2 November 2021
The UK government announced the Autumn Budget on 27 October 2021 in the UK, making changes to the tax regime. Please see the key changes that may affect you and your business.
Direct business taxes
Corporation Tax charge and rates
The previously announced measure on changes in the corporation tax remained the same. The measure sets the charge to Corporation Tax and sets the main rate at 19% for the Financial Year beginning 1 April 2022 and the charge to CT (Corporation Tax) for the Financial Year beginning 1 April 2023.
This measure also announces that from 1 April 2023, the Corporation Tax rate changes as follows:
The main rate for non-ring-fenced profits will be increased to 25% applying to profits over £250,000;
A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%;
Companies with profits between £50,000 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.
The government will legislate in Finance Bill 2021-22 to set the rate of the surcharge on banking companies at 3% and increase the surcharge allowance from £25m to £100 million. This measure will have effect from 1 April 2023.
Research & Development (R&D) tax relief
From April 2023, R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. Changes come into effect from April 2023. Further details of these changes will be released later.
Capital allowance
The annual investment allowance (AIA) had previously been increased temporarily from £200,000 to £1 million, but this was due to end on 31 December 2021. The increase will now extend for a further 15 months until 31 March 2023 for both income tax and corporation tax.
Simplification of the re-domiciliation regime
The government intends to make it possible for companies to move their domicile to and relocate to the UK by enabling the re-domiciliation of companies. The government published a consultation on its proposals at Autumn Budget 2021.
Discussion on the introduction of an Online Sales Tax
The government will consult shortly on an Online Sales Tax. The consultation will explore the arguments for and against the introduction of an Online Sales Tax.
Residential Property Developer Tax
A new residential property developer tax will apply with effect from 1 April 2022 to relevant profits arising on or after this date for companies undertaking residential property development activities. It was confirmed that the tax will be charged at 4% on profits exceeding an annual allowance of £25 million.
Stamp duty and stamp duty reserve tax (SDRT) treatment
The Government is proposing legislation in Finance Bill 2021-22 to facilitate changes to the stamp duty and stamp duty reserve tax (SDRT) treatment of securitization companies and qualifying transformer vehicles which feature in transactions involving insurance-linked securities (ILS). During the consultation on the UK tax treatment of securitizations in the spring of 2021, concerns were expressed regarding the uncertainty surrounding the application of the stamp duty loan capital exemption to securitization companies. Those concerns centred around both:
securities issued and raised by securitization companies, particularly where the returns on those securities are related to the profits of a business or carry a right to an excessive rate of return or repayment; and
the stamp duty and SDRT treatment of the transfers of pools of loan assets as part of securitization arrangements.
Provisions in Finance Bill 2021-22 will allow the Government to make regulations to provide that stamp duty or SDRT is not chargeable on transfers of securities issued or raised by a securitization company or a qualifying transformer vehicle. The Government has also stated its intention that those regulations will also provide that stamp duty or SDRT is not chargeable on transfers of securities to or by a securitization company.
Diverted profits tax
DPT will now be included as a tax covered by the UK's double taxation treaties and so mutual agreement procedure (MAP) outcomes will be able to be implemented for companies who have sought relief from DPT under this procedure. The interaction between the DPT review period and company tax return enquiries will also be rationalised.
This will be achieved by extending the period in which a company tax return can be amended where there is a DPT review from the first 12 months of the DPT review period to the whole of the review period, other than the final 30 days. These changes have effect from 27 October 2021.
Cross-border group relief
For accounting periods ending on or after 27 October 2021 the existing beneficial cross border group relief rules relating to EEA-resident companies are repealed. This is because of the UK's exit from the European Union. Group relief rules relating to EEA-resident companies are to be brought into line with those for non-UK companies resident elsewhere in the world so that all non-UK resident companies can only surrender as group relief losses of a UK permanent establishment if it is not possible for the loss to be deducted from non-UK profits of any person for any period.
Real Estate Investment Trusts (REITs)
From 1 April 2022, changes will be introduced in relation to the tax rules applying to REITs including some of the conditions that determine whether a company qualifies to be a UK REIT (Real Estate Investment Trust). The changes are:
removal of the requirement for REIT shares to be admitted to trading on a recognised stock exchange in cases where institutional investors hold at least 70% of the ordinary share capital in the REIT;
amending the rules requiring that at least 75% of a REIT's profits and assets relate to property rental business (the 'balance of business test') to disregard non-rental profits.
Indirect business taxes
VAT rules in free zones
The main VAT benefit of operating in a free zone is that businesses selling goods within free zones can zero-rate their supplies, and services carried out on goods in those zones may also be zero-rated subject to conditions, which provides a cash flow advantage. This measure will ensure that:
where goods leave a free zone and there is no qualifying onward supply of the goods, or
where there is a breach of the rules of the free zone customs procedure, VAT will be due.
This measure is to take effect from 3 November 2021.
VAT treatment of fund management fees
No changes have been made yet, but the government will consult on options to simplify the VAT treatment of fund management fees.
Personal taxes
Income Tax charge and rates
The previously announced income tax rates and personal tax allowances are still the same. For 2021-22 tax year (6 April 2021 – 5 April 2022). Personal allowanceis up to £12,570. Basic rate for income £12,571–50,270 is 20%, higher rate for income £50,271–150,000 is 40%, additional rate for income more than £150,001 is 45%.
The government will legislate in Finance Bill 2021-22 to set the charge for income tax, and the corresponding rates, as it does every year. Finance Bill 2021-22 will set:
the main rates for 2022 to 2023, which will apply to non-savings, non-dividend income of taxpayers;
the savings rates for 2022 to 2023, which will apply to savings income of all UK taxpayers;
the default rates for 2022 to 2023, which will apply to an extremely limited category of income taxpayers.
The government will legislate in Finance Bill 2021-22 to set the 0% band for the starting rate for savings income, which will remain at its current value of £5,000 for 2022 to 2023. This measure will apply to the whole of the United Kingdom.
Dividend tax rates
The three income tax rates applied to dividend income will each increase by 1.25 percentage points for 2022/23 onwards. The Dividend Allowance, also known as the nil rate band, will remain unchanged at £2,000. The main trust rate is unchanged at 45%. It is also confirmed now that the increased dividend upper rate (38.1%) will apply for charging tax under Corporation Tax Act 2010, s455 on loans to participators in close companies.
Tax administration
Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)
Sole traders and landlords with income over £10,000 have an extra year to prepare for Making Tax Digital. General partnerships will not be required to join MTD for ITSA until 6 April 2025.
The change will be introduced from 6 April 2024.
Penalties for late submission and late payment of tax for ITSA
The new penalties for the late submission and late payment of tax for ITSA will now come into effect:
on 6 April 2024 for taxpayers in ITSA who are required to submit digital quarterly updates through MTD;
on 6 April 2025 for all other ITSA taxpayers.
The new late submission and late payment penalties for VAT will come into effect for VAT registered businesses from accounting periods starting on or after 1 April 2022.
Summary
Thus, although some issues are under discussion, it should not be forgotten that certain changes have already been made or will be made soon. We will continue to monitor legislation changes and keep you updated in order that you can take appropriate action in a time.
For further information on any of the points above contact
Mikita Makayou at mikita@lexefiscal.com, or
Dr. Frank at clifford.frank@lexefiscal.com.