The new Chancellor Jeremy Hunt had warned the public and the financial markets that his Autumn Statement would include “eye-watering” cuts in public spending and tax rises for those with the ‘broadest shoulders’. Unlike the ill-fated Fiscal Event of 23 September, the Government “rolled the pitch” this time with several leaks prior to the event. Mr Hunt wants to avoid the austerity that followed the 2008 financial crash and is focused on measures that will keep the period of recession as short as possible.
Key announcements included:
Many pensioners and those on means-tested benefits will be relieved that their 2023/24 payments will be uprated in line with the 10.1% inflation in the year to September 2022. There will also be further support for those struggling with energy bills. But this continued support needs to be paid for and the tax increases and spending cuts will not be popular.
- Employers will be relieved that there are no more changes to NIC rates and bandings or therefore consequential payroll software changes!
- Like the main income tax bandings, NIC thresholds are now also frozen until 5 April 2028.
- This means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees and the self-employed will continue to pay 12% and 9% respectively on earnings/profits between £12,570 and £50,270 and 2% thereafter.
- Despite rumours to the contrary, the 1.25% increase to NIC rates that was removed from 6 November 2022, will not be making a return from 6 April 2023.
Many director/shareholders of family companies pay themselves a small salary and take the rest of their “pay” in dividends. With dividends being free of NIC, this would have allowed them to avoid the extra 1.25% NIC charge when it was originally introduced.
Consequently, the Government added 1.25% to the dividend income tax rates for 2022/23. This will remain for dividends, despite the NIC
- Currently, for all individuals, the first £2,000 of dividend income is taxed at 0%. (2022/23)
- The government have now decided that this ‘dividend allowance’ of £2,000 will be reduced to £1,000 in the 2023/24 tax year and then again to just £500 in the 2024/25 tax year.
- It should be remembered that the income tax rates applied to dividend income outside of the allowance have only recently been increased to 8.75%, 33.75% and 39.35% (for dividend income falling into basic rate, higher rate and additional rate bands respectively).
- Combined, these measures will mean that those reliant on dividend income will pay more tax.
- If you are a director/shareholder, please contact us to discuss the best strategy for extracting profits from your company from 6 April 2023, as the new Corporation Tax rates will also apply from then.
INCOME TAX BANDS FROZEN AND ADDITIONAL RATE LOWERED
It had already been announced that the income tax personal allowance (£12,570) and higher (40%) rate threshold (£50,270*) would be frozen until 5 April 2026, instead of increasing each year in line with inflation.
The Chancellor has now announced that these freezes will continue until 5 April 2028.
As earnings increase, this will result in more higher rate taxpayers and is often referred to as ‘fiscal drag’ because it will raise more tax without actually increasing income tax rates.
The income level at which point the ‘additional’ 45% rate of income tax starts to apply will be reduced from £150,000 to £125,140* from 6 April 2023.
The new £125,140 threshold ties in with the £12,570 personal allowance being gradually withdrawn for those with income in excess of £100,000. For these individuals, once their income exceeds £125,140, they will no longer be entitled to a personal allowance and, from April 2023, will move straight into 45% income tax.
*It should be noted that, for Scottish taxpayers, income tax rates and thresholds are, for certain income types, separately set by the Scottish government.
CORPORATION TAX RATE INCREASE REINSTATED
In the March 2021 Budget, Rishi Sunak announced that the rate of corporation tax would increase to 25% from 1 April 2023 where a company’s profits exceeded £250,000 a year, with the current 19% rate continuing to apply where profits were no more than £50,000 a year.
There was also scheduled to be an effective 26.5% rate on profits between £50,000 and £250,000 a year.
For a couple of months we thought these plans had been scrapped, but now they are back in, so this is a double whammy for Limited Company directors, in conjuction with higher dividend rates and lower dividend allowances.
CGT ANNUAL EXEMPTION CUT
Many were predicting that the rates of Capital Gains Tax (CGT) paid by individuals would increase, possibly to align with the rates of income tax.
- Instead, the Chancellor has announced that the current £12,300 annual tax-free CGT exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.
- This change will mean that those disposing of investments such as shares, second homes and buy-to-let properties will pay more tax.
- If you are planning any capital disposals, please contact us to discuss the best strategy for timing of sale.
£1 MILLION ANNUAL INVESTMENT ALLOWANCE NOW PERMANENT
Businesses investing in plant and machinery will welcome the decision to make the £1 million Annual Investment Allowance (AIA) permanent.
This has been extended several times and was scheduled to revert to just £200,000 from April 2023.
Unlike the super-deduction, the AIA is available to unincorporated businesses as well as limited companies and the equipment does not have to be new.
CARS AND VANS
For those provided with an electronic or ultra-low emission company car (emitting less than 75g of CO2 per kilometre), there will be annual increases in the benefit-in-kind percentages, and therefore the taxes paid by both employees and employers, from the 2025/26 tax year.
For all other company car users, there will be a 1 percentage point increase (up to a maximum of 37%) in the calculation of the benefit-in-kind in 2025/26 before being fixed for the following two tax years.
The fixed multipliers used to calculate benefits-in-kind on employer provided vans, van fuel (for private journeys in company vans) and car fuel (for private journeys in company cars) will increase in line with the Consumer Price Index (CPI) from 6 April 2023.
The government have also announced that they will introduce Vehicle Excise Duty on electric cars, vans and motorcycles from April 2025.
SDLT THRESHOLD INCREASED TO £250,000
This was implemented in the September 22 Mini Budget, and has remained. As a reminder:
Increases in mortgage rates are likely to slow the market so the SDLT announcements are designed to stave off a housing slump.
Moving house has a multiplier effect on the economy as people tend to spend money decorating and furnishing their new home, with estimates suggesting that doing so drives additional spending worth about 5% of the house value.
It is thus crucial to ensure medium-term confidence in the property market and maintain the growing momentum as the UK economy recovers.
- The Government has therefore cut SDLT for home buyers across England and Northern Ireland.
- For residential property transactions completed on or after 23 September 2022:
- The Nil Rate Band (NRB) has been increased from £125,000 to £250,000
- The NRB for first-time buyers has been increased from £300,000 to £425,000.
- This applies where first-time buyers purchase a property costing less than £625,000 (previously £500,000).
- Different taxation rules apply to property transactions in Scotland and Wales and no changes have been announced in this regard.
- The revised rates table can be viewed here.