On 27 October, the Chancellor delivered his second Budget of 2021 alongside a multi-year spending review.
Finance Bill 2021-22
Following the Autumn Budget, Finance Bill 2021-22 was published on 4 November. Most of the legislation has previously been published in draft, although there have been changes to some of the provisions.
We will be adding thoughts below on some of the key Finance Bill clauses, starting with the proposal for the UK’s Asset Holding Company regime.
The Chancellor's Budget Speech
The Chancellor’s Autumn Budget Speech itself had limited tax content, picking up the extension of R&D tax relief to cover cloud computing and data costs from April 2023 but with a promised refocusing of relief on R&D carried on in the UK. The Chancellor also announced an extension of the £1m annual investment allowance to March 2023, a reduced rate of bank surcharge (at 3%) from April 2023 and the detail behind the residential property developer tax charge and changes (with a response to original consultation also being published on 27 October).
One of the key areas covered in the Budget Speech were details of the Government’s proposals for business rates (including a one-year discounts for the retail and hospitality sector). This was accompanied by a report setting out the Government’s conclusions of its review of the business rates system, the changes it will pursue and a broad timeline for implementation of those changes.
In terms of duties, from April 2023 a new domestic band for air passenger duty (APD) is to be introduced, covering flights within the UK, to support UK connectivity. In addition, the Government will introduce a new ultra-long-haul band, covering destinations with capitals located more than 5,500 miles from London to align APD more closely with the Government’s environmental objectives. The Chancellor also announced the cancellation of the proposed fuel duty increase and a major simplification of the alcohol duty system. A consultation on the detail of the alcohol duty reforms will close on 30 January 2022 (and the Government will discuss with the EU the application of these reforms to Northern Ireland).
Accompanying announcements and consultations
As ever, there were more announcements in the accompanying documents released alongside the speech, with a mix of new measures and clarification of previously announced measures.
The clarification of the proposed legislation covering uncertain tax treatments suggests that the upcoming Finance Bill (Finance Bill 2021-22) will now only include two triggers for large businesses to notify HMRC when they take a tax position in their returns for VAT, corporation tax, or income tax (including PAYE) that is uncertain: that a provision has been made in the accounts for the uncertainty, or that the position taken by the business is contrary to HMRC’s known interpretation (as stated in the public domain or in dealings with HMRC). It seems the Government will leave for further consideration the idea of the third trigger (where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect).
There was also confirmation of the new regime for Qualifying Asset Holding Companies (QAHCs) and of the delay to 2024 in the implementation of the basis period reform proposals (with some additional detail of the transitional rules for the latter changes).
The uncertain tax treatment proposals, the QAHCs rules and the basis period reform changes will be included in the upcoming Finance Bill to be published on 4 November (and a response to the consultation on basis period reform will be published at that time). The Finance Bill will also include the changes to the rules for hybrid and other mismatches in respect of payments made to hybrid entities where the relevant entities are seen as transparent in their home jurisdiction.
Among the new measures announced for corporation tax, the Government will legislate in the upcoming Finance Bill to:
- Repeal the cross-border group relief rules contained in CTA 2010 and make related amendments to rules applying to losses of European Economic Area resident companies trading in the UK through permanent establishments. The changes will take effect from 27 October 2021.
- Give the Government the power to make regulations in response to the new International Financial Reporting Standard (IFRS) 17, so that the transitional impacts of IFRS 17 on insurance companies can be spread for tax purposes. It will also give the Government the power to revoke the requirement for life insurance companies to spread acquisition expenses over seven years for tax purposes. A formal consultation to help determine the actual changes will be published later this year and HMRC will provide an update on the next steps in the coming week.
- Amend the loss relief rules to ensure that the legislation continues to work as intended for companies adopting IFRS 16. The changes will have retrospective effect from 1 January 2019.
- Introduce a package of measures to reform the UK’s tonnage tax regime.
The Government has also published a consultation on proposals to make it possible for companies to move their domicile to and relocate to the UK by enabling the re-domiciliation of companies. A further consultation will follow shortly on the arguments for and against the introduction of an online sales tax. It will also consult on options to simplify the VAT treatment of fund management fees.
For capital gains tax (CGT), the upcoming Finance Bill will extend the deadline for residents to report and pay CGT after selling UK residential property from 30 days after completion to 60 days. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days.
There were no changes to the rates of CGT announced, nor to inheritance tax or the rates and allowances for pension tax relief. However, the upcoming Finance Bill will increase the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge from 55 to 57. This increase will have effect from 6 April 2028. A subsequent Finance Bill will introduce top-up payments to be made directly to low-earning individuals saving in a pension scheme using a net pay arrangement (starting in respect of contributions made in 2024-25 onwards).
The Government also confirmed it will use the September consumer price index (CPI) figure of 3.1% as the basis for uprating National Insurance limits and thresholds, and the rates of Class 2 and 3 National Insurance contributions, for 2022 to 2023. However, this excludes the Upper Earnings Limit and Upper Profits Limit which will be maintained at 2021 to 2022 levels, in line with the higher rate threshold for income tax.