged. So, the VAT registration threshold will remain at £85,000. This is as expected as previous announcements have said that rates would be frozen until 2024 at the earliest. The only other measure was a temporary margin scheme for cars going from GB to Northern Ireland.
Budget Personal Tax Summary
· Capital Gains Tax – Reporting within 30 days was never going to be practical, particularly when having to obtain HMRC authorization codes etc. Common sense has prevailed, and this has been extended to 60 days (effectively immediately), though the whole point of this is still questionable in our view.
· National insurance – as announced previously, NI rates are increasing by 1.25%, meaning individuals with owner managed businesses will be getting hit twice. See our earlier article on this. This increase also applies to the self-employed who pay class 4 NI.
· Dividends tax to be raised by 1.25%, again refer to our earlier article for more on this.
· Employment allowance of £4k which can be set against employers’ secondary class 1 contributions is retained for the 2022/23 tax year.
· HMRC will be given a raft of new powers. For a number of years now HMRC has been asking for ever more powers to tackle tax avoidance. This will be music to the ears of many in the public. However, Accountants and other experts will find this concerning, not least because of the incompetence that HMRC display on a daily basis and because of their appalling systems, meaning many innocent individuals could be targeted. The new measures are a clampdown on mass-market avoidance scheme promoters, including early freezing of assets and naming and shaming companies involved in such schemes. An Economic Crime Levy (ECL) will be charged from 2023 to those who are regulated for anti-money laundering. These include accountancy firms, lawyers and banks etc. The aim is to raise £100 million per year to be used to combat economic crime.
· Slim pickings for the self-employed unfortunately. Changes to the basis period for 2024 are billed as a simplification, but it also has the effect of speeding up tax receipts for the exchequer so the cynic in me says that is the real reason. This only affects self-employed businesses not following the tax year.
· Pensions – to the relief of many, there was not a lot to report here. The annual allowance (£40k) and lifetime allowance (£1,073,100) remain the same and authorised pension contributions continue to enjoy tax relief at marginal rates.
· Inheritance Tax – generous allowances remain for now. Despite IHT recovering little in tax, it remains the least popular tax of all. So, our advice, plan now whilst you can.
· Alcohol and tobacco – good news for beer drinkers as the tax on a pint is going down 3p, but not such good news for smokers with the price of 20 cigarettes rising to £13.60.
Our View
As always with budgets, it’s often what’s said in the small print or what’s not said at all that has the biggest impact, and this budget is no different. This budget had a lot of giveaways, but we haven’t listed them here as they have been well documented in the news, we’ve focused instead on the tax implications.
The backdrop to the budget needs to be considered in all of the measures announced. Inflation is running at a target busting 4% (government target is 2%) and the economy being in better shape than predicted.
This budget has been presented as benign. i.e., it’s the wrong time to harm the recovery etc. and so that’s why we’ve not seen drastic changes. However, this is slightly disingenuous. In the first instance, the latest economic data suggests the outlook is better than expected which gave the chancellor some wriggle room. However, our opinion is that one swallow doesn’t make a summer and given that we are only a month from the end of the furlough scheme, we still haven’t seen the full fallout yet. The other big factor is inflation. All of the allowances etc. that have been frozen have actually fallen by 4% in real terms. Higher fuel prices mean more revenue in the chancellor’s pocket too. So, what are the consequences of all of this?
· More and more businesses will be sucked into registering for VAT because the VAT registration threshold will remain the same at £85k for another year. This seems a deliberate ploy by the treasury, and we don’t expect to see any increase any time soon.
· Millions more people will be drawn into paying higher rates of income tax because the higher rate tax threshold will remain at £52,270 from 2022 to 2026.
· Arguably one of the successes of the coalition government was taking lower paid earners out of taxation altogether. Leaving the tax threshold at £12,700 until 2026 will draw many lower paid earners back into paying income tax.
Let’s be under no illusion. Keeping rates the same for 4 or 5 years is a tax grab. It’s not a benign budget at all, this was a tax and spend budget. There’s a lot of spending and no reform. Our experience and that of our clients is that over the last 18 months, anything ending .gov.uk has been managed appallingly, whether that be the DWP, HMRC or councils. To throw more money at these organisations, whilst thousands of their employees continue to work from home on full pay, will stick in the craw of many tax payers who have been on furlough and only received 80% of their pay, and are now back at work and can only dream of a pay rise.
One can’t help but wonder as well at the increase in tax on dividends and the NI increase. How many people will be happy to say their net pay cut to fund an NHS where they can’t get a face-to-face GP appointment?
Taxes are as high as they’ve been for 70 years. When over 50,000 HGV license applications haven’t been processed, during a pandemic where driving tests and written driving tests haven’t been allowed for months on end, it’s not unreasonable to ask what the staff at the DVLA have actually been doing for 18 months? Likewise, the morality of an HMRC that has been charging penalties by the boatload for anyone one day late with their payments or filings, when they themselves are many months behind. We have letters that they took eight months to open let alone action or reply to and they’d denied receiving them until we supplied tracking references.
The tax without reform approach means that here at TSA we can’t help but think the government has located the missing Labour money tree. We know how hard our clients work for their money and if we are being asked to pay the highest taxes we’ve seen for 70 years, it doesn’t seem unreasonable to expect an HMRC that is fit for purpose or a face-to-face GP appointment, hence our timely article on private health insurance.
It’s our view that there may be some bumpy times ahead. This budget is based on a strong economic outlook, and we think it’s way too soon to assume that the economic outlook is so rosy. Insolvency practitioners for example are saying up to 500,000 businesses are in financial distress. Add in inflation at 4% and the Bank of England becoming more hawkish with interest rates set to rise and we’d say we have a very uncertain outlook, so our advice is to plan accordingly. If you’d like to discuss options for you and your business, we’ll be happy to book you in for a consultation. Prices start at £100 plus VAT.