Autumn Budget 2021: The seven most important talking points
On Wednesday, 27th of October, the Chancellor of the Exchequer, Rishi Sunak, presented his much-awaited Autumn Budget 2021 in the House of Commons. The autumn budget centres on the post-pandemic economy “of higher wages, higher skills, and rising productivity” and economic growth.
Let’s break down the Seven key talking points of the Autumn Budget 2021.
- Inflation that was 3.1% in September could shoot to an average of 4% by the close of 2022, eradicating the consumer purchasing power, predicts the Office for Budget Responsibility.
- After a slump of 9.9% in 2020, the UK economy is now on course to reach the pre-pandemic size next year, with a spike of 6.5% this year, followed by 6% in 2022, 2.1% in 2023, 1.3% in 2024, 1.6% in 2025, and 1.7% in 2026.
- Unemployment which was anticipated to be 11.9% by the end of next year, is now forecasted to be at 5.2%. OBR also has scaled down its previous anticipations of the scarring effect of Covid-19 on the economy from 3% to 2%.
- Since February 2020, wages have grown by 3.4%, and the Treasury has now announced that the National Living Wage will rise to £9.50/hour (6.6% increase) next year.
- Borrowing is expected to be £183bn (7.9% of GDP) this year and is forecasted to fall to £83bn (3.3% of GDP) in 2022-23.
- The Chancellor has announced a decrease of 8% in the Universal Credit taper rate starting from 1st December. The new amount of Universal Credit subtracted from a working claimant’s earnings will be 55%.
- Business Rates have been temporarily slashed by 50% for the retail, hospitality, and leisure sectors. Having been severely hit by the pandemic, these sectors will benefit from savings up to a maximum of £110,000 for the year 2022-23.
- The planned increase in fuel duty has been revoked amidst the fuel price hikes in the international market. The fuel duty freeze would help small businesses save up to £8 billion in the next five years.
- The government plans to spend £20bn for R&D tax relief by 2024-25, rising to £22bn by 2026-27. Businesses will be eligible for a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability. The relief will be limited to those businesses with domestic R&D projects.
- The Banking Surcharge is set to be decreased from 8% to 3% following the standard corporation tax rate increase. Banks will still be paying increased combined taxes on profits. The Surcharge Allowance is also set to rise from £25 million to £100 million.
- The Economic crime levy will be imposed on anti-money laundering regulated businesses that pay an annual fixed amount related to their annual revenues. Small Businesses with UK revenues of less than £10.2million will be fully exempted.
- Creative tax reliefs have been doubled until April 2023 for museums, theatres, orchestras, and galleries. Film tax relief will also be available for films released on online streaming services rather than the cinemas.
- National Insurance Contributions on pay over £9,568 will rise by 1.25% from April 2022, which will be consumed on health and social care across the UK. The rise in National Insurance contributions will be for one year and will only apply to:
- NIC Class 1 (paid by employees)
- Class 4 (paid by self-employed)
- Secondary Class 1, 1A and 1B (paid by employers).
Employers will only pay on earnings above the secondary threshold.
- The price increases in goods and energy bills will benefit the treasury with £4bn increased VAT receipts, in 2022/23, more than previously expected.
- VAT exemption on imports of dental prostheses by dentists will be extended. There will be no change in VAT registration and deregistration thresholds for a further two years.
- The previous 30-day deadline to pay and report Capital Gains Tax (CGT) on disposal of UK residential property is stretched to 60 days.
- The Inheritance Tax rates, allowances, reliefs and exemptions remain unaltered, and the nil-rate band remains frozen at £325,000 until 2026.
- Income Tax bands and allowances remain unchanged except for a slight rise in the blind person’s allowance.
- The Dividend Tax rate will increase by 1.25% for the 2022-23 Financial year across the bands, but the tax-free allowance will remain unaltered.
- The Corporation tax rate will increase from 19% to 25% after April 2023. But Small Businesses with profits lower than £50,000 will still be charged at 19%.
