Autumn Budget 2021

With the Speaker of the House of Commons by tradition not presiding over the Budget, the Chancellor might have hoped he would escape a rebuke over the number of important announcements disclosed to the media in advance.

That was not to be, with the Chancellor instead receiving a ticking-off from Dame Eleanor Laing, the Chairman of Ways and Means, who takes charge on Budget day.

Before Rishi Sunak rose to the despatch box, we already knew the public sector pay freeze would end. The Treasury had also confirmed there would be £5.7 billion for public transport in city regions, £5.9 billion to tackle waiting lists in the NHS, an increase in the National Living Wage to £9.50 an hour, £1.8 billion for housing on brownfield sites, as well as further cash for education.

The question, then, was what the Chancellor was saving for the Budget and whether this would include any significant tax changes.

The 2021 Spring Budget marked a post-pandemic turning point in the Government’s approach to tax and spending. Already this year, the Government has announced several significant tax rises. Corporation Tax is rising in 2023 and next year will see Dividend Tax and National Insurance Contributions rise by 1.25 percentage points.

Any taboo around tax rises had been blown apart. But, at the same time, the cost of living has risen rapidly, putting pressure on households and businesses.

The question, then, was how the Chancellor would balance the cost of the spending plans already set out and the need to recognise the pressure on households and businesses against his desire to repair the public finances following the pandemic.

Would taxes rise and, if so, who would be the winners and losers?

The economy and public finances

In contrast to his two previous Budgets in Spring 2020 and Spring 2021, the Chancellor struck a strikingly optimistic tone about the country’s economic prospects.

He said that forecasts from the independent Office for Budget Responsibility (OBR) predict economic growth of 6.5 per cent this year, with the economy returning to its pre-pandemic size at the beginning of 2022.

Next year, the OBR expects GDP to rise by six per cent, followed by increases of 2.1 per cent in 2023, 1.3 per cent in 2024 and 1.6 per cent in 2025.

The forecast is significantly better than that presented at the Spring Budget when the OBR predicted economic growth of four per cent this year.

Meanwhile, the OBR’s forecasts for long-term economic scarring as a result of the pandemic and for unemployment have been cut from three per cent to two per cent and 12 per cent to 5.2 per cent respectively.

Acknowledging the increasing pressure on households and businesses, the Chancellor said that inflation is predicted to average four per cent next year.

Turning to borrowing, the Chancellor announced a revised Charter for Budget Responsibility, which will require that:

  • Debt falls as a percentage of GDP in normal circumstances
  • Borrowing is restricted to investment in future growth and not used for day-to-day spending
  • Public net investment does not exceed 3.5 per cent of GDP on average

He said these rules have been met.

Spending review

Moving to the spending review, the Chancellor said there would be real terms increases in spending for every Government department, with overall spending over the parliament rising by £150 billion, averaging 3.8 per cent a year.

He said local authorities will receive grant funding of £4.8 billion, while overseas aid will once again reach 0.7 per cent of GDP by the end of the Parliament.

The Chancellor went on to say that schools funding for each pupil will return to 2010 levels and a tripling of investment would create 30,000 new special school places.

He then set out 1.7 billion of Levelling Up funding for places include Stoke, Leeds, Doncaster and Leicester.

Next, he said there would be £21 billion for roads and £46 billion for railways as well as funding to bring public transport in regional cities in line with that available in London.

Finally, he outlined a £3.8 billion investment in skills and training.

Science and technology

Moving to his plans for science and technology, the Chancellor said that Government research and development (R&D) spending would reach £20 billion by 2024-25 and £22 billion by 2026-27.

However, he said there were problems with the way R&D tax reliefs have been working, announcing plans to expand them to cover investment in cloud technology and data, but also to restrict their use to domestic activities. He did not set out what would constitute domestic activities.

Elsewhere for science and technology, he announced the launch of visa programmes for highly skilled individuals.

He also confirmed a new UK Shared Prosperity Fund worth £2.6 billion to boost skills.

Hospitality, arts and culture

Hospitality was a significant theme in the Budget, with the Chancellor making several announcements targeted at the sector.

400,000 properties used by retail, hospitality and leisure businesses will be able to benefit from a 50 per cent business rates discount.

Meanwhile, the Chancellor announced extensive changes to alcohol duties, which included simplifying the banding to ensure the drinks with the highest alcohol content had higher duties and those with the least alcohol, the lowest duties.

