budget seminar

Budget 2021www.barnesroffe.com BARNES ROFFE LLP

Budget Seminar

28 October 2021

BARNES ROFFE LLP

Budget 2021www.barnesroffe.com

Keith MasonBSc FCA CTA

Tax Partner

South London


The Economy


• The economy is recovering from the worst ever shock, caused by

COVID-19.

• Employment is increasing and did not fall as far as feared at the start

of the pandemic (unemployment peaked at 5.2% as opposed to 12%).

• Economic growth is reasonably strong and debt is falling again.

• Recovery will be quicker than the OBR forecasts.

Introduction


• Wages growth ~ 3.5% since February 2020.

• Borrowing is higher than at any time since World War 2.

• New charter for Budget responsibility

• By 3rd year in every forecast period underlying Public Sector Net Debt must be falling.

• Only borrow to invest in future growth.

• 0.7% overseas aid to be restored before the end of this Parliament.

Introduction


• Masses of money for just about everything:

• Housing (£24bn)

• Unsafe cladding (£5bn)

• Schools (£4.7bn)

• Youth Clubs (£560m)

• Regional Barnet Formula enhancements (£8.7bn)

• Roads (£21bn)

• Railways (£46bn)

• Adult Numeracy (£560m)

Introduction


• Lowering of Tax Credit taper from 63% to 55% based on earnings

(w.e.f 1st December 2021).

• Pledge to return to tax reductions by end of Parliament.

Introduction


Forecasts

Debt (% of

GDP)

Deficit (% of

GDP)

Growth Inflation

2020 Basic Projections (in

region of)

75% 2.5% 1.4% 2.0%


Forecasts – Current Projections

Debt (% of

GDP)

Deficit (% of

GDP)

Growth Inflation

21/22 85.2% 7.9% 6.5% 3.1% to 4%

22/23 85.4% 3.3% 6.0% ?

23/24 85.7% 2.4% 2.1% ?

24/25 85.1% 1.7% 1.3% ?

25/26 ? 1.7% 1.6% ?

26/27 83.3% 1.5% ? ?


Income and employment tax


Personal savings allowance £1,000 BR, £500 HR, £0 AR

Starting rate for savings £5,000

• if other income less than £17,570

• every £1 of other income above PA reduces starting

rate by £1

Personal reliefs


Tax year 2022/23 2021/22 2020/21 2019/20

Personal allowance £12,570 £12,570 £12,500 £12,500

Next (20%) £37,700 £37,700 £37,500 £37,500

Next (40%) £112,300 £112,300 £112,500 £112,500

Balance (45%) >£150,000 >£150,000 >£150,000 >£150,000

Income tax

Where gross income exceeds £100,000 p.a. the personal allowance is withdrawn

at rate of £1 for every £2 income above £100,000 until eliminated at £125,140

(2022/23). Effective rate of 60% (earned income) 50.625% (dividend income)!


£2,000 dividend allowance

Dividend tax rates ~ all +1.25% from 06/04/22

– Basic rate 7.5% 8.75%

– Higher rate 32.5% 33.75%

– Additional rate 38.1% 39.35%

– “Marginal” rate 48.75% (where personal allowance eroded) 50.625%

Dividend tax


All NIC (Class 1, Class IV, Class 1A, Class 1B) ~ +1.25%

So, ERNIC ~ 13.8% 15.05%

EENIC ~ 12.0% 13.25%

Class IV ~ 9.0% 10.25 %

Excess rate ~ 2.0% 3.25%

Other rates and allowances pretty much unchanged.

National insurance


£ per month 2022/23 2021/22 2020/21 2019/20

Lower Earnings Limit (LEL)

Employees do not pay NI but get the

benefits of paying £533 £520 £520 £512

Primary Threshold (PT)

Employees start paying£823 £797 £792 £719

Secondary Threshold (ST)

Employers start paying£758 £737 £732 £719

National insurance: Class 1

Salary above LEL but below ST – no NIC cost but state pension years credit


£ per month 2022/23 2021/22

Small Profits Threshold£6,725 £6,515



£ per month 2022/23 2021/22

Lower Profits Limit (LPL)£9,880 £9,568

Upper Profits Limit (UPL)£50,270 £50,270



Employee 2022/23 2021/22

Gross £50,000 £50,000

Tax £(7,486) £(7,486)

