Shenward’s experts tuned in to listen to the budget announcement on October 27th – though a lot of what was announced had previously been shared with the media ahead of the Chancellor’s budget.
Thing is, with so much information offloaded via various channels, it’s easy to get caught up in a slurry of information overload. Between the different news outlets and channels, the actual information you’re looking for can become difficult to find.
In true Shenward style, our team has developed a round-up of the budget announcement, giving you insight into what changes have been made and what we can expect going forward.
Though the income tax rates have been announced to be unchanged, there are still some changes that will take place that are worth noting. Some of these were announced before the Budget, but in the interest of context and a full picture, we feel it’s best to inform you of all upcoming changes.
- The personal allowance is set to increase to £12,570 in April 2022, alongside the basic rate threshold which will increase to £50,270. After which, both will be frozen to 2026.
- The dividend allowance remains unchanged, however, it’s worth reminding that the dividend rates are set to increase by 1.25% from April 2022 – this is in line with the announcement of the Health and Social Care Levy previously announced.
A significant change announced in the Budget is the basis period reform, which changes the way trading income is allocated to the tax year.
Generally, businesses draw up annual accounts to the same date each year, which is known as their ‘accounting date’. Currently, a business’s profit or loss for a tax year is usually the same for the year up to the accounting date in the tax year, known as the basis period.
The current rule creates overlapping basis periods, which charges tax on profits twice, generating a corresponding ‘overlap relief’ which is usually given on cessation of the business.
The reform will change this to a ‘tax year basis’ from the tax year 2024 to 2025. This means that a business’s profit or loss for a tax year is the profit or loss arising in the tax year itself – regardless of the accounting date. This removes the basis period rules, preventing the creation of further overlap relief.
So, what will the transition involve?
On transition to the tax year basis in the tax year 2023 to 24, all businesses basis periods will be aligned to the tax year, with outstanding overlap relief given. Businesses with an accounting date other than the end of the tax year would need to apportion profits or losses from different accounting periods to fit in with the tax year.
This sounds complicated but may mean using provisional figures in tax returns if the accounts and tax computations for the later accounting period are not prepared before the 31st of January filing deadline. If this is the case, amendments will be required to tax returns once final figures are available.
Don’t let this information overwhelm you. At Shenward, we are on hand to ensure the new requirements are adopted seamlessly. The basis of this reform is to help simplify Make Tax Digital for Income tax, which will occur from 2024.
No changes were announced in the budget for National Insurance, but this is a good time to remind you that National Insurance rates are increasing by 1.25% for Class 1 Primary and Secondary as well as Class 4 from April 2022.
National Minimum Wage
The National Minimum is set to increase as of April 2022. See the table below for the current and new rates of pay determined by age group.
|21 – 22
|18 – 20
Whilst there was no change to the Capital Gains annual exemption, a few other changes were announced.
The chancellor announced the extension to the Capital Gains Tax returns and payment on property disposal deadline from 30 days after completion up to 60 days.
Furthermore, there was clarification on mixed-use properties. The 60-day deadline for mixed-use properties applies, apportioned to residential proportion only.
A super-deduction has already been announced, allowing companies investing in new plant and machinery assets to claim a 130% super-deduction capital allowance on plant and machinery investments. Furthermore, the super-deduction will allow companies to cut their tax bill by 25p for every £1 they invest.
The Annual Investment Allowance (AIA) increase to £1 million was due to end on the 31st of December 2021, has been extended to the 31st March 2023.
In terms of corporation tax, we have already seen some recent announcements ahead of the Budget. There has been an increase in corporation tax to 25% from 19% for non-ring-fenced profits over £250,000.
In the budget announcement, a 4% levy for property developers with profits over £25 million was announced. This is to help establish a fund to finance establishments with unsafe cladding.
In addition to this, as a result of Brexit, the group relief has been abolished for UK companies claiming losses from European Economic Areas (EEA) Resident subsidiaries.
For businesses in the retail, leisure and hospitality sectors, the budget announced a 50% business rates discount from 2022 to 2023 for up to a maximum of £110,000.
For online businesses, there has been consultation on an online sales tax, amid the soaring rates of online sales consumption following the COVID-19 pandemic.
The Chancellor slightly reversed the taper of Universal Credit, reducing the 63% taper rate of £1 earned over the work allowance will now be 55%. This means for every £1 earned over the work allowance, the amount of Universal Credit will be reduced by 55p rather than 63p.
On the horizon, we have increased taxes looming with the increase in NI and dividends. Frozen personal allowances and thresholds will cause fiscal drag.
We are aware this is a lot of information to take in. There’s no need to feel overwhelmed as it is more than likely only a few points above will affect you, but it’s best to include all information so everyone is informed of changes that may affect them.
Our advice to you is to liaise with your accountant so you can get on top of these changes as soon as possible. As always, if you need further guidance, do not hesitate to contact us at firstname.lastname@example.org.