October 28, 2021 The Autumn Budget and Spending Review
When the Chancellor of the Exchequer, Rishi Sunak, stood up to deliver his 2021 Autumn Budget and Spending Review, it was to a background of unprecedented government spending throughout the covid crisis. Adding to the challenge, a combination of a global surge in energy prices alongside demand for goods increasing faster than global supply chains can deliver has led to a rise in inflation to 3.1% in September 2021, with the OBR expecting CPI to average 4% over the next year.
On a more positive note the OBR now forecasts the UK economy to revert to pre-covid levels by the turn of the year, with unemployment peaking at 5.2%; far below the 12% level forecast in 2020. Growth forecasts have also been raised from 4% to 6.5% this year and 6% in 2022. On the back of these forecasts, the Chancellor has delivered a review entitled ‘a stronger economy for the British people.’
As with all budgets and spending reviews in the past the devil is in the detail; some of which will be released over the coming days and weeks. Below, therefore, we have set out some of the headline announcements which will directly affect businesses. We will issue commentaries on specific items in due course and are happy to discuss with our clients how announcements may affect their company in due course.
- R&D Tax relief. Qualifying expenditure is to be expanded to include data and cloud costs. However, in the light of a survey which highlighted that in 2019 around half of all R&D reliefs related to projects taking place outside the UK, the Government is to refocus reliefs on UK based activity. It is envisaged that these changes will take effect from April 2023.
- Annual Investment Allowance. The temporary increase in the Annual Investment Allowance to £1m is to be extended until 31 March 2023.
- British Business Bank. In addition to confirming £1.6b for the British Business Bank’s regional funds which provide debt and equity finance for SMEs; the project has been expanded to include the South West and North East of England. New funds will also be set up in Scotland and Wales with increased funding available in Northern Ireland.
- Shipping. Reforms are to be made to the UK’s Tonnage Tax regime with the intention of making it easier for maritime businesses to be based in the UK.
- Business rates. The business rates multiplier is to be frozen for a further year until 31 March 2023. Retail, leisure and hospitality businesses will also benefit from a new temporary business rates relief measure which will cover the tax year 2022-23. In 2023 businesses which improve their premises will be able to benefit from a year’s relief from higher business rates. Relief will also be given in cases where eligible plant and machinery is used in onsite renewable energy generation and storage, alongside a 100% relief for eligible heat networks. From 2023 rate revaluations will also take place every 3 years in place of the current 5 year cycle.
At the beginning of his speech, the Chancellor was chastised for announcing policy measures elsewhere. In particular a 1.25% Health and Social Care Levy and a 1.25% increase on dividend tax from April 2022 have already been announced. An increase in corporation tax to 23% from April 2023 was announced last year.
Businesses may also be affected by a raft of reforms in areas such as vehicle excise duty, a simplification of the alcohol duty matrix, residential property developer tax changes, or changes to the Asset Holding Companies Tax regime. As mentioned above, changes such as these are best discussed on an individual company basis to identify potential impacts and benefits.