On Wednesday 27 October, the Chancellor presented his second Budget of the year along with a response to the latest economic forecasts and a Comprehensive Spending Review.
Corporation tax – As previously announced the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%, and there will be taper relief for businesses with profits between £50,000 and £250,000, so that their average rate is less than the main rate. In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023.
Business Rates - A range of changes are proposed or have been made including :
- freezing the business rates multiplier from 1 April 2022 until 31 March 2023.
- introducing a new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a £110,000 per business cap
- introducing a 100% improvement relief for business rates. This will provide 12 months relief from higher bills for occupiers, where eligible improvements to an existing property increase the rateable value. The government will consult on how to implement this relief, which will take effect in 2023 and be reviewed in 2028
- introducing from 1 April 2023 until 31 March 2035 targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible heat networks, to support the decarbonisation of non-domestic buildings
- increasing the frequency of business rates revaluations to every 3 years instead of every 5 years, starting in 2023
- extending transitional relief for small and medium-sized businesses, and the supporting small business scheme, for 1 year.
R&D tax relief schemes - Following the recent consultation, R&D tax reliefs will be amended to expand qualifying expenditure to include data and cloud costs, make sure that the R&D regimes are focused on encouraging investment in UK based R&D, and to target abuse and improve compliance. These changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023.
Capital Allowances Annual Investment Allowance (AIA) - The £1m AIA will be extended to 31 March 2023.
English Freeport tax site designation - Some of the English Freeport tax sites have been designated. Businesses within these tax sites can benefit from the various tax incentives for these areas. The first tax sites will be in Humber, Teesside and Thames, and those Freeports will be able to begin initial operations from November.
Creative Sector reliefs - Museums and Galleries Exhibition Tax Relief (MGETR) will be extended for a further two years until 31 March 2024. The headline rates of these reliefs will increase. From 27 October 2021, the headline rates of relief for the Theatre Tax Relief and the MGETR will temporarily increase from 20% (for non-touring productions) and 25% (for touring productions) to 45% and 50%. From 1 April 2023, the rates will be reduced to 30% and 35% and will return to 20% and 25% on 1 April 2024. From 27 October 2021, Orchestra Tax Relief rates will temporarily increase from 25% to 50%, reducing to 35% from 1 April 2023 and returning to 25% on 1 April 2024. From 1 April 2022, changes will be made to better target the reliefs and make sure that they continue to be safeguarded from abuse.
Film Tax Relief (FTR) and High-End TV Tax Relief (HETR) – From 1 April 2022, production companies will be able to switch between claiming FTR or HETR during production, ensuring that relief is not lost should a company decide to change their distribution method.
Corporate Re-domiciliation - The government intends to make it possible for companies to re-domicile and therefore easier to relocate their site of incorporation to the UK, and is seeking views on how best to do this, together with views on whether to also permit re-domiciliations of UK companies to other territories.
Abolition of Cross-border Group Relief (CBGR) – Legislation in Finance Bill 2021-22 will abolish CBGR and other related loss reliefs from 27 October 2021.
The Health and Social Care Levy – As announced previously, legislation is introduced for a new 1.25% Health and Social Care Levy. It will apply UK-wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self-Employed) National Insurance contributions (NICs), and to the main and additional rates. The Levy will be effectively introduced from April 2022. From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age.
Online Sales Tax – The government will continue its review into an OST. It will launch a consultation shortly.
Residential Property Developer Tax (RPDT) – This new tax will apply from April 2022 on the profits from UK residential property development. The tax will be charged at 4% on profits of companies and corporate groups which exceed an annual allowance of £25m.
Living wage - The NLW, for individuals aged 23 and over will rise by 6.6% to £9.50 an hour from 1 April 2022. Other age ranges of NLW will also increase from this date.
High-Skilled Migration – Changes will be implemented to the UK’s immigration system to attract highly-skilled people to the UK. This includes a new Scale-up Visa, launching in spring 2022, that will help the UK’s fastest-growing businesses to access overseas talent.
Global Talent Network – a Global Talent Network will be launched to bring highly skilled people to the UK in key science and technology sectors.
Tonnage tax - The UK’s Tonnage Tax regime will be reformed from April 2022. These changes include:
- Legislation will be introduced to remove the consideration of flags from EU and EEA countries, increasing the flexibility of the provisions governing elections into the Tonnage Tax regime, creating the ability to flag ships with registers internationally (including “open” registers) without restriction according to the businesses wishes.
