In his speech the Chancellor wanted to reinforce the Government’s message to build a stronger economy which, would "begin the work of preparing for a new economy". We've detailed how the Budget will impact businesses below:
Corporate Tax
Corporation tax update
It was a budget speech light on fireworks on the corporation tax front. We already knew from the announcement in March this year that the headline rate of corporation tax will increase to 25% from April 2023.
The Annual Investment Allowance limit of £1m, due to reduce to £200k from 1 January 2022, was extended out to 31 March 2023. This will be particularly beneficial for businesses which do not benefit from the super deduction such as leasing businesses or those investing in second hand plant.
There was a relaxation announced to the carry forward loss restriction rules to allow full relief for carry forward losses in distressed companies where accounting profits under IFRS16 arise as a result of lease renegotiations.
There were a number of changes announced as a result of the UK leaving the EU, including the abolition of the limited ability of a UK company to claim group relief for losses from an EEA resident company in certain circumstances, together with administrative changes to simplify the tonnage tax regime which is a specialist corporation tax regime applying to the maritime sector.
For large businesses, the requirement to notify uncertain tax treatments from April 2022 to HMRC where the tax advantage is above £5m was confirmed. The Chancellor took the opportunity to confirm that the bank surcharge will be set at 3% from April 2023, meaning banks with profits over £100m will pay their corporation tax at 28%.
The Residential Property Developer Tax, designed to partly fund cladding remediation costs, was confirmed at 4% on profits over £25m. This new tax is effective from 1 April 2022
A new tax regime for Qualifying Asset Holding Companies (QAHCs) has been introduced to enhance the UK’s competitiveness as a location for investment funds and asset managers. The regime is designed to tax investors in such structures broadly as if they were invested in the underlying assets of the fund. From a corporation tax perspective, there will be a number of relaxations to exempt certain gains within the QAHC from corporation tax and simplifying the deductibility of interest costs.
Corporate re-domicile consultation
Included in the announcements is the launch of a new consultation in respect of plans to introduce to UK law the ability for non-UK companies to transfer their incorporation to the UK and retain the same legal entity. This would enable the existing management structure, assets, intellectual and other property rights, contracts and regulatory approvals to remain intact.
The driver for this would be to increase the attractiveness of the UK as a destination to locate a business, to increase investment and skilled jobs in the UK. Around 50 jurisdictions already have such regimes.
The Government is keen to understand the level of demand for such a regime and which sectors would be most likely to utilise it, as well as which jurisdictions companies are most likely to be seeking to re-domicile from. Such a regime would require significant changes to the UK legal system and is likely to result in some complex tax measures, therefore it is unlikely to be implemented in the short term. However, we consider this to be a positive measure in enhancing the UK’s position for investment and business.
Alcohol Duty Reform
The UK Government intends to restructure alcohol duty so drinks will be taxed in proportion to their alcohol content.
This results in several reforms:
- The number of main rates will be reduced from 15 to 6, with common thresholds for each set of bands across product categories, with rates harmonised for drinks at 8.5% ABV or above.
- To stimulate innovation, the Government plans to introduce reduced rates for products below 3.5% ABV. The UK Government also plans to introduce a common small producer relief, to reduce the tax burden on smaller producers of wine, cider, spirits and made-wine below 8.5% ABV.
- A new relief that recognises the importance of pubs and supports responsible drinking will be introduced, with duty rates on draft beer and cider reduced by 5%. The UK Government will publish a consultation on the detail of these reforms, which will close on 30 January 2022.
The duty rates on beer, cider, wine and spirits will be frozen for another year to help people with the cost of living. The cancellation of the planned increase in duty on spirits including Scotch Whisky, wine, cider and beer is worth around £3 billion.
Tobacco Duties
Duty rates on all tobacco products will increase by RPI + 2%. The rate on hand-rolling tobacco will increase by RPI + 6% and the minimum excise tax will increase by RPI +3% this year. The updates will take effect from 6pm on 27 October 2021.
Air Passenger Duty (APD)
On 1 April 2023 the UK Government will introduce a new domestic band for APD, covering flights within the UK to support connectivity across the UK.
The Government will also introduce a new ultra-long-haul band, covering destinations with capitals located more than 5,500 miles from London. This will align APD more closely with the UK Government’s environmental objectives.
VAT and Duty
The VAT margin scheme is to be extended to apply in Northern Ireland on a limited basis in respect of motor vehicles sourced from Great Britain for the period until a new Second-hand Motor Vehicle Export Refund Scheme is implemented.
Once introduced, the Second-Hand Motor Vehicle Export Refund Scheme will mean that businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. This will put Northern Ireland motor vehicle dealers in line with those applying the VAT margin scheme elsewhere in the UK.
The VAT exemption will also be extended for dental prostheses supplied by registered dentists etc. to imports of dental protheses they make to ensure consistency.
Vehicle Excise Duty (VED)
The VED rates for cars, vans and motorcycles will be uprated in line with RPI from 1 April 2022. The UK Government will continue to freeze heavy goods vehicles (HGV) VED for 2022-23, and suspend the HGV Levy for another 12 months from August 2022 to support the haulage sector and COVID-19 pandemic recovery efforts.
Aggregates Levy
The Aggregates Levy rate will be frozen for 2022-23. It intends to return to index-linking in future.
Gaming Duties
The UK Government will legislate in Finance Bill 2021-22 to raise the Gross Gaming Yield bandings for gaming duty in line with RPI.
Business Rates Reform
A response was given to the consultation on Business Rates with some short term measures to support those worst impacted by COVID in the hospitality and leisure industry and the promise of a separate consultation on online sales tax which, it is anticipated, could fund a reduction on business rates longer term. The response to the consultation can be found here.
How the Scottish Government responds will be shared on our website in due course.
Tax Partner, Head of Corporate Tax
John McAuslin
Partner in our Glasgow office, John joined Johnston Carmichael in 2013.
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