Autumn Budget 2021 Highlights

On Wednesday, the Chancellor of the Exchequer, Rishi Sunak, stood up to give the details of his third budget, albeit the second he has presided over this year. In this article, we look at what was announced that might affect future exam sittings.

The first thing to say is many of the allowances and thresholds will stay the same in 2022/23 as they are currently, for example:

• The personal allowance stays at £12,570
• The higher rate threshold for income tax stays at £37,700
• The additional rate threshold for income tax stays at £150,000
• The annual exempt amount for capital gains tax stays the same at £12,300
• The IHT nil rate bands stay the same at £325,000 and £175,000 (the residence NRB)
• The pensions lifetime allowance remains at £1,073,100

There were also no changes made to company car tax, stamp duty land tax or VAT.

What will change is the hike in National Insurance contributions and dividend tax as already announced to cover the Health and Social Care Levy. This is designed to help the NHS tackle its backlog as well as to support the increasing costs of social care.

The rates of tax on dividends will increase in the next tax year by 1.25%.  The dividend allowance remains the same (£2,000) so after this is used, any excess dividends will be taxed as follows:

• A basic rate taxpayer will pay 8.75%
• A higher rate taxpayer will pay 33.75%
• An additional rate taxpayer will pay 39.35% (as will trusts)

As for National Insurance contributions, the lower earnings limit was raised to £123, the primary contribution threshold was raised to £190 and the secondary threshold was raised to £175.  The thresholds for the upper earnings limit and the upper profits limit stayed the same, in line with the higher rate threshold for income tax.

There will be a 1.25% increase in Class 1 contributions (for employees and employers) and Class 4 contributions (for the self-employed), but the levy will not apply to Class 2 or Class 3 contributions.

The new rates are therefore:

• Class 1 for employers – 15.05%
• Class 1 for employees (main rate) – 13.25%
• Class 1 for employees (higher rate) – 3.25%
• Class 4 for self-employed (main rate) – 10.25%
• Class 4 for self-employed (higher rate) – 3.25%

From April 2023, at which point HMRC will have had time to update their systems, the 1.25% levy will be separated and National Insurance contributions will revert to their current levels. At that point, the levy will not only apply to employers, employees, and the self-employed, it will also apply to those people still working above their State pension age.

Other changes were as follows:

• The married couple’s allowance/civil partner’s allowance increased to £9,415 with a minimum of £3,640, reduced by £1 for every £2 of adjusted income over £31,400
• The blind person’s allowance was increased to £2,600

A couple of other changes that will also affect future exams concern capital gains tax and self-employed taxation, both tested within R03.

As of 27 October 2021, a disposal of UK residential property (either by a UK resident or a non-UK resident) will now require a CGT return to HMRC and a payment on account within 60 days of completion.  This has been raised from 30 days following advice from the Office of Tax Simplification.

And as anyone knows who has already taken a CII tax exam, particularly the AF1 exam, the way the self-employed and partners are taxed in the early years of business is complex, so any future student will be pleased to hear that the rules are to be simplified and will remove the need for overlap relief. Tax year 2023/24 will be a transition year with the rules fully in place from 6 April 2024.

I can hear future AF1 students reaching for the reduced prosecco and draught lager already… (although please note that changes to alcohol duty don’t come into effect until February 2023!).