The Chancellor has published Budget 2021 and the outcome of the Spending Review.
- The Red Book outlining all the Budget announcements can be read here
- A press release “What you need to know about the Budget” can be read here.
- The Chancellor’s speech can be read here.
Commenting on the Budget, Charity Tax Group (CTG) Chair, Richard Bray said:
The Chancellor placed great emphasis in his Budget speech on the role and strength of local communities. Charities are the embodiment of this and yet they continue to be treated as the poor relation when the Government is providing support. If the Government is truly committed to levelling up it must recognise that charities are the lifeblood of their communities. They cannot continue to pay more tax without there being adverse impacts on the people and causes they support and thereby on the communities that the Government says it wants to support. CTG will continue to argue that the tax system needs positive change to support the work of charities.
Commenting on the specific Budget announcements, he said:
We are relieved that the Government does not intend to remove charity business rates reliefs at this time. This provides some certainty for the sector and follows a concerted campaign in defence of securing over £2bn a year for charities. Temporary rates discounts for the retail leisure and hospitality sectors should help, but require a pragmatic approach to subsidy control rules to benefit all charities.
A key priority for CTG is ensuring that Gift Aid is fit for the future. The £136 million investment in HMRC systems is good news and we urge HMRC to continue to invest time and resources into the Future of Gift Aid project.
We welcome the extension of the Museum and Galleries Exhibition Tax Relief and the temporary uplift in the value of the creative tax reliefs. This is good news for cultural organisations as they recover from the impacts of the pandemic,
The continued investment in R&D and innovation is in line with Government policy. But it has missed a trick by not taking steps to stimulate the economic impact of charity-funded research through the tax system.
Headlines for charities include:
- Increase in funding to DCMS including millions of pounds to support museums, cultural and sporting bodies
- Increase to the HMRC budget allowing increased investment in tackling avoidance and ensuring compliance. Funds have also been set aside to enable HMRC to meet the government’s ambition to build a modern, digital tax system fit for the 21st century, including through Making Tax Digital and significant investment in the online Single Customer Record and Account. Investment in the Valuation Office Agency (VOA) will also support the planned changes to business rates revaluations.
- Publishing a response to the fundamental review of business rates the Government has confirmed that it will not change any existing business rates reliefs, including the mandatory and discretionary charity reliefs, at this time. This is worth over £2bn a year to charities and is very important to the sector. The Government will however reform business rates by:
- freezing the business rates multiplier until 31 March 2023, keeping the multipliers at 49.9p and 51.2p
- introducing a new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a £110,000 per business cap. This could be very helpful for charities with eligible properties (including charity shops) but we need to see the detail first, including any subsidy control provisions.
- introducing a 100% improvement relief for business rates. This will provide 12 months relief from higher bills for occupiers where eligible improvements to an existing property increase the rateable value. The government will consult on how best to implement this relief, which will take effect in 2023 and be reviewed in 2028
- increasing the frequency of business rates revaluations so that they take place every 3 years instead of every 5 years, starting in 2023
- As previously announced a new 1.25% Health and Social Care Levy to fund investment in the NHS and social care. This will affect both charities as employers, as well as their employees, from April 2022.
- Introduction of new regulation-making powers that would allow ministers to take decisions to provide income tax and NICs reliefs on specific expenses or benefits-in-kind in the event of a disaster or emergency of national significance. This could have been particularly helpful during the pandemic in terms of Gift Aid changes or reliefs on employee benefits including taxi rides or issues relating to home working.
- Investment in research and innovation and tweaks to R&D tax reliefs. Disappointingly the Government has not taken steps to allow charities to claim these reliefs again, despite the vital role charities play in funding and undertaking medical research.
- Extension of the Museums and Galleries Exhibition Tax Relief (MGETR) for a further two years until 31 March 2024. While this is welcome it is disappointing that there are no plans to extend the relief beyond then or a commitment for a review of the value of the relief. In addition the headline rates of relief for the Theatre Tax Relief Orchestra Tax Relief and the MGETR will temporarily increase to support cultural organisations’ recovery from the pandemic (full details on thresholds below).
