The second Budget of 2021 produced very few surprises and was very much a continuation of the tone set in March, with the emphasis on continued support for business, especially the sectors worst hit during the pandemic, but with no big, headline-grabbing tax changes.
Many of the main measures had been announced before Budget day and, with our long experience of working with professional practices, we have summarised the main areas which will impact the sector.
Changes to how and when profits are taxed
The Budget confirmed that from 5 April 2024 all sole traders and partnerships will be taxed on the profits arising on a tax year basis, in what is being called “Basis Period Reform”. This change will potentially have a big impact on all businesses that currently have an accounting year-end other than 31 March or 5 April.
Currently, sole traders and partnerships are taxed on the accounting period ending in a tax year. 2023/24 will be the year of transition to the new basis and, where this transition results in higher profits for 2023/24, there is to be an automatic spreading of the additional profits over a period of five years. There will be the ability however to elect out of this spreading and to treat the additional amounts as arising in the tax year.
The 5 April 2024 start date aligns with the new start date for Making Tax Digital for Income Tax and this change is widely seen as preparation for that, as well as a simplification of the current system.
The Health and Social Care Levy
The Budget confirmed that the new 1.25% Health and Social Care Levy to fund investment in the NHS and social care will, as expected, take effect from 6 April 2022.
The Levy will apply to all individuals subject to Class 1 (employees) and Class 4 (self-employed) National Insurance contributions and will mean a 1.25 percentage point increase in the national insurance rates paid. It will not apply to those paying Class 2 or Class 3 National Insurance.
From 6 April 2023, the national insurance rates will return to current levels and the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age.
Dividend Tax Rates
The Budget also confirmed the 1.25 percentage point increase on the dividend tax rate from 6 April 2022.
The dividend rates will be as follows:
- Dividends falling in the basic rate band will be taxed at 8.75%,
- Dividends falling in the upper rate band will be taxed at 33.75%
- Dividends falling in the additional rate band or dividends received by a trust will be taxed at 39.35%
There has been no change or abolition to the dividend allowance of £2,000.
Corporation Tax Rates
The Chancellor confirmed in his Budget speech that, from 1 April 2023, the Corporation Tax main rate will increase to 25% as previously announced. This will apply to profits over £250,000, companies with profits of £50,000 or less will continue to pay 19%. Those with profits between £50,000 and £250,000 will pay tax at 25% but with marginal relief applied.
Capital Allowances
In one of the few new announcements on Budget Day, the Chancellor confirmed that the £1,000,000 limit for the Annual Investment Allowance will not reduce to £200,000 on 1 January 2022 as originally planned but will remain in place until 31 March 2023.
Capital Gains Tax
From Budget Day, the 30-day window for UK residents to report and pay the Capital Gains Tax liability arising on the sale of a UK residential property has increased to 60 Days. As previously, this period runs from the date of completion.
For non-UK residents disposing of any property in the UK, this deadline will also increase from 30 days to 60 days.
Business Rates
The Chancellor announced a set of changes to business rates in the UK following an 18-month long consultation. The multiplier for calculating business rates will be frozen for 2022 and 2023 and revaluations will move to every three years from 2023, down from the current rate of every five years. New measures will also be introduced to support investment in green technologies as well as the decarbonisation of buildings used for work.
If you’re unsure of how the Budget will impact you, speak to a member of the team today!
