A new temporary 50% business rates discount was announced for these sectors, in a bid to help their recovery after the pandemic, which will apply from April 2022 to March 2023, capped at £110,000 per business. In addition, the rates multiplier which was due to apply in April 2022 will be frozen for the second year running, to avoid unwelcome rates increases for recovering businesses.

Following the consultation launched at the Spring 2021 Budget, the Chancellor confirmed that R&D tax reliefs will be reformed from April 2023, to allow the inclusion of cloud and data costs which are often used in research, while also focusing the relief on R&D activities carried out in the UK, but also to target abuse and improve compliance. We’ll bring further news on this as details are released.

The Chancellor confirmed that the current £1 million Annual Investment Allowance, which provides tax relief on the full cost of purchasing plant and machinery (and vans) for your business (whether new or second hand), will remain at that level through to March 2023. This is a welcome measure as it was previously due to revert to £200k from January 2022, and it applies alongside super deduction relief which gives tax relief on 130% of the purchase of qualifying new plant and equipment.

This measure was also announced last month (see previous Tax Bulletin), alongside the NIC increase, in a bid to bring parity for limited company owners that often remunerate themselves with a low salary plus dividends. This increase sees the basic dividend tax rate increase from 7.5% to 8.75% from April 2022, while higher rate taxpayers will see an increase from 32.5% to 33.75%, and additional rate taxpayers go from 38.1% to 39.35%.

The Budget documents confirm Rishi’s announcement last month that NIC will increase by 1.25% for both employees and employers from April 2022, with all wage levels over the NIC threshold affected. Employees will therefore pay 13.25% on earnings up to £50,270 pa, and 3.25% on earnings above this level, while the rate for employers will increase from 13.8% to 15.05%. Class 4 NIC rates for the self-employed also increase, from 9% to 10.25%, and from 2% to 3.25% on higher profits.

In a bid to encourage those on lower incomes to work more without such a significant drop in their universal credit, the Chancellor announced a permanent reduction in the taper rate at which universal credit is withdrawn for every extra £1 earned, from the current 63% to 55%. This change will be made in the coming weeks, and will be in force no later than 1 December 2021.

As already released to the media ahead of the Budget Speech, Rishi Sunak confirmed that the National Living Wage for employees aged 23 and over will increase from £8.91 to £9.50 from April 2022, an above inflation increase of 6.6%. National Minimum wage for younger employees will also increase from April 2022, with large increases for apprentices and those aged 21 to 22 in particular.

In a bid to level the playing field with business owners who take lower salaries and supplement their income with dividends which do not attract NIC, the government also announced an increase in dividend tax rates by 1.25% from April 2022. This will see the existing dividend tax rate on basic rate taxpayers increase from 7.5% to 8.75%, while the dividend tax rate applying to dividends above the higher rate tax threshold will increase from 32.5% to 33.75%, with those dividends over the additional rate tax threshold increasing from 38.1% to 39.35%. This represents an additional tax burden on business owners, on top of the additional employers NIC cost for their businesses.

In order to bring parity between employed and self-employed workers, it was confirmed that the 1.25% increase will also be applied to the Class 4 National Insurance rates paid by the self-employed (which includes partners in a partnership or LLP). This means that the current Class 4 NIC rate of 9%, which applies to profits from £9,568 to £50,270 per annum, will increase to 10.25% from April 2022, while the reduced rate applying to profits over £50,270 per annum will increase from 2% to 3.25%. For someone with a profit of £30,000 per annum this is an additional annual NIC cost of £255.

Alongside the increase to employee NIC rates, it was also announced that the 1.25% increase will also apply to employer NIC contributions, from April 2022. Employers currently pay 13.8% NIC on each employee’s earnings over £8,844 per annum, with no reduced rate for higher earnings as there is with employees NIC. This change will see the employers NIC rate increasing to 15.05%. For an employee earning £30,000 gross per annum, this will cost the employer an additional £264 per annum (£22 per month).