- reduce the lock-in period from 10 years to 8 years to align more closely with shipping cycles and HMRC will be given more discretion to admit companies into the regime outside of the initial window of opportunity where there is a good reason.
- raise from 10% to 15% the permitted limit for qualifying secondary (ancillary, passenger-related) income in HMRC practice guidance
Additionally, as part of wider Tonnage Tax Reform, HMRC and the government will;
- review guidance to reflect the significance of flagging vessels in the UK and UK investment in decarbonisation and pollution control when they assess which companies can participate in the regime.
- review guidance on what vessels and operations qualify for the regime to take account of developments in technology and the shipping market since the tax was introduced.
- explore how best to make use of existing powers regarding the training commitment, to ensure it works for firms and cadets across the maritime sector.
- review whether to include ship management within scope of the Tonnage Tax regime; and
- whether the existing limit that can be claimed in capital allowances by organisations leasing ships to Tonnage Tax participants remains appropriate.
Bank Surcharge and annual allowance - The rate of the surcharge will be set at 3% from April 2023. The annual allowance for groups will also be raised to £100 million.
Asset Holding Companies (AHC) Tax Regime and Real Estate Investment Trusts (REITs): Amendments – With effect from April 2022:
- a new framework for the taxation of companies that are used by funds and institutional investors to make their investments will apply. These new rules, which cover the taxation of AHCs as well as payments made by AHCs (including changes to the remittance basis).
- targeted changes are also being made to the tax rules for REITs.
UK funds regime review – The government continues its ongoing review of the UK’s funds regime. It will publish its response to the call for input on the broader elements of the UK funds regime review, as well as a consultation on options to simplify the VAT treatment of fund management fees.
Taxation of securitisations and insurance-linked securities – Legislation will be introduced in Finance Bill 2021-22 to introduce a power enabling changes to be made to Stamp Duty and Stamp Duty Reserve Tax in relation to securitisation and insurance-linked securities (ILS) arrangements.
Dividend rates – As announced, legislation will be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%.
Capital Gains Tax (CGT) payment on property disposal time limit extension - Legislation in Finance Bill 2021-22 will extend the deadline for resident and non-resident taxpayers to report gains and pay CGT after selling UK residential property. It will increase from 30 days after completion to 60 days.
Tax administration and compliance
Basis period reform – Legislation in Finance Bill 2021-22 will reform income tax basis periods so businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, rather than the profit or loss of the accounting period ending in that tax year, regardless of its accounting date. The transition to the new rules will take place in 2023-24 and the new rules will come into force from 6 April 2024.
Notification of uncertain tax treatment by large businesses - As previously announced, legislation in Finance Bill 2021-22 will introduce a new requirement for large businesses to notify HMRC when they take a tax position in their returns for VAT, corporation tax, or income tax (including PAYE) that is uncertain. Uncertain amounts are defined by reference to two criteria: that a provision has been made in the accounts for the uncertainty, or that the position taken by the business is contrary to HMRC’s known interpretation (as stated in the public domain or in dealings with HMRC). A potential third trigger (where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect) will not be included initially, but may be added later. Taxpayers need to notify HMRC where the tax advantage is expected to be over £5m for a 12-month period.
Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) – As previously announced, the rules will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025. In line with this one year delay, the new regime of penalties for the late filing and late payment of tax for ITSA will now come into effect on 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD, and 6 April 2025 for all other ITSA taxpayers.
Indirect taxes & Duties
Vehicle Fuel Duty – Remains frozen for 2022-23.
Air Passenger Duty (APD) – From 1 April 2023 a new lower domestic band (£6.50) for APD covering flights within the UK will be introduced. Also, a new higher rate ultra-long-haul band (£91), covering destinations with capitals located more than 5,500 miles from London will be introduced.to align APD more closely with the government’s environmental objectives.
HGV Vehicle Excise Duty (VED) and Levy rates – HGV VED for 2022-23 will be frozen, and the HGV Levy is suspended, for another 12 months from August 2022.
Alcohol duty – The duty regime is to be reformed so all beverages will be taxed in direct proportion to their alcohol content. To simplify the regime, the number of main rates will be reduced from 15 to 6. Reduced rates for products below 3.5% ABV will be introduced. A common small producer relief will be introduced, for smaller producers of wine, cider, spirits and made-wine below 8.5% ABV. In addition, a new relief will be introduced, with duty rates on draft beer and cider being cut by 5%. A consultation on these changes is to be published. The current alcohol duties will continue to be frozen.