Alcohol and Cigarettes
- Chancellor Rishi Sunak has promised to reform and simplify Alcohol Duty by introducing rates based on the principle that “the stronger the drink, the higher the rate”.
- Duties on more potent drinks, including red wines, fortified wines, and high-strength ciders, will increase.
- While small producers, including producers of rose fruit ciders, wine, liqueurs, lower strength wines and beers, will see lower duties imposed on them.
- The Treasury is also planning to extend its small brewer’s tax relief scheme to small producers of alcohol and cider producers.
- Drinks served from drought containers over 40 litres will be eligible for a lower duty rate, cutting the tax by 5% and decreasing the price of a pint by 3p.
- The planned rise in the duty of wine, spirits, beer and ciders has also been cancelled.
- Sparkling wines will be free of the “irrational” 28% duty premium and will pay the same duty as still wines of equal strength.
- Duty on cigarettes will rise by Retail Price Index inflation plus 2%. The price of the cheapest pack of 20 Cigarettes will be increased by 61p.
- Duty on hand-rolling tobacco will increase by Retail Price Index plus 6%, increasing a 30g pack’s price by 89p.
- Chancellor Sunak has announced reforms to air passenger duty based on the principle that “those who fly furthest will pay the most”.
- This move will increase the cost of flying long-haul while the rates for flying within the UK countries will be cut by 50% from April 2023.
- In an effort to reduce carbon emission, a new duty band for ‘ultra-long-haul’ flights of over 5,500 miles will be introduced from April 2023. The distance will be considered from London to the destination country’s capital.
- For 2022-23, the Annual Tax on Enveloped Dwellings (ATED) will increase by 3.1%, in line with inflation.
- The new Residential Property Developer Tax of 4% will apply to developers with profits surpassing the allowance of £25 million.
- £24 billion has been allocated for housing which includes already assigned £11.5 billion to build 180,000 affordable homes.
- There have been no new changes announced to Stamp Duty Land Tax (SDLT) rates.
- £1.8 billion have already been announced for schools and colleges to recover from the impacts of the pandemic.
- Chancellor has also pledged an extra £4.7 billion for England’s schools by 2024-25.
- Further, £300 million have been promised for parenting programmes and £170 million for childcare.
- Funding for each pupil will be increased to £1,500 per pupil, equivalent to 2010 levels.
- The departmental spending will have the “largest increase of this century” by £150 billion in this parliament.
- The total spending year-on-year grew by 3.8%.
- Sunak has increased the funding for the governments of Scotland, Wales and Northern Ireland.
- The Scottish local Government will receive £4.6 billion,
- The Welsh Government will receive £2.5 billion,
- And Northern Ireland Executive will receive £1.6 billion.
- The Chancellor has also announced a rise in core science funding to £5.9 billion by 2024-25.
- To help tackle NHS overloads, a £6billion budget has been announced.
- £7 billion were announced for transport projects in regions including the West Midlands, Greater Manchester and South Yorkshire.
- Additional £2.2bn were announced for courts, probation services and prisons.
- Levelling Up Fund of £1.7 billion will be invested in local areas across the UK.
The Chancellor concluded with the statement that his government’s goal had been to reduce taxes by the end of this parliament and focus on spending plans. And all the significant tax increases were to grow revenues and pay for the costs of the pandemic.
It is to be noted that this article only highlights key talking points and is not a complete guide on the Autumn Budget 2021. Contact our professional accountants for further advice on Inheritance Tax, Dividend Tax, Creative tax reliefs, and more.
Thao is a Senior Accounting Manager at Clear House Accountants. Her experience in the industry has led her to her current position in which she is responsible for a team of accountants, tax planners and bookkeepers.
Thao works with her team to help clients from a variety of industries, grow, save money and plan for the future. Thao holds a Bachelor and Masters degree in Accounting and Finance and is currently working towards her ACCA, she is also a Xero and Quickbooks Certified Advisor.
Thao’s expertise lies in high-level tax planning, management accounting and strategic business planning based on financial performance and business analytics. Her experience, expertise and knowledge make her an exceptional contributor at Clear House.