- Freeze fuel duty UK-wide in 2022-23
- Publish consultation on options to simplify the VAT treatment of fund management fees
- As previously announced, delay MTD for ITSA by a year until 2025
- Confirm that the new regime of penalties for VAT will come into effect for VAT taxpayers from periods starting on or after 1 April 2022, as announced at Budget 2021.
- Introduce measures to clamp down on promoters of tax avoidance
- Bring forward a further set of tax administration and maintenance announcements later in the autumn.
- Reinstate overseas aid commitments at 0.7% of GNI by 2024-25
Detailed overview of announcements
A more detailed overview of the announcements which may be relevant to charities can be found below (including their paragraph number in the Red Book).
4.79 The settlement will grow the UK’s world-leading culture and heritage sectors, building on unprecedented government support during the pandemic by:
- investing over £850 million over the SR21 period for cultural and heritage infrastructure to safeguard national treasures and boost culture in local communities and on high streets
- providing £52 million in new funding for museums and cultural and sporting bodies next year to support recovery from COVID-19 and an additional £49 million in 2024-25 to thrive thereafter
- Providing £14 million in each year of the SR21 to support our world-leading creative industries, including supporting SMEs to scale up and providing bespoke support for the UK’s independent film and video game industries
- funding the £800 million Live Events Reinsurance Scheme and an extension to the £500 million Film & TV Production Restart Scheme, to enable UK events and productions to thrive and plan with certainty
- committing to work with relevant Arms’ Length Bodies and their sponsoring departments to update and codify the operational and financial freedoms first introduced in 2013 for such organisations, to ensure that the freedoms are fit for purpose and that all stakeholders understand their scope going forward.
4.105 The HM Revenue and Customs (HMRC) settlement provides a £0.9 billion cash increase over the Parliament to £5.2 billion in 2024-25, which is equivalent to a real-terms growth rate of 1.2% per year on average. The funding will ensure the department can continue to support taxpayers to get their tax right, deliver a secure and efficient customs border, and continue its transformation into one of the most digitally advanced tax authorities in the world
4.106 SR21 provides HMRC with the resources it needs to continue bearing down on tax avoidance and evasion. This funding will enable HMRC to combat non-compliance and help fund vital public services, by:
- allocating an additional £292 million across three years for more resources to tackle the tax
gap and ensure that those who should pay, do
- providing £55 million next year for the Taxpayer Protection Taskforce announced at Spring
Budget 2021, expanding HMRC’s compliance work whilst continuing to pursue those who
have abused the government’s COVID-19 support schemes.
4.107 HMRC’s settlement also continues the government’s ambition to build a modern, digital tax system fit for the 21st century, by:
- extending Making Tax Digital, as previously announced, helping to make tax simpler for
businesses and reducing the scope for errors. This is forecast to generate up to £1.6 billion
in additional tax revenues by 2026-27
- providing a further £136 million investment over the SR21 period to deliver the Single
Customer Record and Account. This will create a simpler, faster and better customer
experience, allowing taxpayers to see and manage all their tax affairs in one place
4.108 SR21 delivers significant levels of investment to modernise HMRC’s IT systems and
improve the quality, resilience and security of its digital services, by:
- providing £468 million over the next three years, building on the £98 million allocated in
2021-22, to reduce the risk of system failures, enhance the department’s ability to defend
against cyberattacks and support the continued digitisation and modernisation of the tax
- providing £277 million over the SR21 period to transform the way HMRC procures IT services, creating more opportunities for smaller businesses to compete for contracts and delivering greater technological innovation. This builds on the £135 million allocated at SR20.
4.109 The settlement also supports the government’s strategy to improve our international competitiveness and create a truly global Britain. It provides £2.3 billion across the SR21 period to facilitate trade and deliver a secure and effective border through:
- £838 million over the three years to 2024-25 to complete the delivery of critical customs IT,
including the new Customs Declaration Service
- £107 million next year for the Trader Support Service, which helps traders move goods into Northern Ireland.
4.110 The government is investing in the Valuation Office Agency (VOA) to upgrade digital capabilities and ensure a high-quality service for taxpayers. The settlement increases the VOA’s annual budget to more than £170 million by 2024-25, with the VOA receiving more than £500 million over the next three years. The settlement delivers:
- £80 million of funding to support Revaluation in England
- funding to implement the Fundamental Review of Business Rates for England, including
more frequent revaluations and greater transparency on valuations.
