Rishi Sunak's first Autumn Budget lacked headline-grabbing tax announcements. The focus was on confirming previous announcements and tinkering with existing measures with, as always, consultation on further changes to follow.
A summary of the key tax announcements is set out below. If you would like to discuss the impact of any of the changes on you or your business, please get in touch with a member of the tax team or your usual Taylor Wessing contact.
Business taxes
- The government confirmed the September announcement of a temporary 1.25% rise in the rates of employee, employer and self-employed National Insurance from April 2022 (with the exception of Class 2 and Class 3), followed by the introduction of a 1.25% Health and Social Care Levy from April 2023 and a 1.25% increase in the rates of tax on dividends.
- The temporary increase in the Annual Investment Allowance from £200,000 to £1 million will be further extended until 31 March 2023 (when the super deduction announced at Spring Budget 2021 will also end).
- Following Brexit, the government is aligning the UK's group relief rules in relation to EEA-resident companies with those for non-UK companies resident elsewhere in the world. The changes will apply for accounting periods ending on or after 27 October 2021.
- It was also confirmed that a new regime will be introduced to cover the taxation of asset holding companies from April 2022. The new regime will govern the taxation of certain qualifying asset holding companies (QAHCs) and certain payments that QAHCs may make. For the regime to apply, a QAHC must be at least 70% owned by diversely-owned funds, or certain institutional investors, and mainly carry out investment activity with no more than insubstantial ancillary trading.
- As previously announced, from April 2022 large businesses will be required to notify HMRC when an uncertain tax position is taken (where the tax advantage is expected to exceed £5 million for a 12 month period). This will apply to VAT, corporation tax and income tax. The provisions apply when either: a provision has been made in the accounts for the uncertainty or the position taken is contrary to HMRC's known interpretation. A third trigger was previously included that applied the provisions where there was a "substantial possibility" that a tribunal or court would find the taxpayer's position to be incorrect in material respects. The government remains committed to considering this trigger further, but it has been removed from the draft legislation for the time being – potentially reflective of the considerable difficulty for taxpayers in assessing this trigger.
Real estate
- The government has been consulting on draft legislation for the planned introduction of Residential Property Developer Tax (RPDT) in April 2022. The Chancellor announced that RPDT will be charged at 4% and the annual allowance (below which profits are not within the scope of RPDT) will be £25 million. RPDT will be reported through the corporation tax return, as an extension of corporation tax rather than a separate tax. Build-to-rent activity is not within the scope of RPDT, but this remains under review. Although the government's view is still that the tax should be time-limited, no sunset clause is to be included in the legislation.
- The deadline for UK residents to report and pay capital gains tax in respect of sales of UK residential property will increase from 30 days to 60 days. The same increase in deadlines will also apply to the equivalent obligations for non-UK residents disposing of UK property. The changes apply to disposals on or after 27 October 2021.
- It was confirmed that changes will be made to the UK's REIT regime in order to make it more attractive to investors. Changes have been made to the draft legislation published in July following consultation. The removal of the requirement that shares be admitted to trading on a recognised stock exchange will now apply where 70% of the ordinary share capital is held by institutional investors (down from 99%).
Banking and finance
- The Chancellor confirmed the widely-leaked cut in the rate of the banking surcharge from 8% to 3% from April 2023. This follows the Spring Budget 2021 announcement that the rate of corporation tax would increase from 19% to 25% in April 2023. The Chancellor noted at the time that the rate of the banking surcharge would be reviewed in light of the increase in the main rate of corporation tax, in order to ensure that the UK remained competitive. Despite the reduction in the amount of the surcharge, the combined effect of the surcharge and the increase in corporation tax rates will still result in an increase in the headline rate of taxation for banks from 27% to 28%. However, the surcharge applies to profits in excess of an allowance and the amount of that allowance will increase from £25 million to £100 million.
Future changes
- R&D tax reliefs will be expanded to cover expenditure on data and cloud computing. The Chancellor also announced a refocusing of tax relief on UK expenditure that appears at odds with the push for investment in innovation. Details of these and other changes to R&D tax reliefs will follow and they will take effect from April 2023.
- The government launched a consultation to consider proposals to allow companies to move their domicile to, and, therefore, relocate to, the UK. This would allow an existing company to change its place of incorporation, removing the need to create a new UK entity (which is more complicated than the procedure in many jurisdictions). However, this will only be possible where a company is incorporated in a jurisdiction that allows outbound re-domiciliation. The government is also considering whether to allow outbound re-domiciliation from the UK. The tax implications of re-domiciliation are also being considered.
- A consultation will be launched shortly to consider the arguments for and against the introduction of an online sales tax.
- Options for simplification of the VAT treatment of fund management fees will also be the subject of a consultation.
