Chancellor Rishi Sunak delivered a budget which was surprisingly short of tax changes. In the run-up to the announcement, the Chancellor was admonished for leak after leak appearing in the press, so it was perhaps no shock that there were few blockbuster announcements on the day.
The Chancellor announced this plan for the economy alongside reports of improved growth, employment and public borrowing figures.
For business
The headline leak in the week of the budget was the increase of the national living wage to £9.50 per hour. This is a 6.6% increase in costs to employers and brings with it associated pension and employers' national insurance increases. There will also be an increase of 9.8% for 21-22 year olds bringing the rate to £9.18; and a 4.1% increase for 18-20 and 16-17 year olds bringing those rates to £6.83 and £4.81 respectively. Apprentice rates will move in line with 16-17 year old’s, standing at £4.81.
After a government review, business rates will not rise in line with inflation for 2022/23 across the board. There was additional relief for retail, hospitality and leisure property owners with a 50% business rates reduction for those eligible. To encourage investment, improvement relief of 100% where developments increase the rateable value of premises will be available. From 2023, business rates revaluations will be triannual, rather than quinquennially.
The annual investment allowance, which gives full tax relief on plant and machinery purchases in the year of acquisition was scheduled to fall to £200,000. However, it will remain at £1m until April 2023. This aligns with the end of the 130% super-deduction announced in the earlier budget.
Research and development tax relief was tweaked, with cloud computing and data costs being added to the list of qualifying expenditure. The criteria was tightened to ensure that relief is only awarded for R&D which occurs in the UK.
The March Budget brought news of the increase in Corporation Tax from April 2023, and this was not amended. Alongside the dividend rate increases mentioned below, limited company directors will feel the pinch of their corporate and personal tax bills rising.
The teetotal Chancellor announced a freeze on alcohol duties alongside a slimming of 16 bands down to 4 new tiers, to match increasing ABV’s with increasing duty rates. There will be relief available for small producers to support innovative micro brewers, and a 5% cut for draft beer and cider kegs to support pubs.
The budget was largely silent on VAT and the hoped-for cut to VAT on energy bills, or an extension of the reduced hospitality rate beyond March 2022, did not materialise.
Personal tax
The freezing of the personal allowance and higher rate tax bracket until April 2026 was announced in the Spring Budget, and there was no divergence from this in the his update.
The tax rate on dividends will increase by 1.25% from 2022/23 as previously announced, making the new rates 8.75%, 33.75% and 39.35% across the basic, higher and additional rate brackets.
Overdrawn Directors' Loan Accounts will also be affected for those which are not repaid within 9 months of the end of the accounting period to which it relates. The current tax rate is 32.5% but this will increase to 33.75% on loans advanced from April 2022.
The 1.25% increases in National Insurance will come in from April 2023. Employees will pay more on their wages, employers will suffer an increase on their staff costs, and the self-employed will see a greater levy on their profits.
Universal Credit cuts were softened with an amendment to the taper rate; a withdrawal of 55p for each pound earned compared to 63p currently. This change comes after the £20 per week increase to payments ended earlier this month; and it is to be introduced by December 2021.
Next steps
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