4.111 The settlement will support the delivery of the following priority outcomes:
- collect the right tax and pay out the right financial support
- make it easy to get tax right and hard to bend or break the rules
- maintain taxpayers’ consent through fair treatment and protect society from harm
5.28 The Health and Social Care Levy: As announced by the Prime Minister on 7 September 2021, the government has legislated for a new 1.25% Health and Social Care Levy (the Levy), to fund an historic investment in the NHS and social care. The Levy will apply UK-wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self-Employed) National Insurance contributions (NICs), and to the main and additional rates. The Levy will not apply to Class 2 NICs or Class 3 NICs. The Levy will be effectively introduced from April 2022, when NICs for working age employees, self-employed people and employers will increase by 1.25% and be added to the existing NHS allocation. From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age, and NICs rates will return to their 2021-22 levels. From April 2023, receipts from the Levy will go to those responsible for health
and social care across all parts of the UK.
5.29 Dividend rates: As announced on by the Prime Minister on 7 September 2021, legislation will be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate. The changes will apply UK-wide and will take effect from 6 April 2022. In England, revenue from this increase will help to fund the health and social care settlement announced in September with the Barnett formula applying in the normal way. This change will ensure those with dividend income make a contribution in line with that made by employees and the self-employed on their earnings.
5.30 National Insurance contributions (NICs) rates and thresholds: The government will use the September CPI figure of 3.1% as the basis for uprating National Insurance limits and thresholds, and the rates of Class 2 and 3 NICs, for 2022-23. This excludes the Upper Earnings Limit and Upper Profits Limit which will be maintained at current levels in line with the higher rate threshold for income tax.
5.31 Clarification of income tax treatment of Household Support Fund payments: The government will legislate in Spring 2022 by Statutory Instrument to clarify that payments through the Household Support Fund, and equivalent schemes in the devolved administrations, are not subject to income tax.
5.32 Regulation making powers for national emergencies: The government will introduce regulation-making powers that would allow ministers to take decisions to provide income tax and NICs reliefs on specific expenses or benefits-in-kind in the event of a disaster or emergency of national significance.
Pensions and savings
5.33 State Pension uprating: The earnings data series has been distorted by the pandemic. The government is therefore legislating to temporarily suspend the earnings element of the ‘Triple Lock’ used to uprate the State Pension and Pension Credit. Instead, for 2022-23 the new and basic State Pension, Pension Credit and survivors’ benefits in industrial death benefit will increase by the higher of CPI or 2.5%, protecting pensioners from higher costs of living and protecting taxpayers from the significant additional fiscal pressure created by the statistical anomaly.
5.34 Pensions tax relief administration: Top-up for low earners in Net Pay arrangements – In 2025-26 the government will introduce a system to make top-up payments in respect of contributions made in 2024-25 onwards directly to low-earning individuals saving in a pension scheme using a Net Pay Arrangement. These top-ups will help to better align outcomes with equivalent savers saving into pension schemes using Relief at Source. An estimated 1.2 million individuals could benefit by an average of £53 a year. A response to the Call for Evidence on pensions tax relief administration providing further details is also being published at the Budget and Spending Review.
Corporation tax reliefs
5.38 Research and Development (R&D) tax reliefs: Following the consultation launched at Spring Budget 2021, R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs, to more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and to target abuse and improve compliance. These changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023. Further details of these changes and next steps for the review will be set out as part of the government’s further tax administration and maintenance announcements later in the autumn.
5.39 Annual Investment Allowance extension (AIA): The government will support UK businesses by extending the temporary £1 million level of the Annual Investment Allowance to 31 March 2023. This will provide businesses with more upfront support, encouraging them to bring forward investment, and making tax simpler for any business investing between £200,000 and £1 million.
5.40 Abolition of Cross-border Group Relief (CBGR): The government will legislate in Finance Bill 2021-22 to abolish CBGR and other related loss reliefs from 27 October 2021.
5.41 Museums and Galleries Exhibition Tax Relief (MGETR): MGETR will be extended for a further two years until 31 March 2024, continuing the government’s support for charitable companies to put on high-quality museum and gallery exhibitions.
