Autumn Budget 2021: Analysis

The Chancellor’s Autumn Budget speech had a strong sense of industrial strategy and revealed a change in the Treasury’s direction from low taxes and spending restraint to direct intervention in supporting particular industries.

No fundamental reform of the tax system was announced, the focus was clearly on government investment to back further economic growth in the post covid era.

The centrepiece of the Spending Review and Autumn Budget 2021 was the already 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.

As expected, the Office for Budget Responsibility revised its forecasts for economic growth upwards, reducing its estimate of the permanent scarring effect on the economy from 3% to 2%. The revised forecasts were a big contributor in reducing the forecast deficit for the 2022/23 financial year commencing in April by £24bn from £107bn to £83bn.

There were a few environmental measures ahead of United Nations Climate Change Conference and no attention was given to addressing how we tax wealth and capital gains.

Following a review of business rates in England, the Government has decided to keep most of the regime intact.  The main changes included:

• revaluations every three years;
• exemptions for plant and machinery used in onsite renewable energy production such as solar panels;
• freezing the multiplier for 2022/23;
• a new one-year relief for eligible property improvements; and
• a new temporary 50 percent relief up to £110,000 per business for eligible retail, hospitality, and leisure businesses. 

A consultation will be published shortly considering the arguments for and against an online sales tax which could fund reductions in business rates.  Whilst these changes will provide some reductions in business rates, this is not the radical reform that some were looking for.

It was confirmed that a new residential property development tax will be introduced from 1 April 2022 at rate of 4 percent on relevant group profits over £25 million.  Residential property profits will be calculated on the same basis as corporation tax, with a restriction for finance costs.

From 1 April 2023 the banking surcharge is to decrease to 3 percent with an allowance of £100 million to help support challenger banks.

There are significant temporary increases in the cultural tax reliefs for theatres, orchestras, and museums for the period to 31 March 2024, with the museums and galleries exhibition relief extended until that date.  A relaxation in film tax relief is also introduced from 1 April 2022 which will enable relief to be claimed where the film is released on streaming services rather than in a cinema provided that the criteria for high end TV relief is also met.

The changes to expand R&D tax relief to include cloud computing and data costs from 1 April 2023 will be welcomed by business, but the restriction to only include UK costs will mainly adversely impact large corporate groups. 

The introduction of a lower domestic rate of air passenger duty in 2023 will be welcomed by regional airports and individuals travelling between the UK regions; but may send the wrong message ahead of the climate change conference in Glasgow.

The most radical change is to alcohol duty, which is simplified, again from 2023, based on a series of rates per percentage alcohol, with a draught relief for pubs and other similar establishments.  This reduces the rates for sparkling wine, such as Champagne and English sparkling wine, but increases the rate for higher strength ciders and red wine – the key is that in general higher strength means more duty is paid.

This will help craft brewers and pubs, particularly linked with the changes in business rates.  However, with the temporary 12.5 percent VAT rate for hospitality going back up to 20 percent in April 2022, aligned with the increases to the national living wage, and the 1.25 percent increase in employer’s NIC (to fund social care prior to the introduction of the separate Health and Social Care Levy from April 2023), there will be increased cost pressure next year.

From an individual tax perspective, there was little change following the 1.25 percent health and social care levy and 1.25 percent increase to the dividend tax rates announced a few months ago. The new digital reporting under Making Tax Digital for Income Tax has been delayed until April 2024. As a part of this, following consultation one major change is to basis periods, so that business profits would be charged to income tax as they arise from month to month, rather than the current rules based on accounting periods. This will also come into full effect for the 2024/2025 tax year, with a 2023/24 transitional year. There is a relaxation in the reporting and payment deadline for capital gains on UK residential property from 30 to 60 days.

In summary, with significant tax raising measures previously announced including the corporation tax increase to 25 percent from 1 April 2023, the inflation impact of freezing of personal allowances and rate bands, and the new health and social care increases, there was little need for the Chancellor to raise additional taxes in this budget. This was a holding budget enabling the Chancellor to wait for the uncertainties in the economy to be resolved, before returning to a tax cutting budget in the run-up to the next general election.