On 27 October 2021, Chancellor Rishi Sunak presented the UK’s second Budget of 2021 under the tagline “A Stronger Economy for the British People”. Few tax measures made it into a speech dominated by spending announcements, but this should not detract from the fact that a large number of tax measures have actually been published as part of the Budget (see HMRC’s Budget collection). Some of the highlights are set out below.

Bank surcharge: the Chancellor announced a reduction from 8% to 3% from April 2023 (and the annual surcharge allowance will be increased from £25 million to £100 million). This follows on from the announcement at the March 2021 Budget that, from April 2023, the UK corporation rate will increase from 19% to 25% for profits over £250,000 and the commitment to review the bank surcharge to ensure that, following this increase, the combined level of taxation for banks “does not increase substantially from its current level”. The word “substantially” was clearly key here, given that the percentage point decrease in the surcharge does not match the percentage point increase in the main corporation tax rate. So, the combined level of taxation for banks will increase by one percentage point from April 2023; the applicable combined tax rate will be 28%. Legislation will be included in the Finance Bill to be published on 4 November.

Abolition of the Marks & Spencer exemption: the more generous rules on cross-border group relief applicable in respect of group companies established in the EEA (which goes back to the CJEU’s decision in Marks & Spencer) will be abolished with effect for accounting periods ending on or after 27 October 2021. The relevant legislation will be included in the upcoming Finance Bill.

Diverted Profits Tax: draft legislation for inclusion in the upcoming Finance Bill has been published which would appear to prevent the wider application of a recent First-tier Tribunal decision on the interaction between the DPT review period and closure notices for a parallel corporation tax enquiry. With effect from 27 October 2021, a new section 101C is to be added to the Finance Act 2015 which provides that neither a partial nor a final closure notice may be given where there is a DPT charging notice and the review period has not yet expired. On what looks like a more positive note for companies that have sought relief in respect of DPT charges through MAP, legislation is to be included in the Finance Bill to ensure that “a MAP outcome can potentially be implemented”. The measure will apply to MAP decisions reached after 27 October 2021, but the use of the word “potentially” and the fact that the Exchequer impact is expected to be nil indicate that the result is unlikely to be a substantial reduction in the UK tax burden. The legislation will be included in the upcoming Finance Bill.

Corporate Re-domiciliation: the government is seeking views on the introduction of a re-domiciliation regime which would allow foreign-incorporated companies to change their place of incorporation to the UK while maintaining their legal identity. Although not a pure tax measure (which is also reflected in the fact that the consultation has been launched jointly by the Department for Business, Energy & Industrial Strategy, HMRC and the Treasury), it includes tax aspects such as questions around the impact on company residence, the risk of loss importation and which rules should apply to setting the base cost of the company’s assets. It should also be noted that, as a corollary to the introduction of an inward re-domiciliation, the government is also seeking views on introducing outward re-domiciliation rules.

Notification of uncertain tax treatment for large businesses: whilst we will have to wait until the publication of the upcoming Finance Bill for revised draft legislation, the policy paper has been amended to remove the third notification trigger (substantial possibility that a court or tribunal would find the treatment to be incorrect in one or more material respects). So the requirement to notify will be limited to circumstances where an accounting provision has been made or the treatment goes against HMRC’s known position – at least initially as the “government is committed to further consideration of a third trigger”.

Allowances and reliefs: the temporary increase of the annual investment allowance to £1 million will not end in December as planned, but be extended until March 2023. The legislation will be included in the upcoming Finance Bill. The Chancellor also announced that scope of tax reliefs for research and development will simultaneously be broadened – namely to extend the definition of qualifying expenditure to data and cloud computing costs – and narrowed through “refocusing support towards innovation in the UK”. These change will be included in next year’s Finance Bill to take effect from April 2023.

This latter measure (as well as the abolition of the special rules for EEA companies in respect of cross-border group relief) clearly corresponds to the tagline as one notable aspect of the Chancellor’s speech was an emphasis on the benefits of the union and of Brexit. This was also reflected in proposed changes to tonnage tax and two other tax measures which may be of interest to readers in their personal as well as professional capacity: air passenger duty for intra-UK flights will be reduced with effect from April 2023 and alcohol duty rates will be frozen while the government works on a wholesale reform of alcohol duty which will see duty rates based on alcohol content, the abolition of special rates for sparkling wine and a lower rate draught beer and ciders to reflect that “pubs are often safer drinking environments than being at home”. Cheers to that!