The Chancellor’s Autumn Budget and Spending Review that set out the government’s tax and spending plans for the year ahead was focused on the post pandemic era and paving the way for an “economy of higher wages, higher skills, and rising productivity”. For the most part, the Chancellor’s speech was a summary of the areas of spending to get economic recovery underway with the key tax changes already announced a month before the budget with the Health and Social Care Levy which sees an increase in both national insurance contributions (NIC) and dividend tax rates by 1.25%. The economic burden placed on the country by the global pandemic meant tax rises were a question of when not if, but the breaking of an election promise will not sit well with all voters. The proposed increases operate from April 2022 and the additional taxes raised are earmarked for the NHS and Social Care.

The proposals see the NIC increases apply to the self-employed, employees and employers with no upper limits – meaning a 2.5% charge for employment relationships. UK asset managers will again be looking at the comparison between LLP and Ltd structures, factoring in both the proposed changes and previously announced increases in corporation tax. The net impact is the spread of effective tax rates first contracts in 2022-23 but widens far further in 2023-24 in favour of an LLP structure for profit extraction. As such HMRC’s interpretation of the salaried and mixed member rules and scrutiny placed on managers is set to continue.

Thankfully there were few other material changes announced by the Chancellor on Budget day that will immediately impact the asset management industry. We summarise the key announcements below, some of which were already announced previously during the year but are of interest. 

Personal Tax

Tax on dividends

 As announced in September 2021 dividend tax rates will increase by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The rates for 2022/23 (2021/22) will be as follows:

  • 8.75% (7.5%) for basic rate taxpayers;
  • 33.75% (32.5%) for higher rate taxpayers
  • 39.35% (38.1%) for additional rate taxpayers.

The £2,000 dividend allowance will remain the same for 2022/23. For the asset management sector the increase will impact UK individual investors that are taxed on excess reportable income from reporting funds and those who receive dividends from their investments.

National Insurance Contributions

The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

Broadly, the new Health and Social Care Levy will

be subject to the same reliefs, thresholds and requirements as NIC. However, the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment.

Existing reliefs for NICs to support employers will apply to the Levy. The Employment Allowance, which reduces employers’ Class 1 NICs by up to £4,000, will also be available for the employers’ liability to the Levy. For now managers structured as LLPs retain the benefit of no employer’s NIC on remuneration, although this benefit is offset by the salaried and mixed member rules.

Making Tax Digital for income tax

The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC.

Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (including limited liability partnerships) will be required to comply will be confirmed in the future.

Corporation Tax

Corporation Tax rates

The main rate of corporation tax is currently 19%. In the Spring Budget 2021, the Chancellor announced the rate would remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Capital allowances

Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022. The £1 million allowance will now be retained until 31 March 2023.

Transitional rules will apply to accounting periods that span 1 April 2023.

For companies, this aligns the end of the temporary AIA with the end of the ‘super-deductions’ as announced by the government in Spring Budget 2021.

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from new capital allowances, termed ‘super-deductions’ or ‘first year allowances’, as follows:

  • a super-deduction of 130% can be claimed on most new plant and machinery investments that ordinarily qualify for the 18% main rate writing down allowances
  • a first year allowance of 50% can be claimed on most new plant and machinery investments that ordinarily qualify for the 6% special rate writing down allowances.

These reliefs are not available for unincorporated businesses.

Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.

Research and Development relief reform

Research and Development (R&D) tax reliefs for companies will be reformed to:

  • support modern research methods by expanding qualifying expenditure to include data and cloud costs;
  • more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK;
  • target abuse and improve compliance.

These changes will take effect from April 2023 and will benefit managers claiming the R&D particularly where data costs are a significant component of their spending.

MTD for corporation tax

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.

Cross-border group relief

Following the UK’s exit from the European Union (EU), the government is bringing the corporation tax group relief rules relating to European Economic Area (EEA) resident companies into line with those for non-UK companies resident elsewhere in the world. This applies to accounting periods ending on or after 27 October 2021 and will affect UK groups with subsidiary companies established in the EEA along with EEA-resident companies that are trading in the UK through a permanent establishment.

