Thanks you to Samantha Gercs and the team at Trinity Accountants for a SUPER guest blog about the Autumn Statement; After hugging the close family members that he’d invited to the House of Commons to watch his big moment, Jeremy Hunt took to the despatch box to deliver the Autumn Statement. It was a very different tone from Kwasi Kwarteng’s Mini Budget – the complete opposite, some might say! The focus was very much on tax rises combined with public sector spending cuts. We’ve been through the detail (so you don’t have to) so here’s a simple summary of the changes that’ll impact businesses and what they mean.
Which announcements from the Autumn Statement will affect my business?
So, there was a lot of talk about increased levels of taxation across the board so it’s almost certain that you’ll be paying more tax in 2023 (and onwards). Disclaimer, though, this is based on the announcements today so, given what we saw with the Mini-Budget, things could change. However, it’s probably less likely to change and, if it does, change less significantly. This is because the announcement has been accompanied by an OBR forecast, which will hopefully keep the markets calmer.
Personal allowance thresholds to be frozen
These thresholds will now be frozen until April 2028 (previously only frozen until 2026) and include:
- Income tax (remains at £12,570).
- Inheritance tax (remains at £325,000).
- Pension savings (£40,000 maximum or 100% of your earnings).
- VAT registration threshold (remains at £85,000 for two years from April 2024).
- NICs Secondary Threshold for employers (remains at £9,100 until April 2028).
Personal allowance thresholds to be reduced
The tax-free allowances for both dividends and Capital Gains Tax (CGT) will reduce next year, and again in 2024.
Dividends – current threshold is £2k – will reduce to £1k in 2023 and to £500 in 2024.
Here’s an example
For the 2022 to 2023 tax year
You get £3,000 in dividends and earn £29,570 in wages.
This gives you a total income of £32,570.
You have a Personal Allowance of £12,570. Take this off your total income to leave a taxable income of £20,000.
This is in the basic rate tax band, so you would pay:
- 20% tax on £17,000 of wages
- no tax on £2,000 of dividends, because of the dividend allowance
- 75% tax on £1,000 of dividends
Total tax payable = £3,487.50
In 2023 – 2024, this will become:
- 20% tax on £17,000 of wages
- no tax on £1,000 of dividends
- 75% tax on £2,000 of dividends
Total tax payable = £3,575
In 2024 – 2025, this will become:
- 20% tax on £17,000 of wages
- no tax on £500 of dividends
- 75% tax on £2,500 of dividends
Total tax payable = £3,618.75
At the end of the two years, you’ll be paying an extra £131.25
Capital Gains Tax (CGT) – currently £12,300 – will reduce to £6,000 in 2023/24 and then to £3,000 in 2024/25. As nothing has been announced about reducing the tax-free allowance of £6,150 for Trusts, we’re assuming that remains unchanged.
Here’s an example
Scenario 1
Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,600. Your gains are not from residential property.
For the 2022 to 2023 tax year
- Capital Gains tax-free allowance = £12,300 so you pay tax on the remaining £300.
- This results in a CGT payable of £30 (assumes a 10% rate based on a total income of less than £37,701).
In 2023 – 2024, this will become:
- Capital Gains tax-free allowance = £12,300 so you pay tax on the remaining £6,300
- This results in a CGT payable of £630 (assuming a 10% rate based on a total income of less than £37,701).
In 2024 – 2025, this will become:
- Capital Gains tax-free allowance = £12,300 so you pay tax on the remaining £9,300
- This results in a CGT payable of £930 (assumes a 10% rate based on a total income of less than £37,701).
At the end of the two years, you’ll be paying an additional £900.
Scenario 2
Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,600. Your gains are from residential property.
For the 2022 to 2023 tax year
- Capital Gains tax-free allowance = £12,300 so you pay tax on the remaining £300.
- This results in a CGT payable of £54 (assumes a 18% rate based on a total income of less than £37,701).
In 2023 – 2024, this will become:
- Capital Gains tax-free allowance = £12,300 so you pay tax on the remaining £6,300
- This results in a CGT payable of £1,134 (assumes a 18% rate based on a total income of less than £37,701).
In 2024 – 2025, this will become:
- Capital Gains tax-free allowance = £12,300 so you pay tax on the remaining £9,300
- This results in a CGT payable of £1,674 (assumes a 18% rate based on a total income of less than £37,701).
At the end of the two years, you’ll be paying an additional £1,620.
Also – remember that, if you’re disposing of a property, the reporting deadlines have changed. Don’t get caught out by waiting to declare it during your tax return!
Higher-rate tax payers
Apart from those living and working in Scotland, the threshold for the higher rate of income tax (i.e., 45%) has been lowered from £150,000 to £125,140.
The minimum wage for over 23-year-olds
This will increase from £9.50 to £10.42 an hour from April 2023. This is the legally-enforceable minimum wage rather than the National Living Wage so you’ll need to ensure that all employees (over the age of 23) are paid this.
Windfall taxes for energy companies
If you’re an oil or gas firm, the rate for the windfall tax will increase from 25% to 35% and will now be extended until March 2028. There will also be a new 45% tax on companies that generate electricity that will come into effect from January 2023. This is a temporary measure and will be known as the Electricity Generator Levy.
R&D relief
For the SME scheme, there will be a reduction to 86% for tax relief and 10% for tax credits. Also, the R&D expenditure credit (RDEC) used by large companies, the credit will decrease from 13% to 10%.
Annual Investment Allowance (AIA)
Excitingly, this allowance will actually increase to £1million from 1 April 2023. This could equate to full expensing for an estimated 99% of UK businesses so you’ll be able to write off the cost of qualifying plant machinery investment in one go.
Company vehicles
Given the wide-ranging electrification of vehicles, Vehicle Excise Duty (VED) will be payable on electric cars, vans, and motorcycles from April 2025. Also, the company car tax rate for electric and ultra-low emission cars will increase by 1% each year from 2025 (for three years) up to a maximum rate of 5% for electric cars and 21% for ultra-low emission cars.
For other (non-electric) vehicles, the tax rate will increase by 1% in 2025 to 37% but will then remain fixed until March 2028.
Business rates
The government’s review of business rates will go ahead as planned, resulting in new valuations (and business rates bills) from 1 April 2023. However, the Government pledged support to limit the number of businesses that face increases and especially High Street businesses. The support will come from the Transitional Relief scheme, which will last for three years. It will work to cap increases in business rates bills to 5% for circa 500,00 small businesses. There’s a lot of detail around the specific changes to business rates so we’d recommend having a look at the government business rates factsheet.
Import taxes
These have been removed on more than 100 goods, including some food products, for two years to help tackle rising costs.
Changes that will affect you as an individual
Of course, while you run a business, you’re still an individual and some announcements will affect your personal finances, which can have a knock-on effect on what you need to earn through your business. Here are some of the key points:
- Council tax can now be increased by up to 5% a year without a referendum (up from 3% currently).
- The household energy price cap will now stay until April 2024 but the cap will reduce from £3,000 to £2,500.
- The lifetime cap on social care costs in England due to start in October 2023 has been pushed back for two years until 2025.
- Social housing rent increases will be capped at 7% from next April (instead of 11% due to inflation).
What should I do now?
We’d recommend that you rework your cashflow forecast to take into account the changes and, if there are any areas of concern, you speak to your accountant for specific guidance.
Want to talk about what this means for you? Feel free to get in touch for a chat.