On 27 October 2021 the Chancellor of the Exchequer delivered the Autumn 2021 Budget.
In terms of changes likely to impact on the taxation of employment income, the budget was very light. The main message for your clients is that the budget has changed very little in the field of employment taxation. There are, though, some points, mentioned below, of which your clients should be aware.
Increase to dividend taxation rate
The most significant changes to employment taxation from April 2022, the increase of 1.25% in the rates of employee and employer National Insurance contributions (“NICs”), and the corresponding increase in the self-employed NICs rate, have already been separately enacted. For those individuals able to decide whether to become employees or work as self-employed contractors the increase in NICs rates would have made employment status less attractive.
The budget has therefore confirmed the previously-announced rise of 1.25% in the rate of dividend taxation, which is intended to prevent the gap widening between the overall rates of tax and NICs on employment income and income taken as dividends by consultants from personal services companies. This is intended to prevent the change to NICs rates on employment income being seen by individuals as a reason for preferring to engage through a personal service company. The increased dividend rate is not, though, confined to dividends taken from personal service companies, but applies to dividend income generally.
Emergency tax relieving powers
The budget also makes provision for the treasury to make temporary modifications to certain parts of the income tax acts in the event of “a disaster or emergency of national significance”, instead of needing to obtain legislative consent to the temporary changes. This is a response to the COVID-19 pandemic, and is designed to give the treasury the ability to react more quickly to assist taxpayers when such events occur. Any temporary modifications made under the new power can only have the effect of relieving taxpayers from tax liabilities, and cannot be used to create tax charges.