The Autumn Budget 2021 and Spending Review in a snapshot

Today (Wednesday 27th October 2021), Chancellor of the Exchequer, Rishi Sunak, delivered his third budget in parliament, along with the Spending Review. As the country looks to bounce back from the catastrophic impact of the coronavirus pandemic, experts predicted several tax hikes and strategies to recuperate billions of pounds for the UK economy. This blog article summarises the key announcements in the Autumn Budget 2021 and Spending Review, and includes feedback from the Freelancer and Contractor Services Association (FCSA).

What is the difference between the Spending Review and the Budget

The Budget is a shorter-term plan that explains the government’s spending for the upcoming months. It usually focuses on taxes and duties. Most commonly, the Budget happens once or twice a year, and the last Budget was on the 3rd March 2021 (often referred to as the Budget 2021).

The Spending Review is usually announced every three years and provides a more long-term plan for spending money and boosting the economy. Unlike the Budget, which looks at the economy in a shorter term, the Spending Review focuses on spending up to five years ahead. In the Spending Review, the government explains how much each department will receive in funding.

The Spending Review “will decide how £4 trillion of taxpayers’ money will be spent by setting the maximum amount that the different departments can spend.”

What has already been announced prior to the Autumn Budget 2021?

• The government has already announced a rise in National Insurance (1.25%) to help fund social care and the NHS.
• Almost £6 billion to go towards the NHS backlog which has been caused by the pandemic.
• The National Living Wage is going to rise to £9.50 per hour.
• £6.9 billion will be invested into the English transport network.
• The freeze on public sector pay will be stopped.

An overview of the Autumn Budget 2021 and Spending Review

Addressing parliament, Chancellor Rishi Sunak unveiled the Autumn Budget 2021 and Spending Review. Early in his delivery, he said:

“Today’s Budget delivers a stronger economy for the British people: stronger growth, with the UK economy recovering faster than our major competitors. Stronger public finances, with our national debt finally under control. Stronger employment, with fewer people out of work and more people in work.

Growth up, jobs up, and debt down: let there be no doubt – our plan is working.”

Keep reading for a summary of the key announcements in the Autumn Budget and Spending Review. For a more in-depth look at the measures, please visit the government’s website.

The economy

• In September, inflation was 3.1% but this is expect to rise to an average of 4% over the next year, according to the Office for Budget Responsibility (OBR).
• By 2022, the UK’s economy is expected to return to how it was before the coronavirus pandemic.
• Annual growth is very positive, with a rebound of 6.5% this year, and a growth of 6% predicted in 2022.
• The overall unemployment figures were not as bad as predicted. Next year, it is expected to reach 5.2%. However, this figure was once forecast as being 11.9%.
• Wages have been boosted by 3.4% since February 2020.
• The government’s borrowing is expected to fall significantly next year. As a percentage of Gross Domestic Product (GDP), borrowing is 7.9% this year but it’s expected to fall to 3.3% in 2022. In the four years thereafter, borrowing is estimated to decline further (to 1.5% of GDP).
• The spending on foreign aid is projected to go back to 0.7% by 2024-25.

Tax and spending

• Overall spending for Whitehall departments will rise throughout the reign of this parliament – totaling £150 billion.
• There is going to be an 8% reduction in the Universal Credit taper rate and this will happen by the 1st of December. The decline will see the rate drop from 63% to 55%.
• The government will not be increasing fuel duty – despite previously planned. This is due to fuel prices being at an eight-year high.
• The retail, hospitality and leisure sectors will benefit from a 50% business rates discount (up to a maximum discount of £150,000).
• £24 billion will be put towards housing, with £11.5 billion being put towards 180,000 affordable homes. The focus on development areas will be brownfield sites.
• Property developers with profits over £25 million will be subjected to a 4% levy. The idea behind this levy is to create a significant pot (£5 billion) to help remove unsafe cladding from buildings.
• The Scottish Government will receive a funding rise of £4.6 billion.
• £2.5 billion will be given to the Welsh Government.
• The Northern Irish Executive will receive a funding rise of £1.6 billion.
• Courts, prisons and probation services in the UK will receive an extra £2.2 billion.
• There will be an extension in tax relief for museums and galleries. this will now continue to March 2024.
• The government confirmed it will be backing projects in numerous towns/cities throughout the UK, including Aberdeen, Burnley, Lewes, Clwyd, Sunderland and Leeds.
• Funding will be made available to core sciences, with a rise of £5.9 billion a year by 2024-25.

