Although the relatively mild weather we had so far in November, it seems Freezing is top of the government agenda!
It’s fair to say that we were expecting a lot of what was in Chancellor Jeremy Hunt’s first Autumn Statement (the fourth Chancellor since July), with warnings that tough decisions would need to be made due to the difficult economic situation. As the government tries to reduce its debt by increasing its revenue (raising taxes) and also pledges to make investment in public services, all in the face of very high inflation, it has certainly made these tough decisions.
- The Chancellor announced that both the income tax personal allowance and higher rate thresholds will be frozen for a further two years until April 2028.
- In addition, basic National Insurance and inheritance tax (IHT) thresholds have also been frozen until April 2028. IHT threshold is at its current level since 2009, this is 19 years with no uplift!
- The threshold for the top 45% additional rate of income tax was cut from £150,000 to £125,140. Seems like only a month or so ago many of our clients opened their bottle of fizz when the previous chancellor abolished the highest level of tax previously. What a U-turn.
- The tax-free Dividend Allowance will be reduced from £2,000 to £1,000 next April, and to £500 from April 2024.
- The Capital Gains Tax (CGT) exemption will be reduced from £12,300 to £6,000 next April and then to £3,000 from April 2024.
These measures are part of what the Chancellor calls ‘providing fair solutions’ with his plan to tackle the cost-of-living crisis and rebuild the UK economy. Bringing back some economic stability is key after the turmoil caused by the announcements in the former Prime Minister’s last mini-budget.
(Hey, it could have been worse! Some “leaked” changes did not materialise in the Autumn Statement such as capital gains tax rates being matched with income tax rates, dividends tax rates increasing significantly and the re-introduction of the 50% tax rate… phew for many).
National Minimum Wage increase
The legally-enforceable minimum wage for employees aged over 23 will increase from £9.50 to £10.42 an hour from April 2023.
Business Tax and rates support
While this is considered old news, it might be useful to remind our clients that corporation tax is on track to increase up to 25% from April 2023 on profits over £250,000. According to the government, it is here to support small businesses and it claims that 70% of all trading companies will not see an increase in their corporation tax.
The Chancellor also announced a £13.6 billion package of support for business rates payers in England. To protect businesses from rising inflation, the multiplier will be frozen in 2023/24, while relief for 230,000 businesses in the retail, hospitality and leisure sectors was also increased from 50% to 75% for 2023.
Reforms to R&D tax reliefs
There is a lot of focus on R&D claims in general at the moment, with more investigations into the nature of projects being raised by HMRC. The Autumn Statement has now announced that after 1 April 2023 the Small and Medium Enterprise (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate (for cash claims) will decrease from 14.5% to 10%. The government is continuing the review of R&D tax reliefs that was launched in 2021 and will consult on the design of a single scheme.
The Chancellor increased the windfall tax on the profits of oil and gas firms. This was increased from 25% to 35% and extended until March 2028. While this doesn’t directly affect the prices we pay as consumers, there will be more tax revenues generated on the profits.
There will also be a new ‘temporary’ tax on companies that generate electricity, which will apply from January next year.
As energy prices continue to drive inflation, the Chancellor confirmed that the Energy Price Guarantee announced in the mini-budget will be extended for a year from April 2023. However, the level at which typical bills are capped will increase to £3,000 a year from £2,500… yet again, not actually dealing with the level of fossil fuels we all consume but instead some would say that we are just “throwing money” at the situation.
Social rent cap
The decision was made to cap social rent increases at 7%, higher than the 5% which was the previously preferred option. This will be an important update for our clients in this sector.
Pension and benefits increases
The Chancellor pledged to increase both state pension and means-tested benefits will increase by 10.1%, in line with inflation.
Lastly, electric vehicles will start paying road tax from April 2025. If you have an electric company car – the levels of Benefit in Kind will remain at 2% until April 2025 and will increase by 1% annually thereafter up to 5% in the 2027-28 tax year.
The government’s plan to “encourage growth” is a wonderful way to get us out of the situation our economy is in… will the above measures taken do that? The jury is still out. What is certain is that the chancellor has delivered on his promise that “everyone will be paying more tax”.
As ever, if you have any questions on the above, we are here to help.
The team at Avencia