He said this would mean high percentage drinks would attract more duty and the lowest percentage drinks would attract less than they have done until now.

Meanwhile, Small Brewers will be expanded to other small alcohol producers, while there will also be reliefs for draught beers and sparkling wines.

Turning to the arts and culture, he said tax reliefs for the sector would be doubled and extended until March 2024.

Business and personal taxes

Before the Budget, there was some suspicion that business and personal taxes might be at the forefront of the Chancellor’s announcements. However, that turned out not to be the case with them receiving relatively little attention in the speech itself.

The Chancellor made no mention of the Capital Gains Tax (CGT) and Inheritance Tax (IHT) reforms that had been predicted in some quarters.

Instead, he turned his attention to business rates, saying he would not heed calls to scrap them, instead opting for more frequent revaluations every three years, starting in 2023; introducing an investment relief for green technologies and an improvements relief that would delay increases in rates, in the following 12 months; as well as cancelling the planned increase in the multiplier.

Away from business rates, the Chancellor confirmed a further extension to the £1 million Annual Investment Allowance until March 2023.

He said that, as expected, the planned increase in fuel duty would be cancelled. Also expected, was confirmation that the National Living Wage will rise to £9.50 in April 2022.

The Chancellor announced details of the Residential Property Developer Tax, announced in February 2021, confirming a four per cent levy on companies and corporate groups’ profits from UK residential property, where they exceed £25 million a year.

While not announced in the Budget, the documents published after the Chancellor sat down confirmed that the deadline for paying Capital Gains Tax (CGT) on property would be extended from 30 to 60 days.

Scottish Spending Boost

Through the Barnett formula, which allocates the proportion of spending in the devolved nations, Scottish Government funding will increase by £4.6 billion.

The British Business Bank’s Regional Funds will also be extended in Scotland providing additional funding of up to £150 million to SMEs.


The Chancellor struck a markedly different tone from his Spring Budget, with optimism that could have been mistaken for the Prime Minister.

There were no new major tax rises and good news for the beleaguered hospitality sector.

Strikingly, the Chancellor felt sufficiently optimistic to say he planned to see taxes going down by the end of Parliament.

Whether that ambition will come to pass will depend on whether the economy meets the new, more upbeat expectations set out by the OBR.

Official documents link

I have been sent a nudge letter by HMRC – What should I do next?

Thousands of taxpayers across the UK have received ‘nudge letters’ from HM Revenue & Customs (HMRC) encouraging them to declare unpaid tax.

The reasons for being targeted vary but the impact of being contacted by HMRC can cause a lot of stress, leaving many taxpayers unsure about what they should do.

Who is HMRC targeting with nudge letters?

HMRC has said there are a number of reasons why they may issue a nudge letter to a taxpayer, but a large number of these communications seem to come from HMRC obtaining information that suggests a taxpayer has overseas income or gains.

They are also concerned that some taxpayers may not have paid the remittance basis charge – a flat rate tax charge on overseas income and gains for particular qualifying individuals living but not domiciled in the UK.

HMRC has said that its letters may not indicate what year income or gains were realised, which means their enquiries could relate to multiple tax years and more than one asset.

This lack of transparency has left many nudge letter recipients bemused.

What should you do if you receive a nudge letter?

The first thing is not to panic. HMRC has said taxpayers may be contacted because of:

  • Discrepancies in the data received from overseas tax authorities;
  • Changes to an individual’s personal circumstances or tax laws; or
  • New information supplied to them that requires clarification.

HMRC typically gives taxpayers 30 days to respond to a letter before it begins to take any action, although in some cases it may ask you to respond sooner.

While it is important to respond quickly, if you cannot provide a suitable answer within this timescale, HMRC may offer an extension if one is requested.

Who can help with HMRC nudge letters?

If you receive a nudge letter from HMRC you should seek help from a tax adviser at the earliest opportunity. They can communicate with HMRC about its requirements, assess the reason for the letter and calculate what tax may be due.

In some cases, taxpayers that have undeclared overseas income and gains may be able to use the Worldwide Disclosure Facility, which could help to reduce penalties and the tax bill.

Link: HMRC sends ‘nudge’ letters to non-doms over unpaid tax

Received a CJRS compliance check? Act now!

The Coronavirus Job Retention Scheme (CJRS) ended in September but many firms could still be subject to a CJRS compliance check in the weeks and months ahead.

HM Revenue & Customs (HMRC) has been sending out letters to employers throughout the year telling them they need to pay back CJRS payments because they claimed too much or are suspected of furlough fraud.

