Chancellor Rishi Sunak’s budget yesterday was far less radical than many commentators expected. The anticipated major changes to Capital Gains Tax and Inheritance Tax failed to materialize, probably because the COVID-19 influenced economic indicators are nowhere near as bad as initially anticipated by the Treasury
We set out below the main changes:
Corporation tax rates
The Chancellor confirmed the measures announced in his Spring Budget earlier this year. The current rate of corporation tax is currently 19% and will remain as such until 1 April 2023. Thereafter the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will be retained as a small profits rate applying to 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.
Cross-border group relief
As a direct result of the end of the Brexit transition period, the government has amended corporation tax group relief rules relating to European Economic Area (EEA) resident companies into line with those for non-UK companies’ resident elsewhere in the world. This change applies to accounting periods ending on or after 27 October 2021.
Those affected are UK groups with subsidiary companies established in the EEA as well as EEA-resident companies which trade in the UK through a permanent establishment.
Both companies and partnerships/sole traders can make us of a £200,000 annual investment allowance (AIA) to claim 100% tax relief on qualifying expenditure on plant and machinery. As a temporary measure to stimulate the economy this allowance was increased to £1 million for expenditure incurred on or after 1 January 2019.This was due to revert back to £200,000 from 1 January 2022.
However, the Chancellor announced that the £1 million allowance will now be retained until 31 March 2023 with transitional rules applying to accounting periods that span 1 April 2023.
R& D Relief
In a welcome change cloud costs and data costs will be allowed in claims, but in a less welcome one R&D work contracted to workers resident outside the UK will be excluded from claims. These changes will be effective from April 2023.
Further delays to Making Tax Digital (MTD)
As a result of continuing IT issues, the Chancellor announced the following timeframes for certain categories id taxpayers to be enrolled in MTD:
Sole trader businesses and landlords with business income
of more than £10,000per annum: 6 April 2024
General partnerships 6 April 2025
Companies 6 April 2026
There was no mention of Limited Liability Partnerships and Trusts
Business Rates in England
As part of a policy to supporting local businesses as they adapt to the post COVID-19 landscape, the Chancellor announced a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23.
The Treasury believe that over 90% of retail, hospitality and leisure businesses will receive a minimum 50% reduction in their business rates bills in 2022/23. The measure will encompass certain categories of businesses for the first time such as hotels, gyms and bowling alleys.
The Universal Credit taper rate is reduced from 63% to 55%, meaning Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.
National Living Wage (NLW) and National Minimum Wage (NMW)
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 21–22-year-olds
£6.83 for 18–20-year-olds
£4.81 for 16–17-year-olds
£4.81 apprentice rate for apprentices under 19, and those 19 and over
CGT reporting of property disposals
UK resident individuals who dispose of UK residential property are in certain circumstances required to make a CGT return to HMRC and make a payment on account of CGT. This is would normally be where the property disposal results in a CGT liability so the disposal of a property to which private residence relief applies is usually excluded.
Non-UK residents are subject to similar reporting requirements although they must report the disposal of all types of UK land and property.
In both cases, the date to submit the CGT return and to pay the CGT due was within 30 days of completion of the property. In a major change for disposals that complete on or after 27 October 2021, the reporting and payment deadline is extended to 60 days following the completion of the disposal. From the same date, UK residents disposing of a mixed-use property, will only need to report and pay tax only on that portion of the gain that relates to the residential element.
Confirmation of previously announced measures
Dividend Tax Rates–
In April 2022 dividend tax rates will be increased by 1.75% as part of the government’s initiative to pay for social care. They will become 8.75% (basic rate) 33.75% (higher rate) and 39.35% (additional rate).
Basis Period Reform
Finance Bill 2021/22 will bring forward the new rules, in readiness for implementation in April 2023. These new rules have presented as a way to simplify the rules under which trading profits made by sole traders and partnerships are allocated to tax years.
The changes mainly affect traders and partnerships which do not prepare their annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.
Such sole traders and partnerships may keep their current accounting period, but the trading profit or loss reported to HMRC for a particular tax year will become the profit or loss arising in the tax year itself, irrespective of the business’s chosen accounting date.
Health & Social Care Levy
For the tax year 2022/23, the levy will be implemented by an increase to national insurance contributions, with 1.25% for employees, employers, and self-employed individuals. The total increase for employed workers will therefore be 2.5% (employee and employer contributions) and 1.25% for self-employed workers.
For 2023/24 onwards, this will be replaced with the new tax “Health and Social Care Levy” (at the same rate of 1.25%). Unlike national insurance contributions, it will also apply to those still working above state pension age.
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