Employee NIC £(5,316) £(4,852)

Net £37,198 £37,662

Change for average earner

Worse off by

£464


Change for average earner

Self employed 2022/23 2021/22

Gross £50,000 £50,000

Tax £(7,486) £(7,486)

Class 2 NIC £(164) £(159)

Class 4 NIC £(4,112) £(3,639)

Net £38,238 £38,716

Worse off by

£478


Extended loss carry back


Temporary extension to carry back for trading losses of unincorporated businesses made in tax years 2020/21 and 2021/22

The amount of trading losses that can be carried back by individuals to set against profits of the preceding year remains unlimited

Sideways loss relief still available in current year

Can carry back up to 3 years (later years first)

Separate £2,000,000 cap will apply to the extended carry back of losses made in each of the tax years

Trading Losses


Basis Period Reform


• Current Year Basis (CYB) to be scrapped and replaced with taxing trade profits arising in a tax year

• Reduces time between earning profits and paying tax on them – apparently this is fairer

• 22/23 last year of CYB

• 23/24 transitional year

• 24/25 first year of new system

Draft Legislation


• In 23/24, period for taxing profits will be:-

A) CYB basis period for that year

plus

B) End of CYB to 5th April 2024

less

C) All available overlap relief

Mechanics


• Transitional Period Profits (for spreading purposes) are

• Taxable amount as above (CYB + TP – OLR), less CYB basis

(ie ignoring new provisions) (or nil if negative)

• To be taxed over 5 years (23/24, 24/25, 25/26, 26/27, 27/28)

• Draft legislation says 20% in 4 tax years beginning with that in

which the transitional period profit would otherwise be

taxed, with the balance taxable in the 5th year

Transitional Period Profit Spreading


Corporate tax & Extraction


Main rate of CT to be 25% from 1 April 2023

Small Company rate of 19% for profits below £50,000, but not for close investment holding companies.

On profits between £50,000 and £250,000 main rate will be paid, less marginal relief. Effective rate of 26.5%!

Old associated company rules brought back, but for everything!

Corporation Tax


Temporary extension to carry back for trading losses made in accounting periods ending in the period 1 April 2020 to 31 March 2022

Can carry back up to 3 years

Capped at £2 million for carry backs over 1 year

£2 million also being a group-level limit (sometimes!)

£200,000 de minimis

Corporation Tax


• Carry-back 3 years, using more recent years first

• 1 year carry-back remains unlimited

• 2 & 3 year carry-back subject to £2m cap (per stand-alone

company or per group), subject to group quirk

Companies


• £2m cap relates to financial year from which loss derived

• Only £2m trade losses from FY 2020 can go back 2 or 3

years

• Only £2m trade losses from FY 2021 can go back 2 or 3

years

• Any amount of loss from either year can go back one year, as

normal

Companies


• FY 2020 or FY 2021 trading loss

• Use s37 CTA 2010 in current (if possible) and previous year

(if possible) without limit

• Then carry back 2 or 3 years, subject to £2m cap

Companies ~ Order of Set-off


T0 Trading loss £3,300,000 Capped offset under

extended carry-

back

£1,750,000T-1 Profit £1,100,000 S37 offset £1.1m

T-2 Profit £1,750,000

T-3 Profit £1,250,000 £250,000

Losses of £200,000 are carried forward

Example 1


• Extended carry-back only applicable to trade losses arising in

accounting periods ending in FY 2020 and FY 2021

• Change y/e to access losses before 1.4.2022?

Trade Losses Only


For accounting periods ended on / after 27th October

2021, no relief in a UK company for losses in EEA

resident countries

Corporation Tax ~ Group Relief


130 % super deduction 1April 2021 – 1 April 2023

Must meet conditions (mainly no cars, buildings, assets for

leasing and not in a cessation period)

Periods spanning 1 April 2023 & the relevant percentage

(proportionate reduction)

Disposal of assets where super-deduction has been made

Capital allowances


Special rate 50% first-year allowance

Must meet conditions

Disposal of assets where special rate allowance was

claimed

Capital allowances


£1m annual investment allowance extended for a year

until 1 January 2022, extended until 31 March 2023, and

£200,000 thereafter

SBA 3% from 1 April 2020, contracts signed after 29

October 2018

WDAs – 18% and 6%

Capital allowances


Consider timing of investment spend ~ remember that

periods straddling the change of rate date have composite

allowance, but relief in second part of period restricted to

pro rata portion of new limit.

