By Mike Chapman, Knill James Tax Partner
If you wanted to learn about the tax impact of Rishi Sunak's third Budget (and his second in 2021) you were never going to glean much from his address to Parliament last week.
Spend, spend, spend
Amidst the grandstanding we heard a lot about the Government's ambitious spending plans - but not a great deal about how the money would be raised to pay for the programmes. Surely not all of this, including the very welcome 50% business rates relief for the retail, hospitality & leisure sectors, could be paid for by an increase in tax revenue from a post-Covid economic recovery?
Delving into the details
Seasoned Budget watchers will know that a read of the Treasury documents often tells you more about a Budget's revenue raising proposals, but even these didn't paint the full picture.
We did see the outcome of the consultation on the Residential Property Developer Tax which will impose a 4% levy on the larger property development companies. This is to help pay for the cladding debacle but is only likely to raise an additional £200m per annum.
Increase to dividend income tax
In addition, the Treasury papers confirmed (though not a peep from the floor of the House on the matter) the 1.25% increase in the rates of income tax applicable to dividend income. The top rate of tax on dividend income from 6 April 2022 will therefore now stand at 39.35%. This change is estimated to raise an additional £1.3billion in 2022/23 alone.
Implications of the new Health and Social Care levy
What the Budget papers didn't disclose - because it was pre-announced on 7 September - was the 1.25% increase in Class 1 employee and Class 4 self-employed National Insurance Contributions payable by workers from 1 April 2022.
These changes (to be replaced by the Health & Social Care Levy in 2023/24) together with the 1.25% increase to Class 1 secondary NICs payable by employers are projected to increase the tax take by a massive £11billion per annum.
Substantial increases in NI contributions for higher earners
For an employee on £50k per annum this will represent a 10.5% increase in NI payable (to £5,356 per annum). For an employee earning £100k per annum, the increase will be nearly 20% a year, taking the bill to a not insubstantial £7,008.
Apart from pre-announcing measures, the other tactic employed by Chancellors to cloak tax increases is to introduce procedural changes to tax administration which accelerate, or increase absolutely, tax receipts.
A sting in the tail for the self-employed
The Autumn Budget saw a classic sleight of hand in the confirmation of changes to the basis of tax assessment for self-employed traders. Masquerading as a reform necessary ahead of the Making Tax Digital (MTD) regime “… to create a simpler, fairer and more transparent set of rules…” the Treasury documents show that the change will bring in a further £820m of income tax in 2024/25!
Given an estimated 528,000 sole-traders and business partners in the UK to whom this applies, this averages out as a £1,500 tax increase in year 1 alone, with a similar amount over the following 5 years. We doubt that any of those half a million self-employed individuals would regard this measure as fairer, simpler or more transparent.
Read our full report on the Autumn Budget here