Autumn Budget 2021

On 27 October 2021, Chancellor Rishi Sunak announced the Autumn Budget. With the economic recovery underway and emergency support winding down, the Budget and Spending Review he set out the government’s plans to focus on the "post-Covid" era and would pave the way for an "economy of higher wages, higher skills, and rising productivity".

It does so by investing in strong public services, driving economic growth, leading the transition to net-zero, and supporting people and businesses.

We have pulled out a few key headlines that you need to be aware of that may impact your personal tax or business tax. Next month we will give an update on how the budget has affected property investors and landlords.

Personal allowance 

The personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So, there is no personal allowance where adjusted net income exceeds £125,140.

Tax bands and rates 

The basic rate of tax remains at 20%. In 2021/22 the band of income taxable at this rate is £37,700. For those that are entitled to the full personal allowance and earn £50,270 the rate of tax is 40%. Individuals pay tax at 45% on their income over £150,000.

Tax on dividends 

In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be:

• 8.75% for basic rate taxpayers

• 33.75% for higher rate taxpayers and

• 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

National Insurance Contributions 

The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23.

From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy. 

Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees if their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The Employment Allowance, which reduces employers’ Class 1 NICs by up to £4,000, will also be available for the employers’ liability to the Levy.

National Living Wage (NLW) and National Minimum Wage (NMW) 

The government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also announced other NMW rates to be increased. From 1 April 2022, the hourly rates of NLW and NMW will be:

• £9.50 for those 23 years old and over

• £9.18 for 21 to 22-year-olds

• £6.83 for 18 to 20-year-olds

• £4.81 for 16 to 17-year-olds

• £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

Making Tax Digital for income tax 

Sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.

Corporation tax rates 

The main rate will remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000.

The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Business rates review 

Following a business rates review the government has announced their commitment to the following:

• Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022/23. This includes additional businesses such as hotels, gyms and bowling alleys.

• Cutting the burden of business rates for all businesses by freezing the multiplier for 2022 to 2023.

• Introducing a new relief to support investment in property improvements.

• Introducing new measures to support green investment and the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.

If you would like any further information about how the budget will affect you or your business, then contact us by calling 0115 956 9452 or email info@marshallsmalley.com