Jeremy Hunt, The Chancellor of the Exchequer, delivered his much-anticipated autumn statement last week (November 17th, 2022), confirming tax rises for millions and deep public spending cuts as he seeks to repair the public finances following a series of shocks to the economy. The announced changes are due to have a significant impact on individuals and businesses, as we are all set to feel the impact of the Chancellor’s statement. Jack Parker, a Senior Executive at Bevan Buckland LLP, has provided a breakdown of the key points discussed within the statement and provided some detail around its impact.
Income Tax (for England and Wales)
Whilst there are set to be no increases to headline rates of tax, the Chancellor is progressing with stealth taxes by freezing allowances and tax bands until April 2028. With the current wage inflation, this is likely to push thousands of taxpayers into higher rate tax bands. This increase will also impact on individuals receiving child benefits, as their wages are inflated above the current clawback threshold.
It has also been proposed that the dividend tax-free allowance will drop from £2,000 to £1,000 from 6 April 2023, and then again to £500 from 6 April 2024. In real terms, the actual tax impact will be additional tax of £82.50 for 2023/24, and a further £41.25 for 2024/25 (assuming dividends received are at least £2,000). This will affect the majority of OMB SMEs who pay themselves via salary and dividend.
There has also been a change in relation to the higher tax rate with the threshold at which additional rate (45%) tax is paid will drop from £150,000 to £125,140. Whilst this does make an effective newspaper headline, the actual tax impact will be just over £1,200pa for someone earning £150,000.
Inheritance Tax (IHT)
No changes have been announced in relation to IHT, but the freezing of allowances will mean that the current IHT nil rate band of £325,000 will remain frozen until April 2028. Interestingly, this has been the NRB since 2009 – if it had increased with inflation, it would currently be c.£475,000.
This will mean that many estates will now fall into the IHT net, especially with current rising asset prices, particularly of property.
Employment Taxes and BIKs
A number of employment-related changes have been announced, as detailed below:
- National minimum wage has been increased by 9.7% to £10.42.
- Electric vehicles will not be exempt from vehicle excise duty from April 2025.
- The relevant percentage for company cars (benefits in kind) will likely increase (but be limited to 1% per annum for three years from 2025).
Corporation Tax
The increase on corporation tax to 25% from 19% will be going ahead as planned from April 2023. It’s important to note that this will be a marginal tax calculation, rather than a straightforward 25%:
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- 19% on the first £50,000 of taxable profits; followed by
- A marginal tax rate of 26.5% on the next £200,000 of taxable profits; and
- 25% on any profits in excess of £250,000
Capital Gains Tax
Despite predictions of changes to headline rates, this has not been the case, which is seen by many as quite a surprise. Instead, annual exemption for CGT will drop from £12,300 to £6,000 from 6 April 2023 and then to £3,000 from 6 April 2024.
Capital Gains Tax is, of course, a tax paid on gains on capital assets. The majority of UK taxpayers will never have the privilege of paying CGT. However, it is likely to impact retirees who live on their investment income – may catch them out as they’ve never had to complete tax returns previously.
R&D
Unexpected changes to R&D tax relief have been revealed. There has been lots of media attention over the last few weeks surrounding fraudulent R&D claims, but unlikely that these changes will actually attack fraudsters. Instead, changes are likely to impact genuine R&D businesses tarred with the same brush and suffering from less generous R&D incentives.
The following R&D changes have been detailed:
- Rate of enhanced expenditure for SME businesses reducing from 130% to 86%.
- Interestingly this won’t impact the tax position for SME R&D companies who pay tax, rather it will improve:
- Currently they would save £230 x 19% = £43.70
- Going forward, £186 x 25% = £46.50
- Rate of repayable credit dropping from 14.5% to 10%.
- This means that the rate of tax relief for loss making R&D companies will reduce from 33.35% to 18.6%
- In cash terms, this means for every £100,000 spent on R&D activities, the repayable credit will reduce from £33,350 to £18,600.
- This may mean that loss-making companies would prefer to carry these losses forward (subject to cashflow) to benefit from much higher tax savings.
- However, many small R&D companies are reliant on repayable credit to continue trading, so may choose to close up shop.
- R&D scheme for large companies is becoming more attractive – the credit will increase from 13% to 20%
- RDEC is taxable, so after tax benefit increases from 10.52% to 15%.
- This makes the SME and the large company schemes almost comparable in their actual tax benefit.
- Government has stated that this is the first step towards combining the two R&D schemes. Could therefore expect the rates to continue to converge, or a potential absolution of the SME scheme entirely.
- Interestingly this won’t impact the tax position for SME R&D companies who pay tax, rather it will improve:
VAT
No changes to VAT were announced within the autumn statement, announce aside from the freezing of the current VAT registration threshold at £85,000 until March 2026. This isn’t seen as major news seeing it has been frozen at this level since 2017. Due to current inflation levels, this will force many businesses into VAT registration.
SDLT (England only)
The SDLT cuts announced in the mini budget (23 September 2022) will now be a temporary measure, in place until 31 March 2025. This will only apply in England.
Get in touch…
We realise that many of our clients will be mindful of the short- and long-term impact these changes may have on their business.
Given the increasing corporation tax rate and the decrease to the dividend allowance, it is important to consider your current remuneration plans and whether these are still appropriate. Likewise, it may be prudent to consider whether your current business structure (i.e., partnership, sole trader, limited company) still works for you.
If you require bespoke advice on the challenges, you are likely to face within the months ahead, please contact our team either by calling us on 01792 410100 or by sending us an email