The 2021 Autumn Budget will be delivered on 27th October. This will be the second Budget in 2021, following the March Budget and will be Rishi Sunak’s third since becoming Chancellor, writes Matt Herd, Personal Tax Director with Ensors Chartered Accountants.
Many of the Coronavirus support schemes introduced since the beginning of the pandemic have now ended and it will be interesting to see whether the Chancellor believes that now is the right time to start introducing personal tax increases to help repay the government borrowing.
Any announcements that reduce household income will be particularly unwelcome given the withdrawal of the £20-a-week Universal Credit uplift and rising gas bills.
Health & Social Care Levy
The Government has already announced a 1.25 per cent increase to National Insurance from April 2022 to go towards funding the NHS and addressing the social care crisis. The dividend tax rate will increase by 1.25 per cent at the same time.
The National Insurance increase will be replaced by a 1.25 per cent Health & Social Care Levy from April 2023.
The National Insurance increase will affect employers, employees and the self-employed. Those working beyond state pension age will also have to pay the new levy. Individuals who only pay Class 2 and Class 3 National Insurance contributions will not be affected.
Although it has yet to be confirmed, it is believed that the levy will not apply to pension income.
Capital Gains Tax (CGT)
In the March 2021 Budget, the Chancellor announced that several tax thresholds are to be frozen until 2026 to help fix public finances in the wake of the pandemic including the CGT annual allowance.
There is speculation that further changes to CGT rules may be introduced including increases to the rates and/or the restriction of reliefs.
Rishi Sunak ordered an urgent CGT review from the Office of Tax Simplification (OTS) in July 2020.
Proposals made by the OTS included aligning CGT more closely with income tax rates and reducing the CGT allowance from £12,300 to between £2,000 and £4,000. As part of his Budget, the Chancellor may confirm whether any of these proposals are to be implemented.
Triple Lock
The Government has also confirmed that the state pension ‘triple lock’ will be suspended for a year. The triple lock guarantees that the state pension will increase every year by the highest of:-
Inflation Average wage earnings growth 2.5 per centThe Coronavirus Job Retention Scheme (furlough scheme) has seen earnings growth reach an unusually high eight per cent. Therefore, that element of the lock has been removed.
Making Tax Digital (MTD) for Income Tax
It was announced last month that MTD for income tax will be delayed by a further year.
MTD for income tax will now be introduced from April 2024 for sole traders and landlords. General partnerships will not be required to join MTD until April 2025.
Under the requirements of MTD for income tax, self-employed businesses and landlords with annual business or property income above £10,000 will be required to keep their accounting records electronically and file quarterly returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies.
A final end of period statement will then be submitted after the tax year to complete the individual’s tax affairs.
Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is currently expected to remain in place.
Student loan repayment threshold
Finally, it is understood that Rishi Sunak may be planning to overhaul the student finance system.
The Government reportedly plans to reduce the earnings threshold at which students must begin to repay their student loans. Currently, students begin to make repayments once their annual earnings reach £27,295.
