Autumn Statement 2022

Click here for our Autumn Statement 2022 newsletter.

8 weeks ago, we reported on the skip-fire that was the Mini-Budget.  It’s fair to say that the chaos that followed needed some time to address and so yesterday, the new/latest Chancellor delivered his delayed Autumn Statement.

What follows isn’t the prettiest of reading.

• We’ve definitely reached the point where we have to acknowledge that it is going to be a long-haul back (more borrowing coupled with low growth).
• In 2023, household income levels will return to their 2013 levels and we won’t return to pre-pandemic levels until 2027/28.
• Living standards for 2023 & 2024 are predicted by the OBR to fall by 4.3% and 2.8% respectively.  Both of these falls represent the highest falls in living standards since records began in 1957.

Grim reading indeed.  And the only general criticism of the OBR is that they are “too optimistic”!

The main Budget announcements are set out below but before you reach for the whiskey we want to let you know that we will be starting a Recession Proofing Series, to run between now and Christmas, so that by the New Year, you can have a plan and strategy to overcome the challenges.

What is happening in the wider economy are a set of external events.  Yes, these will undoubtedly affect businesses but the focus for all small business owners needs to be on what they can internally focus on and therefore influence.

These are challenging times and the series will look at practical action that you can take to guide your business through this recession.

But back to the Budget…..

Main tax measures

 

• Income Tax Thresholds
  • From April 2023 the additional rate (45%) band applies from income over £125,140 (previously £150,000).
  • The tax rates and brackets remain unchanged except that from April 2023 the additional rate of 45% is charged on annual income in excess of £125,140 (currently £150,000).
  • Accordingly, the higher rate of 40% applies on income between £50,271 and £125,140 whilst the basic rate is charged on income between £12,571 and £50,270.
  • Personal allowances remain at £12,570. These bands will be fixed until April 2028. Freezing the bands in this way is known as fiscal drag (no more Ru Paul jokes this time!) and increase the tax take by bringing an increasing proportion of people’s income into tax at higher rates.

The table below shows the tax bands:

The official tables do not mention anything on the marginal tax rate of 60% that also exists where a taxpayer earns between £100,000 and £125,140 – between these numbers, the 40% income tax applies, plus for every £2 extra income, £1 of personal allowance is removed, which adds another 20% onto income tax in this band.

There is no plan to also index link thresholds on benefits which are income-dependent:

• • Child Benefit – this starts to be withdrawn when the taxpayer (or their partner) earns more than £50k and is completely withdrawn at £60k
  • Tax-free childcare – this is unavailable to taxpayers where they or their partner earn in excess of £100k

Tax planning

From 2023/24 we’ll now have a situation where a taxpayer with a student loan earning say, £110k will have a marginal tax rate of 71% (60% income tax, 2% NI, 9% student loan repayments).

As we have discussed previously, tax planning around these key thresholds will be even more relevant.

For example, if that taxpayer was able to make a pension payment of £10k, this would reduce their income to £100k and they would save around £7,100 in the process.

Also, from 2023/24 we will need to revisit the best strategy for profit extraction.  For some time, it has always been advantageous from a personal tax perspective for limited company directors to pay themselves low salary & high dividends.

However, the personal tax changes above, together with the increase in the Corporation Tax rate, mean that the gap is significantly closed (and situation dependent it may be better to pay additional salary/bonus rather than dividends) – we will be monitoring this on a case by case basis depending on business profits and personal income levels.

• National Insurance Thresholds – The current Lower Earnings Limit (£6,396) and Small Profits Threshold (£6,725) will be unchanged for 2023/24. The Secondary Threshold, the level at which employers start to pay national insurance) will be fixed at the current £9,100 per annum until April 2028. The Upper Secondary Threshold (where the rate paid by employees drops) will be fixed at the current £50,270 until April 2028.  More fiscal drag which falls on the employee and employer.

• Inheritance Tax Threshold – Frozen at current levels for a further 2 years to 2028. The tax free threshold is £325,000 (now frozen since 2009!) and residence nil rate band is £175,000.

• Capital Gains Tax Thresholds – Currently the first £12,300 is free of CGT. That will drop to £6,000 from April 2023 and £3,000 from April 2024.

• Dividends Tax Thresholds – Currently the first £2,000 is free of tax. That will drop to £1,000 from April 2023 and £500 from April 2024.

• National insurance – The Class 2 rate (flat rate for self-employed people) will increase from £3.15 to £3.45 per week from April 2023. The Class 3 (voluntary contributions) rate will increase at the same time to £17.45 from £15.85. These increases are in line with inflation.

• Research and Development – From April 2023, the uplift of R&D expenditure in the small and medium enterprises scheme will be reduced from 130% to 86%, and the payable credit rate will fall from 14.5% to 10%.

• Windfall taxes – The Energy Profit Levy on UK oil and gas profits will increase from 25% to 35% from 1st January 2023, and end on 31st March 2028. A new Electricity Generator Levy of 45% will extend the scope of windfall taxes to include excessive revenue received by electricity generators from January 2023.

• Company Cars – The benefit-in-kind rate for electric and ultra-low emission cars emitting less than 75g of CO2/km will increase by 1 percentage point annually from 2025/26 to 2027/28, at which stage the rate will be a maximum of 5% for electric cars and 21% for ultra-low emission cars. The rate for all other vehicles will be increased by 1 percentage point for 2025/26 and fixed until April 2028.

• Business Rates – There is a range of measures to support business with business rates. Businesses in the retail, hospitality and leisure sector will be entitled to relief of 75% of their rates bills. Measures will also be taken to limit the cost of increases arising from the 2023 revaluation and to ease the impact of Small Business Rates Relief and Rural Rates Relief where those reliefs are lost as a result of the valuation.

Other Measures

 

• Benefits – Benefits will increase by 10.1% from April 2023. This is in line with inflation. There were some suggestions that the increase should be around 5%, in line with average earnings growth.

• State Pensions – State Pensions will be increased by 10.1%,in line with inflation, thus restoring the triple lock which was suspended previously.

• Energy cost savings – The cap on unit rates for domestic consumers will increase from April 2023 so that average user will be charged £3,000 (currently £2,500/annum) until March 2024. The scheme for non-domestic users expires from April 2023 and a review is being undertaken into further support thereafter, which will exclude public sector consumers and is expected to be at a ‘significantly lower scale’ for business users.

• Cost of Living payments – Pensioner households will receive £300 in 2023/24, presumably paid with the Winter Fuel Allowance. People on means-tested benefits will receive £900 and people on disability benefits £150 in 2023/24.

• National Living Wage – The rate for individuals aged 23 and over will increase by 9.7% to £10.42/hour from £9.50, with similar-scale increases for other categories of worker.

• Stamp duty – The £125,000 increase in the nil stamp duty land tax band and to the higher threshold for first-time buyers is no longer a permanent change. It will be reversed after 31st March 2025.

• Council tax – The maximum that councils can increase council tax by without a local referendum is now 5%, up from 3%.

• ATED – The annual tax on enclosed dwellings charges (a levy on certain residential property held in structures such as companies) will increase by 10.1% from April 2023 in line with inflation.

If you’d like to talk to us about any concerns or worries related to the main announcements, please do get in touch.

We’ll be happy to explain more of the details and help you start planning a 2023 strategy to overcome your biggest business challenges.