For example:-Year to 30/06/2023 has a limit of £750K +

£50K = £800K, but only £50K can get AIA after 31st

December 2022!

Capital allowances


SME R&D scheme 230% qualifying expenditure

Payable tax credit 14.5% for loss making company

RDEC 13% of qualifying expenditure – large companies and SMEs subcontracted by large company

From April 2023 cloud & data costs allowed, and a new UK focus (no details as yet)

Not just high tech/pharma companies!

Research & Development


Eligible expenditure ~ staff costs and computer software

or consumable items, plus pro-rated associated and

support costs and (from April 2023) cloud & data costs

Technological uncertainty

Related to a trade carried on or from which a trade will

be derived

Research & Development


Accounting periods beginning on or after 1 April 2021

Payable R&D tax credit for SME is limited to

– £20,000 plus

– 300% of its total PAYE and NICs liability for the period (including

connected/related company).

R&D PAYE cap


Off-payroll Working / IR35

• Anti-avoidance legislation

• Introduced Finance Act 2000, now in Chapter 10 Part 2 Income Tax

(Earnings and Pensions) Act 2003 (ITEPA)

• Treats certain individuals operating through intermediaries as employees

(usually of the client / engager), if the relationship is one of master /

servant

• Involves construction of a hypothetical contract


Eye on the Ball

• 3 conditions

1. Personal Work for remuneration ~ substitution undermines

2. Agree to be under engager’s control ~ high autonomy undermines

3. Terms of work / contract consistent with employment ~ own financial

risk / business structure / lack of MOO undermines


What is New / Where is the Risk?

• More administrative rules in certain circumstances

• Location of tax risk has moved where client / engager is large or

medium-sized private company and the worker’s services are provided

through an intermediary (company / partnership / LLP)

• Otherwise, the rules are as they were

• The determination of whether the relationship is master / servant has

not changed ~ just who is on the hook!


Where is the Risk?

Engager

Worker

Engager’s Risk

Pre and Post April 2021


Where is the Risk?

Engager

Worker

Risk with intermediary unless

Engager is in public sector, when

risk with engager

Pre April 2021

Intermediary


Where is the Risk?

Engager

Worker

Risk with Engager unless

Engager is small and in private sector,

when risk with intermediary

Post April 2021

Intermediary


Client Obligations

• Confirm size on request

• Assess status

• Communicate status (failure to do so & becomes Fee Payer)

• Notify worker & Fee Payer if status / size changes

• Take reasonable care in assessing status or face Fee Payer responsibility


What is a Small Company

Not small if 2 or more of the following apply:-

• T/O > £10.2m

• Balance sheet total > £5.1m

• Employee No.s > 50

• Test uses CA2006 conditions. If a partnership (but not LLP), use

turnover test only

• Look at whole group, including non-UK entities


Use of CEST Tool

• CEST = Check of Employment Status for Tax

• Must be a contract in place

• HMRC will stand by CEST output, in information used is accurate

• Preserve records & re-run regularly

• Soft landing ~ HMRC will not revisit old years unless behaviour has been

fraudulent / criminal


Tonnage Tax Reform

Proposed reduction from 10 to 8 years of duration of

election

Simplification via abolition of 2005 flagging rules, meaning

only applicable to those flying the Red Ensign

Misc


Qualifying Asset Holding Companies (QAHCs)

Proposed new regime for corporation tax, where

company itself at least 70% owned by diversly owned

funds ~ details awaited

Misc


Residential Property Developer Tax

Companies / groups with UK Property Development profits of ≥ £25m face additional 4% tax

Only on excess property development profits over £25m, but before interest & CAAs

Losses can be relieved but only from similar activities

Applies for periods ending on / after 1st April 2022, with time apportionment for straddle periods

Misc


Uncertain Tax Treatment (CT / VAT / IT)

Businesses with turnover >£200m or balance sheet total > £2bn, with a tax advantage of at least £5m

Accounts provision for uncertainty or treatment not in accordance with HMRC’s known position

Must notify HMRC of treatment adopted

All returns due to be filed on / after 1st April 2022

Misc


Extraction


Corporation tax rate 19%

Dividend v salary effective rate 2020-21

25.08%

45.33%49.86%

58.49%

40.25%

49.03%53.43%

66.61%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Basic rate taxpayer Higher rate taxpayer Additional rate taxpayer “Marginal” rate taxpayer