5.42 Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and MGETR: The government will increase the headline rates of relief for TTR, OTR and MGETR:
- from 27 October 2021, the headline rates of relief for the TTR and the MGETR will temporarily increase from 20% (for non-touring productions) and 25% (for touring productions) to 45% and 50%
- from 1 April 2023, the rates will be reduced to 30% and 35% and will return to 20% and 25% on 1 April 2024. For MGETR, the relief will expire on 1 April 2024 and no expenditure from this date will be eligible for relief
- from 27 October 2021, OTR rates will temporarily increase from 25% to 50%, reducing to
35% from 1 April 2023 and returning to 25% on 1 April 2024
- from 1 April 2022, changes will be made to better target MGETR, TTR and OTR and ensure
that they continue to be safeguarded from abuse
5.44 Business rates: final report of the review of business rates: The conclusions of the government’s review of business rates are published alongside the Budget. To reduce the burden of business rates in England, support investment, and make the system more responsive, the government will:
- freeze the business rates multiplier for a second year, from 1 April 2022 until 31 March
2023, keeping the multipliers at 49.9p and 51.2p
- introduce a new temporary business rates relief for eligible retail, hospitality and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a £110,000 per business cap
- introduce a 100% improvement relief for business rates. This will provide 12 months relief from higher bills for occupiers where eligible improvements to an existing property increase the rateable value. The government will consult on how best to implement this relief, which will take effect in 2023 and be reviewed in 2028
- introduce from 1 April 2023 until 31 March 2035 targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible heat networks, to support the decarbonisation of non-domestic buildings
- increase the frequency of business rates revaluations so that they take place every 3 years
instead of every 5 years, starting in 2023
- provide additional funding to the Valuation Office Agency to support the delivery of the new revaluation cycle. Further detail on this is set out as part of the SR21
- extend transitional relief for small and medium-sized businesses, and the supporting small
business scheme, for 1 year. This will restrict bill increases to 15% for small properties (up to
a rateable value of £20,000 or £28,000 in Greater London) and 25% for medium properties
(up to a rateable value of £100,000), subject to subsidy control limits
5.45 Online Sales Tax consultation (OST): The government will also continue to explore the arguments for and against a UK-wide OST. The government will publish a consultation shortly. If introduced, the revenue from an OST would be used to reduce business rates for retailers in England. The block grants of the Devolved Administrations would be increased in the usual way.
5.46 Residential Property Developer Tax (RPDT): As announced in February 2021, the government will introduce a new tax from April 2022 on the profits that companies and corporate groups derive from UK residential property development, to ensure that the largest developers make a fair contribution to help pay for building safety remediation. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million.
5.47 Capital Gains Tax (CGT): property payment window: From 27 October 2021 the deadline for residents to report and pay CGT after selling UK residential property will increase from 30 days after the completion date to 60 days. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days. This will ensure that taxpayers have sufficient time to report and pay CGT, as recommended by the Office of Tax Simplification. When mixed-use property is disposed of by UK residents, legislation will also clarify that the 60 day payment window will only apply to the residential element of the property gain.
5.49 APD rates: For the tax year 2023-24, the economy rate for the domestic band will be set at £6.50. The rates for the short- and long-haul bands will increase in line with RPI, meaning that the short-haul economy rate will remain frozen at £13 and the long-haul economy rate will Autumn Budget and Spending Review 2021 145 increase by £3. The economy rate for the ultra-long-haul band will be set at £91, £4 greater than the long-haul band. This applies across the UK except for the direct long-haul rates for Northern Ireland which are devolved.
5.50 Company Car Tax (CCT): As announced at Budget 2020, the government confirms that the CCT rates already announced for 2022-23 will remain frozen until 2024-25.
5.51 Vehicle Excise Duty (VED): The government will uprate VED rates for cars, vans and motorcycles in line with RPI from 1 April 2022.
5.53 Company vehicles: From 6 April 2022, the van benefit charge and the car and van fuel benefit charges will increase in line with CPI.
5.55 Fuel duty rates The government will freeze fuel duty UK-wide in 2022-23.
5.57 Aggregates Levy: The government will freeze the Aggregates Levy rate for 2022-23 but
intends to return to index-linking in future.
