Addressing the House of Commons, Chancellor Rishi Sunak used the 2021 Autumn Budget to announce new fiscal rules to ensure public finances 'remain on a sustainable path' during the ongoing recovery from the coronavirus (COVID-19) pandemic.
Dividend rate rises by 1.25%
The rates for dividend tax rises were confirmed from the new tax year in April 2022 to fund the social care levy, announced last month. This measure increases the rates of income tax payable on dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be 33.75% and the dividend additional rate will be 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate. The changes will apply UK-wide and will take effect from 6 April 2022.
This is the first rate rise since April 2018. Any individual who has dividend income can benefit from the dividend allowance which has been set at £2,000 since April 2018. Legislation will be introduced in Finance Bill 2021-22 to change sections 8 and 9 of the Income Tax Act 2007 to increase the rates of tax applicable to dividend income including the dividend trust rate. This will also have the effect of raising the rate of tax charged under s455, Corporation Tax Act 2010 on loans to participators and on personal representatives that are liable to tax on dividends paid into estates of deceased persons under s14 of the Income Tax Act 2007.
Residential property developer tax set at 4%
After the earlier announcement that a residential property developer tax would help pay for remedial cladding work, the Chancellor confirmed the tax will take effect from April 2022. The new tax will be levied on the profits that companies and corporate groups derive from UK residential property development, to ensure that the largest developers make a fair contribution to help pay for building safety remediation. The tax will be charged at 4% on profits exceeding an annual allowance of £25m.
Tonnage tax reform to open up shipping registrations
The government will introduce a package of measures to reform the tonnage tax regime from April 2022 to attract ships to register in the UK. These reforms aim to see more shipping companies basing their headquarters in the UK, using the UK’s maritime services industry, and flying the UK flag. The extension will also cover cruise companies, ships that lay cables to help create wind farms and scientific research vessels.
As part of these reforms, the government will remove any requirement for ships in the UK Tonnage Tax regime to fly the flag of any EU country now the UK has left the EU, and instead focus on boosting the use of the UK flag when determining which companies can participate in the regime. This will make it easier for shipping companies to participate in the tonnage tax regime by reducing the lock-in period from 10 years to eight years to align more closely with shipping cycles.
HMRC will be given more discretion to admit companies into the regime outside of the initial window of opportunity where there is a good reason. HMRC will also review guidance on which vessels and operations qualify for the regime to take account of developments in technology and the shipping market since the tax was introduced. The government will also review whether to include ship management within scope of the tonnage tax regime, and whether the existing limit that can be claimed in capital allowances by organisations leasing ships to tonnage tax participants should be raised.
Tax relief for creative and cultural industries to rise
The Chancellor has announced the tax relief of up to 50% for theatres, galleries, and other cultural organisations worth almost £250m. The government is to raise the rates of three corporation tax reliefs that are collectively referred to as the ‘cultural reliefs’. These are the theatre tax relief (TTR), orchestra tax relief (OTR), and museums and galleries exhibition tax relief (MGETR). The rates for the theatre tax relief for non-touring will be 45% and for touring 50%. The orchestra relief tax will be 50% and the museum and galleries exhibition tax relief will be 45% for non-touring and 50% for touring. The Chancellor stated that this is a relief worth nearly £250m. This is a rise of the current reliefs which are between 20% to 25%.
The relief is a temporary measure to help these industries recover from the Covid-19 pandemic and is planned to last for two years and five months beginning from 27 October 2021. The rates will be tapered down from 1 April 2023 down to 30% for non-touring and 35% for touring before returning to the normal levels from 1 April 2024. The specific relief measures for museums and galleries, which was due to expire in March, will be extended by another two years.
The Chancellor also announced the extension of the Recovery Loan Scheme in this sector until 30 June 2022, with a 70% government guarantee for lenders on loans up to £2m this is to ensure that lenders continue to have the confidence to lend to SMEs.
Business rate cut for hospitality and leisure
As the hospitality industry continues to recover from the pandemic, the Chancellor announced significant discounts on business rates for specific sectors for the next 18 months. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23. To support local high streets as they adapt and recover from the pandemic, the government is introducing a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022-23, worth almost £1.7bn.
Up to 400,000 retail, hospitality and leisure properties will be eligible for the new, temporary £1.7bn of business rates relief next year. This will provide support until the next revaluation, helping the businesses that make UK high streets and town centres successful evolve and adapt to changing consumer demands.
The government is also freezing the business rates multiplier in 2022-23, a tax cut worth £4.6bn over the next five years. This will support all ratepayers, large and small, meaning bills are 3% lower than without the freeze.
From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy.
Annual investment allowance extended
The government will extend the temporary £1m level of the Annual Investment Allowance (AIA) to 31 March 2023. It was due to expire at the end of 2021 so this will give some to smaller firms to take advantage of the tax break on investment. This will provide businesses with more upfront support, encouraging them to bring forward investment, and making tax simpler for any business investing between £200,000 and £1m. The AIA is a 100% capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit.
Businesses claim the AIA in respect of expenditure which would otherwise be eligible for writing down allowances (WDAs). Given at either the main or special rates, WDAs provide relief for eligible capital expenditure over a number of tax periods. The AIA therefore accelerates relief, typically simplifying processes for businesses and aiding their cashflow.
Finance will be available up to a maximum of £2m per business, supporting them to recover from the impact of the pandemic and to grow. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover.
The Chancellor also confirmed over £1.6bn for the British Business Bank’s Regional Funds to provide debt and equity finance to SMEs, and to expand the Regional Angels programme. There will also be more funding for start up loans to deliver 33,000 loans to entrepreneurs across the UK looking to start or grow their business.
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