Chancellor Rishi Sunak has delivered a bigger budget than expected. The Chancellor’s room to manoeuvre was boosted by a much more optimistic outlook from the Office for Budget Responsibility (OBR) which sees less permanent scarring from the pandemic on the economy, borrowing coming in about £34 billion lower this year and better economic growth number this year than they previously thought. There is a lot of ‘noise’ in the economic numbers at the moment but the economy is now expected to post a growth rate of 6.5% this year, up from the 4.0% that was predicted in March. The Chancellor also has close to £40bn extra in his calculation coming from tax rises previously announced.
While the economy projections are better than expected, the fear of inflation lurked over this budget. Inflation is now forecast to average 4% over the coming year, double what OBR expected previously. Many of the factors that are driving inflation concerns are global issues and there was not a lot the Chancellor could do about them. He will however be concerned that inflation proves more than transitory and derails his plans.
Given the better prospects, the Chancellor was able to announce a range of sizable initiatives. The 6% increase in the National Minimum Wage and changes to the Universal Credit taper will be a welcome boost to low earning employees. Spending announcements on infrastructure and ‘levelling up’ will also provide a boost to economic prospects. Locally, the Chancellor announced a £1.6bn per annum boost for the NI Executive. At face value that appears to be a generous settlement but with the scale of economic challenges that NI faces it may be insufficient.
The Chancellor, also announced and confirmed a number of measures which will impact individuals and businesses. The key messages in the Budget announcement are outlined below:
From 6 April 2022, the national living wage will increase to £9.50 (currently £8.91), providing an annual pay-rise of over £1,000.
As announced in September, a new health and social care levy of 1.25% will apply from April 2023 on earnings for employees, the self-employed and employers.
An interim increase in NIC of 1.25% will apply from April 2022 to the main and higher rates of employee, employer and self-employed NIC, until the new levy is introduced. Income from property and pensions will be exempt from this additional levy.
The income tax rates on dividend income for individuals are to increase from 6 April 2022.
Currently an individual has 30 days from the date of the disposal of UK land or buildings to submit their Capital Gains Tax return and associated payment on account, however for disposals that complete from 27 October 2021 onwards this timeframe to submit and pay has been extended to 60 days.
The increased rate of corporation tax from 1 April 2023 of 25% will remain, however the bank surcharge will decrease from 8% to 3%, resulting in banks being liable to a higher rate of corporate tax of 28%.
The Research and Development (R&D) tax relief definition is to be expanded to also include cloud computing and data costs incurred for qualifying R&D purposes. Due to the quantum of overseas R&D expenditure included in the claims, it appears there will be also be a limitation on costs incurred from 1 April 2023 whereby only domestic costs should be included in R&D tax relief claims (further detail is to be released).
The new Residential Property Developer Tax (RPDT) is to apply from 1 April 2022 at a rate of 4%, with a group allowance annually of £25 million for property development profits. The calculation of profits for this tax will exclude other trading profits, interest and relief for losses or capital expenditure.
Under the Northern Ireland Protocol, the VAT margin scheme is not available for sales of motor vehicles in NI if they were purchased in GB. Motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be able to be sold under interim regime announced which allows for the VAT margin scheme to operate in NI. announced. This interim regime is expected to be replaced by the Second-hand Motor Vehicle Export Refund Scheme in due course.