5.64 VAT: Exemption for dental prostheses imports: The government will extend the current VAT exemption for dental prostheses supplied by registered dentists and other dental care professionals or dental technicians to imports of dental prostheses by these persons. This will ensure the VAT treatment for such prostheses supplied into and within the United Kingdom, including between Great Britain and Northern Ireland, is consistent
5.65 Asset Holding Companies (AHC) Tax Regime and Real Estate Investment Trusts (REITs) Amendments: Following two consultations, the government is introducing a new framework for the taxation of companies that are used by funds and institutional investors to make their investments – asset holding companies (AHCs). These new rules, which cover the taxation of AHCs as well as payments made by AHCs (including changes to the remittance basis), will help to build on the UK’s strengths as an asset management hub by enhancing the attractiveness of the UK as a location for AHC establishment. Targeted changes are also being made to the tax rules for REITs. These tax changes, which will take effect from April 2022, will support activity and jobs across the UK.
5.66 Update on UK funds regime review: The government remains committed to its ongoing review of the UK’s funds regime. In addition to the AHCs and REITs reforms, the FCA has now published its rules for the new Long-Term Asset fund, a structure which will be supported by the recommendations of the Productive Finance Working Group, published last month. The government will also publish its response to the call for input on the broader elements of the UK funds regime review, as well as a consultation on options to simplify the VAT treatment of fund management fees, in the coming months.
Tax administration and non-compliance
5.70 Basis period reform: The government will legislate in Finance Bill 2021-22 to reform income tax basis periods so businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of its accounting date. This removes the complex basis period rules, the need to charge tax on profits twice and the need for overlap relief. The transition to the new rules will take place in 2023-24 and the new rules will come into force from 6 April 2024.
5.71 Office of Tax Simplification (OTS): Board Governance: In advance of the conclusions of the Review of the OTS which will be published later in the autumn, the government will legislate in Finance Bill 2021-22 to increase the independent representation on the OTS Board by two members, for a total overall membership of ten.
5.72 Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA): As announced on 23 September 2021, the government will give sole traders and landlords, with income over £10,000 an extra year to prepare for MTD. MTD for ITSA will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025.
5.73 Reform of penalties for late submission and late payment of tax for ITSA: As announced on 23 September 2021, the new regime of penalties for the late filing and late payment of tax for ITSA will now come into effect on 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD, and 6 April 2025 for all other ITSA taxpayers. The new regime of penalties for VAT will come into effect for VAT taxpayers from periods starting on or after 1 April 2022, as announced at Budget 2021.
5.74 Clamping down on promoters of tax avoidance: The government will legislate in Finance Bill 2021-22 for further measures to clamp down on promoters of tax avoidance. The package of measures, which will take effect following Royal Assent, will:
- allow HMRC to freeze a promoter’s assets so that the penalties they are liable for are paid
- deter offshore promoters by introducing a new penalty on the UK entities that support them
- provide for the closing down of companies and partnerships that promote tax avoidance
- support taxpayers to steer clear of avoidance schemes or exit avoidance quickly, by sharing
more information on promoters and their schemes
5.75 Tax administration and maintenance announcements: The government will bring forward a further set of tax administration and maintenance announcements later in the autumn. This follows a similar set of announcements published in the Command Paper, “Tax policies and consultations (Spring 2021).”
The Budget and Spending Review ensures that the UK will remain a development superpower and one of the largest official development assistance (ODA) donors in the G7, spending the equivalent of 0.5% of its national income as overseas aid in 2022. In addition, as a result of the government’s careful stewardship of the public finances and the strength of the economic recovery, the ODA fiscal tests are now forecast to be met in 2024-25, earlier than the OBR forecast in March. As such, SR21 also provisionally sets aside additional unallocated ODA funding in 2024-25, to the value of the difference between 0.5% and 0.7% of GNI. The ODA allocated to departments at SR21 will ensure that the UK continues to demonstrate leadership on the biggest challenges facing the world, including support for women and girls, global health, humanitarian response, and tackling climate change.
£11 billion of Overseas Development Assistance (ODA) including doubling our international climate finance to £11.6bn between 2021-22 and 2025-26 and £430 million to the Global Partnership for Education to help to educate young people, particularly for girls.