Autumn Budget 2021 - Personal and employment taxes

The Budget did not say a great deal about personal taxes in general because there were several announcements made in the previous budget and more recently in the Health and Social Levy. The personal allowances reached £12,570 in April 2021 and were then promptly frozen from that date until April 2026. This will mean that as wages increase, and the Chancellor indicated that these were increasing by 3.5% a year, more people will find themselves either being dragged into paying tax or pushed into the higher tax bracket. 

Sunak also announced a few weeks ago the Health and Social Levy, which adds 1.25% to National Insurance for both employees, reducing their take home pay, but also the cost to the business of employing that member of staff. Furthermore, the rate at which dividends are taxed was also increased by the same 1.25%. Dividends are received by lots of people, from those in retirement to business owners and whilst there is an exemption for the first £2,000 of dividends received, anything above this will be subject to the new levy. 

Another announcement that was leaked prior to the budget, was the increase in the National Living Wage, which will go up from £8.91 to £9.50, and will bring much needed relief to the lower paid, although for employers this will obviously increase their costs and may also have an onward increase on other staff costs too. Another positive was the reduction in the universal taper applied to earnings when someone qualifies for Universal Credit. This had been set at 63%, but the Chancellor, quite rightly, saw this as a ‘tax’ on working and so has agreed to drop this taper to 55%, which he claimed would see families better off by between £1,200 and £1,800 a year. 

Whilst there is much good news in this for the lower paid, the increased funding for social care and the NHS will increase the tax burden on everyone. The Chancellor did, however, clearly state that he will look to reduce the overall tax burden towards the end of this Parliament.

For the unincorporated businesses that cannot benefit from the super-deduction, there was some further relief in the form of an extension to the Annual Investment Allowance, which provides tax relief for investment of up to £1 million in plant and machinery at 100% against business profits. The ceiling was going to reduce to £200,000 from the end of December this year, but the £1m ceiling has now been extended until 31st March 2023.

The only other point of note in this Budget was perhaps what was not announced around capital taxes. There had been many comments that reliefs, such as the Business Asset Disposal Relief (BADR) were going to be restricted or abolished, but there were no such changes announced. In fact, the Chancellor announced no changes to either Capital Gains Tax, where rates were thought to be in line for some increase, or Inheritance Tax, where the rates were thought to be under review, or some of the reliefs may have been abolished but neither of these taxes were changed. This is surprising given the number of consultations the Government has undertaken in both areas, however, for now, things remain as they were. 

For further analysis watch our Autumn Budget webinar or listen to our podcast.