On 27 October 2021, the Chancellor delivered his third Budget in conjunction with the Public Spending Review.
Many of the spending announcements had already been leaked to the Press prior to Budget Day and arguably a lot of it was not new money. The Chancellor did however manage to keep a few surprises back for Budget Day.
Rishi Sunak continues to have to tread a fine line between raising taxes to start paying down the massive Government borrowings but at the same time stimulate economic recovery and save jobs.
The changes to tonnage tax and air passenger duty appear to be inconsistent with the government’s goal of reducing CO2 emissions.
“Temporary” £1 million Annual Investment Allowance extended
Businesses investing in plant and machinery will welcome yet another extension in the 100% Annual Investment Allowance (AIA) until 31 March 2023. The 100% relief was scheduled to revert to £200,000 on 1 January 2022. This deduction is available to unincorporated businesses as well as limited companies and the equipment does not have to be new.
This tax allowance is not as generous as the 130% super-deduction announced in the March 2021 Budget which is available when new plant and machinery is acquired by limited companies between 1 April 2021 and 31 March 2023.
Business rates to be made “fairer” and 50% discount for the retail and hospitality sector
The Government continue to promise a fairer system of Business Rates and will provide new reliefs for investment and improvements to business premises. In order to support businesses and jobs in the retail, hospitality and leisure sectors, the chancellor announced a 50% discount in business rates up to £110,000.
High Street businesses still operate at a significant disadvantage to online retailers who generally pay lower Business Rates, and some pay a lot less corporation tax. The Government will consult shortly on an Online Sales Tax which may help level the playing field.
Changes to R&D Tax Relief
As announced in the Budget R&D, tax relief will be reformed from April 2023 to support modern research methods by expanding qualifying expenditure to include data and cloud costs, and to focus tax relief on innovation carried out in the UK. HMRC will continue to target abuse of this generous tax relief and improve compliance.
Group relief for European company losses to end
With effect from 27 October 2021, group relief for losses of 75% subsidiary companies resident in the European Economic Area and companies trading in the UK through permanent establishments will end.
Cultural tax reliefs doubled
Eligible companies engaged in the production of qualifying theatrical productions, orchestral concerts, and museum and gallery exhibitions are currently able to claim an additional deduction in arriving at their profits. Where that additional deduction results in a loss, the company may surrender those losses for a payable tax credit similar to R&D tax relief.
The doubling of the relief is available for the costs of the production/performance incurred between 27 October 2021 and 31 March 2023.
New residential developer tax
From 1 April 2022 the Government will introduce a new tax on company profits derived from larger UK residential property developers. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the corporation tax returns of those companies liable to the new tax.
Entrepreneurs will be relieved that CGT Business Asset Disposal Relief continues resulting in a 10% CGT rate on the first £1 million of lifetime gains.
Contact us to discuss how the Budget and Spending Review 2021 could affect your business, and get some independent, expert advice.