Dividends Remuneration


Corporation tax rate 19%

Dividend v salary effective rate

25.08%

45.33%49.86%

58.49%

40.25%

49.03%53.43%

66.61%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%


UP TO 2022/23




25.08%

45.33%49.86%

58.49%

40.25%

49.03%53.43%

66.61%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%


2023/24 ONWARDS – SMALL COMPANIES




32.01%

50.39%54.50%

62.33%

40.25%

49.03%53.43%

66.61%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%


2023/24 ONWARDS – MARGINAL COMPANIES




30.63%

49.38%53.58%

61.56%

40.25%

49.03%53.43%

66.61%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%


2023/24 ONWARDS – LARGE COMPANIES



Tax Efficiency 2021/22 (per £1,000)

Corporation Tax Rate 19%

Higher Rate

Tax Payer

Salary (42% + ERNIC) £509.67

Dividend (32.5% + CT) £546.75

Self-employed (42%) £580.00

Lower Rate

Tax Payer

Salary (32% + ERNIC) £597.54

Dividend (7.5% + CT) £749.25





Higher Rate

Tax Payer

Salary (42% + ERNIC) £509.67

Dividend (32.5% + CT) £546.75

Interest / rent (40%) £600.00

Lower Rate

Tax Payer

Salary (32% + ERNIC) £597.54

Dividend (7.5% + CT) £749.25





Additional

Rate Tax Payer

Salary (47% + ERNIC) £465.73

Dividend (38.1% + CT) £501.39


Marginal Rate

Tax Payer

Salary (62% + ERNIC) £333.92

Dividend (48.75% + CT) £415.13





Higher Rate

Tax Payer

Salary (43.25% + ERNIC) £493.27

Dividend (33.75% + CT) £536.62

Self-employed (43.25%) £567.50

Lower Rate

Tax Payer

Salary (33.25% + ERNIC) £580.18

Dividend (8.75% + CT) £739.13





Higher Rate

Tax Payer

Salary (43.25% + ERNIC) £493.27

Dividend (33.75% + CT) £536.62


Lower Rate

Tax Payer

Salary (33.25% + ERNIC) £580.18

Dividend (8.75% + CT) £739.13





Additional

Rate Tax Payer

Salary (48.25% + ERNIC) £449.81

Dividend (39.35% + CT) £491.26


Marginal Rate

Tax Payer

Salary (63.25% + ERNIC) £319.43

Dividend (50.625% + CT) £399.94



Tax Efficiency 2023/2024 onwards (per £1,000)

Corporation Tax Rate 19% 26.5% 25%

Higher Rate

Tax Payer

Salary (43.25% + ERNIC) £493.27 £493.27 £493.27

Dividend (33.75% + CT) £536.63 £486.94 £496.88

Self-employed (43.25%) £567.50 £567.50 £567.50

Basic Rate Tax

Payer

Salary (33.25% + ERNIC) £580.00 £580.00 £580.00

Dividend (8.75% + CT) £739.13 £670.69 £684.38

Self-employed (30.25%) £697.50 £697.50 £697.50




Higher Rate

Tax Payer

Salary (43.25% + ERNIC) £493.27 £493.27 £493.27

Dividend (33.75% + CT) £536.63 £486.94 £496.88

Interest / rent (40%) £600.00 £600.00 £600.00

Basic Rate Tax

Payer

Salary (33.25% + ERNIC) £580.00 £580.00 £580.00

Dividend (8.75% + CT) £739.13 £670.69 £684.38

Interest / rent (20%) £800.00 £800.00 £800.00




Additional Rate

Tax Payer

Salary (48.25% + ERNIC) £449.81 £449.81 £449.81

Dividend (39.35% + CT) £491.26 £445.78 £454.88

Self-employed (48.25%) £517.50 £517.50 £517.50

Marginal Rate

Tax Payer

Salary (63.25% + ERNIC) £319.43 £319.43 £319.43

Dividend (50.625% + CT) £399.93 £362.91 £370.31

Self-employed (63.25%) £367.50 £367.50 £367.50




Additional Rate

Tax Payer

Salary (48.25% + ERNIC) £449.81 £449.81 £449.81

Dividend (39.35% + CT) £491.26 £445.78 £454.88

Interest / rent (45%) £550.00 £550.00 £500.00

Marginal Rate

Tax Payer

Salary (63.25% + ERNIC) £319.43 £319.43 £319.43

Dividend (50.625% + CT) £399.93 £362.91 £370.31

Interest / rent (60%) £400.00 £400.00 £400.00


Business Support


• Cultural relief ~ Theatre, Orchestra, Museums,

Galleries and Exhibitions (Non-Touring)