Education

• By 2024-25, schools will receive additional funding of £4.7 billion.
• To help schools and colleges recover financially from the impact caused by the pandemic, close to £2 billion extra funding will be made available (new funding).
• In real terms, funding towards schools will return to 2010 levels. This will work out as a cash boost of over £1,500 per pupil.
• A “Start for Life” parenting programme will be launched with £300 million funding. An additional £170 million is promised towards childcare by 2024-25.
• There is going to be a new UK-wide programme set up to help adults improve basic math skills.

Travel

• To help the travel industry recover, internal flights (between UK airports) will be subjected to lower rates of Air Passenger Duty, coming into effect in April 2023.
• British airports will receive an additional six months’ worth of funding.
• There is going to a be a new duty (Air Passenger Duty) for flights over 5,500 miles (from April 2023).

Alcohol

• The proposed rise in duty on spirits, wine, beer and cider has been cancelled.
• Alcohol duties are going to be simplified and rather than 15 rates, there will be 6.
• There will be a small increase in the alcohol rates of some red wines, fortified wines and higher-strength ciders.
• Plenty of weaker-strengthen alcoholic beverages will have duty decreases too, including some rose wines, fruit-based ciders and lower-strength beers.
• From now on, all sparkling wines will have the same duty as non-sparkling wines with the same alcoholic strength.
• Draught beers and ciders will have a new rate cut by 5%.

Key Information for Contractors

Health and Social Care Levy

From April 2022, all working-age employees and self-employed workers will be required to contribute to the new Health and Social Care Levy alongside their National Insurance Contributions (NICs). The Levy will increase the National Health Service funds, and the new Bill will stipulate exactly how the proceeds will be used.

The 1.25% Levy will apply across the UK with an increase in Class 1 (Employer, Employee) and Class 4 (Self-employed) NICs and the main and additional rates.

From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated from NICs and will also apply to the earnings of individuals working above State Pension age. NIC rates will also return to their 2021/22 levels in April 2023 as the Levy comes into effect, as outlined in the table below.

NIC	2021/22 Current NIC Threshold   Main rate/higher rate	2021/22 Current NIC Rate   Main rate/higher rate	2022/2023 NIC Rates   Main rate/higher rate	2023/24 NIC Rates and H&SC Levy   Main rate/higher rate
Employees (Class 1)	£9,568	12%/2%	13.25%/3.25%	12%/2% and 1.25% (H&SC)
Employers (Class 2)	£8,840	13.8%	15.05%	13.8% and 1.25% (H&SC)
Self-employed (Class 4)	£9,568	9%/2%	10.25%/3.25%	9%/2% and 1.25% (H&SC)

*For 2021/22, the main rate is for earnings between £9,568 and £50,270. The higher rate applies to earnings above £50,270.

Dividend Tax Rates

The rates of income tax to be paid on dividend income will increase by 1.25%. The tax-free £2,000 dividend allowance will remain. The dividend tax rates from April 2022 will be as follows:

• Basic rate taxpayer – 8.75%
• Higher rate taxpayer – 33.75%
• Additional rate taxpayer – £39.35%

The dividend trust rate will also increase to 39.35% to align with the additional dividend rate.

Capital Gains Tax

Chancellor Rishi Sunak previously announced the Capital Gains Tax (CGT) annual exempt amount of £12,300 would be frozen until 2026. Basic-rate taxpayers will continue to pay 10% on Capital Gains above this amount, and higher-rate taxpayers will pay 20%.

