Sunak explained that inflation is forecast to reach approximately 4.4% over the next year as result of rising energy prices and issues with supply chains on a global basis. However, the OBS has warned that inflation could in fact peak at nearly 5% next year.
Public borrowing as a percentage of GDP is the highest since the end of the second world war, largely as a result of coronavirus government support packages. Higher borrowing inevitably means higher interest rates and higher taxes. The underlying message is that the focus needs to be on recovery and that we all play a part in that recovery.
The Chancellor stated that the government is committed to helping working families with the cost of living and levelling up (ie. bringing jobs and investment to the poorer regions of the UK). This blog therefore focuses on the key announcements made in respect of personal taxes.
Health and Social Care Levy
The new Health and Social Care levy, which will commence on 6 April 2022, had already been announced on 7 September 2021. In his Budget speech, Sunak did not elaborate on this new tax, other than to say that it will be used directly to fund the NHS and social care.
For the tax year 2022/23, the levy will be implemented by an increase to national insurance contributions, with 1.25% for employees, employers and self-employed individuals. The total increase for employed workers will therefore be 2.5% (employee and employer contributions) and 1.25% for self-employed workers.
For 2023/24 onwards, this will be replaced with the new tax “Health and Social Care Levy” (at the same rate of 1.25%). Unlike national insurance contributions, it will also apply to those still working above state pension age.
Dividend income
In line with the Health and Social Care Levy, dividend tax rates will also increase by 1.25% so that the ordinary rate, upper rate and additional rate will be 8.75%, 33.75% and 39.35%, respectively. The stated policy objective is to “limit the incentive for individuals to set up a company and remunerate themselves via dividends, rather than as wages…”
Universal Credit taper rate
The Chancellor commented that the Universal Credit taper rate is effectively a tax on work and that people should retain more of the rewards of working.
The Universal Credit is available for those under state pension age and on low income or out of work, if certain criteria are met. For those working, the amount available is currently reduced by 63 pence for every £1 earned over the “work allowance”.
Within the next few weeks, the taper rate will be cut by 8 percentage points from 63% to 55%, which the Chancellor states will assist around 2 million people and result in a tax cut of approximately £2 billion per annum.
With rising energy prices and increased inflation, it remains to be seen whether low income families will be much better off.
Capital gains tax
There has been speculation concerning a review of the capital gains tax regime following recommendations made by the Office of Tax Simplification in November 2020, broadly to address the disparity between capital gains tax rates and income tax rates.
It would have been difficult to implement changes to tax rates part way through a tax year, and any announcement regarding future changes could result in individuals selling assets prematurely. It was therefore not a complete surprise that there was no mention of any fundamental changes to the regime in this Budget.
Other measures
There are of course other personal tax measures not specifically mentioned in the Budget speech, and announcements on other taxes, further details of which will be provided over the coming days in our more detailed Budget commentary.
The next step
For more information about any of the Autumn Budget and Spending Review announcements, please contact your usual UHY adviser.