What is a compliance check?

In addition to checking CJRS payments, HMRC could write or phone to say they want to check:

  • Any taxes you pay
  • Accounts and tax calculations you have submitted
  • Your Self-Assessment tax return
  • Your company tax and VAT returns
  • PAYE records and returns, if you employ people.

These compliance checks can even be sent at random where there is no suspicion of illegal or inappropriate activity.

How does HMRC determine CJRS fraud?

HMRC classes furlough fraud as:

  • Not paying employees the full amount they are entitled to
  • Employers claiming furlough payments for workers who are still working for them
  • Claiming payments for non-existent employees
  • Not telling staff they are furloughed, who only find out when they receive their wages
  • Backdated claims that include periods in which the employee was working.

What if my business was not entitled to payments?

HMRC can claw back any money paid out which the employer was not entitled to via a 100 per cent income tax charge whether the claim was made innocently or deliberately. This includes overpayments of a CJRS grant due to errors.

The compliance check will request details of staff members and how much money they received while furloughed. HMRC will typically give a short timescale to provide this information – usually around 30 days.

HMRC will write to tell you the results of the check. You will then be:

  • Told no additional tax is due;
  • Repaid if you’ve paid too much tax – you may also get interest on the amount you’re owed; or
  • Asked to pay additional tax within 30 days if you owe more ­– you’ll normally have to pay interest from the date the tax was due.

You may also have to pay a penalty. When issuing fines HMRC will look at:

  • The reasons why you underpaid or overclaimed the tax
  • Whether you told HMRC as soon as you could
  • How helpful you’ve been during the check.

If you have problems paying, you should tell HMRC immediately, as it may be possible to arrange a time to pay arrangement.

If I am penalised, how much will I pay?

The penalty percentage will fall within a range and depends on the type of behaviour and whether the disclosure was unprompted or prompted. They fall broadly into three categories:

  • Deliberate
  • Non-deliberate
  • Deliberate and concealed or treated as deliberate and concealed

Each carries a different penalty, which can be seen here.

If you do get a letter or phone call about a CJRS compliance check then you should seek immediate assistance from an accountant.

Link: Flood of HMRC fraud enquiries expected as furlough finishes

MTD for Income Tax delayed – What it means for you

Unincorporated businesses have heaved a sigh of relief after the Government delayed the date for the implementation of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) by one year to 2024.

Hit hard by the pandemic, it will give these businesses, including the self-employed and landlords, an extra 12 months breathing space to prepare for the changes.

What are the changes?

The self-employed and landlords with a gross income from their business or property of more than £10,000 per annum will need to follow the MTD for ITSA rules from 6 April 2024.

It will not be necessary for general partnerships to join MTD for ITSA until the tax year beginning 6 April 2025, while the date other types of partnerships will be required to join is yet to be confirmed.

The Government introduced a more favourable system of penalties for the late filing and late payment of tax for ITSA in March 2021.

This penalty scheme is for those who are required to comply with MTD for ITSA and will now also come into force in the tax year beginning April 2024 for the self-employed and landlords, and April 2025 for all other ITSA taxpayers.

There will be the chance to explore the benefits and challenges of MTD early if you are an eligible business or landlord, via the Government’s pilot scheme.

This is already underway and will be increasingly expanded during the 2022/23 tax year, preparing for a greater scale of testing in the 2023/24 tax year.

How can you prepare for these changes?

It’s vital that businesses use the correct software to meet the new requirements, such as HMRC approved cloud accounting software or a set of compatible software programs that can connect to HMRC systems via its Application Programming Interface (API).

The software must be able to:

  • Keep records in a digital form
  • Preserve digital records in a digital form
  • Create a VAT or tax return from the digital records held in functional compatible software and provide HMRC with this information digitally
  • Provide HMRC with VAT and tax data on a voluntary basis
  • Receive information from HMRC via the API platform that the business has complied.

Will you be ready?

MTD is the first step in HMRC’s shift towards an innovative, digital tax service, supporting businesses through their journey in the ever-evolving modern world.

Although the initiative has been postponed by a year, taxpayers must be fully prepared, as they could face fines or penalties if they do not abide by these changes.

It is important that they implement suitable software, such as an HMRC-approved cloud accounting solution, and migrate their information across to the new systems in advance of the new deadline.

This may require additional training and changes to existing accounting processes and procedures.

Link: Businesses get more time to prepare for digital tax changes