Since April 2020, if you dispose of a Residential Property, you need to report and pay any CGT due via an online HMRC within 30 days after the completion date. The deadline has now increased for residents and non-UK residents to 60 days after the completion date.

When a mixed-use property is disposed of by a UK resident, the 60-day payment window will only apply to the residential element of the property gain.

Corporation Tax

For limited company contractors and small businesses, Corporation Tax will remain at 19% for the fiscal year from 1^st April 2022. From April 2023, Corporation Tax will increase from 19% to 25% when a company’s profits are over £250,000. The tax will remain at 19% for profits up to £50,000. A tapered increase will be applied up to the main rate of 25% when a company’s profits reach £250,000.

Business Rates

The Chancellor announced that business rates revaluations will now happen every three years instead of every five years, starting in 2023.

From 2023, businesses can make property improvements and, for 12 months, pay no extra rates because of a new ‘business rates improvements relief’. This will provide 12 months of relief from higher occupier bills where eligible improvements to an existing property increase the rateable value.

The Chancellor also introduced a new temporary business rates relief for eligible hospitality, retail and leisure properties for 2022-23. Eligible properties will receive 50% relief, up to a maximum of £110,000 per business.

Making Tax Digital for Income Tax Self-Assessment

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will be introduced from 6^th April 2024 for sole traders and landlords with gross income over £10,000. General partnerships will not be required to join MTD for ITSA until 6^th April 2025.

Annual Investment Allowance

The temporary Annual Investment Allowance (AIA) of £1 million will be extended to 31^st March 2023. The change is designed to encourage investment and make tax simpler for businesses. Whether the AIA eventually reduces back down to the ‘permanent’ rate of £200,000 from April 2023 remains to be seen.

Business Recovery Loan Scheme

The government is extending the Business Recovery Loan Scheme until 30^th June 2022. The Business Recovery Loan scheme provides businesses with finance up to a maximum of £2 million to assist recovery from the impact of the pandemic. However, the guarantee coverage that the government will provide to lenders will be reduced from 80% to 70%.

The FCSA has commented on the Budget

In an article posted on the FCSA’s website, the professional body shared its thoughts on the Autumn Budget 2021. The statement says:

“The FCSA welcomes a budget that is focused on UK investment, but it appears to be short on detail. Whilst the Chancellor states that there will be 50,000 more nurses, 180,000 more homes and a major prison building programme amounting to £3.8 billion, our sector is focused on providing the essential skills to enable this programme. There appeared to be little in terms of detail as to how we and other sectors can be supported in providing the labour required to realise such ambitious plans.

The Chancellor announced a new and accessible visa system to encourage international high skills to join the UK economy but made no mention of any changes to the draconian systems that have come into place since we left the European Union. Many highly skilled workers that operated through compliant umbrella and accountancy firms have left our economy and current rules discourage them from returning.

Of course, the FCSA welcomes an increase in the National Living Wage to £9.50 but it is important that the end portion of labour supply chains are not the only ones to take on the extra burden in this increase. For a healthy and sustainable supply chain to continue to improve the UK economy there must be a recognition that increases in such costs are shared whilst at the same time improving the livelihoods of workers.

The FCSA observes a lack of any form of notice around the further protection of workers and regulation of the outsourced sector. Clearly, the FCSA will need to look at the spending review in more detail. But if this is the case then the Chancellor has missed an opportunity to at least publicly state his and the governments support for future legislation or investment in government enforcement activities in our sector which FCSA has been campaigning for over many years.”

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The Churchill Knight blog is frequently updated with helpful articles for contractors, freelancers and temporary workers in the UK. Articles cover various topics, including legislation such as IR35, government updates, umbrella companies and PAYE, advice and tips, and important upcoming dates (such as Making Tax Digital developments). Please check it out.