Business Tax

Business rates review

The Final Report of the review of the business rates system in England was published on 27 October 2021 with a view to reduce the overall burden on businesses. Some of the government’s commitments include:

  • Cutting the burden of business rates for all businesses by freezing the multiplier for 2022 to 2023.
  • Introducing a new relief to support investment in property improvements, enabling occupying businesses to invest in expanding their properties and making them work better for customers and employees.
  • Introducing new measures to support green investment and the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.

Basis period reform

Aligned to the revised start date for MTD for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.

The changes will affect limited liability partnerships that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date.  Broadly this will require apportionment of accounting profits into the tax years in which they arise.

The change will potentially accelerate when business profits are taxed but transitional adjustments in 2023/24 are designed to ease any cashflow impact of the change.

Notification of uncertain tax treatment for large businesses

This measure applies to the Corporation Tax, Value Added Tax and Income Tax returns (via Self-Assessment and including amounts collected via PAYE) of large businesses that are due to be filed on or after 1 April 2022.

It requires large businesses to notify HMRC where they have adopted an uncertain tax treatment that HMRC is not already aware of through its ongoing customer compliance relationship. Amounts of Corporation Tax, Value Added Tax or Income Tax (via Self-Assessment or PAYE) will be classified as uncertain if the tax treatment to which they relate meets one of two legislative criteria:

  • That a provision has been made in the accounts for the uncertainty; and
  • That the tax treatment applied is not in accordance with HMRC’s known position.

Businesses will be required to notify HMRC only if the tax advantage exceeds a £5million threshold. A number of managers have expressed concern over the level subjectivity proposed by the legislation.


Corporate Re-domiciliation

The government intends to make it possible for companies to re-domicile and therefore easier to relocate to the UK and is seeking views on how best to do this. This will allow companies to take advantage of the UK’s world-class infrastructure and skills, while promoting jobs, innovation and investment in the UK.

There is now an open consultation on this until 7 January 2022.

Qualifying asset holding companies

This measure forms part of a wider review of the UK funds regime to enhance the UK’s competitiveness as a location for asset management and for investment funds. Following two consultations, the government introduced a new framework for the taxation of qualifying asset holding companies (QAHCs) and certain payments that QAHCs may make. A QAHC must be at least 70% owned by diversely-owned funds, or certain institutional investors, and mainly carry out investment activity with no more than insubstantial trading.

Taxation in the new regime is based on existing tax rules, but with some modifications set out in a schedule to the Finance Bill and comes into effect from 1 April 2022.

The regime includes several detailed provisions for a QAHC along with administrative provisions and provisions to guard against potential for abuse or avoidance.

Economic crime (AML) levy

The government has established an Economic Crime (Anti-Money Laundering) Levy on entities that are regulated for anti-money laundering (AML) purposes. The levy will first be charged on entities that are regulated during the financial year from 1 April 2022 to 31 March 2023, and the amount payable will be determined by reference to their size based on their UK revenue from periods of account ending in that year.

Amounts will be payable following the end of each financial year. Therefore, first payments will be made in the financial year from 1 April 2023 to 31 March 2024. The levy will be paid as a fixed fee based on the size band an AML-regulated entity falls into based on their UK revenue. There will be four size bands:

  • small (under £10.2m UK revenue) – exempt;
  • medium (£10.2m – £36m) – fixed fee of £5k to £15k;
  • large (£36m – £1bn) – fixed fee of £30k to £50k;
  • very large (over £1bn) – fixed fee of £150k to £250k

Final fixed fees will be set out in the final legislation in the Finance Bill 2021-22

VAT treatment of fund management fees

A consultation will take place on options to simplify the VAT treatment of fund management fees. This is fundamental to the UK being able to offer a viable fund product to rival the likes of Ireland, Luxembourg and the Cayman Islands. Without a change UK funds will continue to be disadvantaged compared to the non-UK competitors where UK managers are not required to charge VAT and have a full right to recover. UK based managers should follow this consultation with interest and stay connected via their industry representatives.

Securitisation tax regime legislation SDRT changes

The government will legislate in Finance Bill 2021-22 to introduce a power enabling changes to be made to Stamp Duty and Stamp Duty Reserve Tax in relation to securitisation and insurance-linked securities (ILS) arrangements. This will increase the government’s flexibility in responding to the evolving nature of the securitisation and ILS markets. There is currently no power to make such changes in secondary legislation.