Cultural relief


Cultural relief

Current To 31.03.23 23/24 24/25

onwards

Theatre Tax Relief 20% 45% 30% 20%

Orchestra Tax

Relief

25% 50% 35% 25%

Museums,

Galleries and

Exhibition Tax

Relief

20% 45% 30% 20%


Basic idea ~ Excess deduction ~ up to 100% of costs and

any loss can be surrendered for a credit at the above

rates.

Cultural relief


Suspended a further 12 months from 01.08.22

HGV Levy


• Alcohol duties not increased

• Reform current regime (see below)

Alcohol Duties


Air Passenger duties for UK journeys reduced (see

below).

Air Passenger Duty


New 50% Business Rate rebate for 1 year targeted at

Retail, Hospitality and the Leisure sector (up to £110k

maximum).

Business Rates


Cloud Computing and Data Costs allowed w.e.f April

2023 ~ details unclear ~ may mean reduction/removal of

cross border subcontract costs.

R&D


Misc


Extended HMRC powers to wind-up Co’s / Partnerships

operating against the public interest or asset freezing for

penalties or naming and shaming.

Tax Avoidance Promoters


Turnover Levy (annual)

Small Entity <£10.2m Exempt

Medium To £36m £5k to £15k

Large To £1bn £30k to £50k

Very Large >£1bn £150k to £250k

Anti Money Laundering

New levy for those regulated for AML Purposes from 23/04.

Will affect legal firms, estate agents, letting agents, accountants, tax advisors,

casinos and crypto asset exchange providers.


Landfill

£/tonne

(2021/22)

£/tonne

(2022/23)

Standard rated £96.70 £98.70

Lower rated £3.10 £3.15


• AEA unchanged @ £12,300

• Rates unchanged @ 10%, 18%, 20% and 28%

• BADR limit £1,000,000 unchanged

• Investor relief limit unchanged at £10,000,000

• But 30 to 60 day on residential disposal reporting

Capital Gains Tax


Property valueAnnual charge

2021/22

Annual charge

2022/23

More than £500,000 up to £1 million £3,700 £3,800

More than £1 million up to £2 million £7,500 £7,700




More than £20 million £237,400 £244,750

ATED


• Very modest increases in Band B (>2,000 miles) costs

from 2022.

• From 2023 Domestic rates reduced and new band

(5,500 miles) introduced at reduced rate (£91),

standard rate (£200) and higher rate (£601).

Air Passenger Duties


Inheritance tax

• All rates unchanged

• NRB @ £325,000 fixed until 2026

• RNRB @ £175,000 fixed until 2026


SDLT – Residential/Main

Value Usual rate 2nd property Non-UK buyer Non-UK

buyer 2nd

property

To £125,000 0% 3% 2% 5%

Next £125,000 2% 5% 4% 7%

Next £675,000 5% 8% 7% 10%

Next £575,000 10% 13% 12% 15%

Excess 12% 15% 14% 17%


Rate Band

0% 1st £150,000

1% Next £100,000

5% Excess

SDLT – Non Residential


Registration and deregistration unchanged at £85k and

£83k.

VAT


• Up 2% over RPI generally

• Up 6% over RPI ~ Hand Rolling Tobacco

Tobacco Duty


• To be simplified ~ 15 duty rates reduced to 6, based on strength.

• Craft beer ~ small producer’s relief

• An end to the irrational 28% duty on Sparkling wine

• Draught relief ~ 5% duty reduction on provision from kegs of 40 litres or more

• Planned duty increase cancelled for today but not idea on timing for other measures.

Alcohol Duty


Closing Remarks


This summary is based on the HM Treasury and HM

Revenue & Customs press releases and the information

contained herein is subject to the wording of proposed

legislation and change.

No reliance should be placed on the contents of this

presentation without first having obtained specific written

advice from Barnes Roffe LLP

Disclaimer

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