After a chaotic few months for the UK Government off the back of the Mini-Budget, this year’s Autumn Statement was an eagerly awaited event.
The Office for Budget Responsibility (OBR) has said that the next two years will be very difficult, with potentially the biggest reduction in household income ever recorded.
The Chancellor, Jeremy Hunt, had already reversed almost all tax measures put forward by his predecessor. On Thursday, 17th November he outlined in full his plans for the UK economy for the coming year.
This article discusses the impact of these changes both businesses and private individuals.
Table of Contents
Autumn Statement 2022 Impact on Businesses
- Companies that make a taxable profit of £50,000 or less per year will continue to pay at the ‘small profits’ rate of 19%
- Companies with taxable profits between £50,001 – £250,000 per year will pay a Corporation Tax rate of 25%, with a ‘marginal rate relief’ deduction
- Companies with taxable profits of £250,001 or more a year will pay a Corporation Tax rate of 25%
Proposals are also underway to impose a Global Minimum Corporate Tax Rate for businesses with an annual turnover of above £650m based on Organisation for Economic Cooperation and Development (OECD) guidelines. These proposals will apply to accounting periods on or after 31st December 2023.
Following the mini-budget 2022, the annual investment allowance remains to be set permanently at £1m.
Furthermore, the “super deduction” tax break for companies investing in plant and machinery is still set to expire on 31st March 2023, coinciding with the 25% Corporation Tax rate.
This means that the tax relief available on the purchase of fixed assets for businesses stays virtually the same from this year (130% of 19% = 24.7%) to next year (100% of 25%). This was the government’s intention to ensure that businesses do not wait until 1 April 2023 to invest in their businesses.
However, the 100% first year allowance for expenditure on electric vehicle charge points has been extended to 31st March 2025 for corporation tax, or 5th April 2025 for income tax purposes.
R&D Tax Credits
The Chancellor has announced additional changes to the R&D tax relief scheme in addition to those announced in the Spring Statement 2022. The main objective is to avert any cases of fraudulent claims that have been witnessed, especially in the SME scheme.
The changes are as follows:
- SME scheme changes. The government will reduce the SME repayable credit rate from 14.5% to 10%. Total tax relief for spending on research and development will go down from 130% to 86%.
- R&D Expenditure Credit (RDEC) scheme changes. Taxable credit rates will rise from 13% to 20% for businesses within the RDEC scheme. According to the Chancellor, this will make the scheme more competitive internationally and is an important step towards standardising all R&D incentives.
Employer National Insurance Contributions
The Chancellor confirmed that Employer National Insurance Contributions (NICs) thresholds will be frozen until April 2028, meaning “40% of all businesses will still pay no NICs at all”.
This includes the Employment Allowance at its newer level of £5,000.
Diverted Profits Tax
An increase in the Diverted Profits Tax for large corporates will also increase from April 2023. The current rate stands at 25%. This will rise to 31%, which is 6% more than the primary corporation tax rate.
National Living Wage Changes
The Chancellor announced an increase in the national living wage by 9.7%. The new national living wage for people over 23 rises to £10.42 per hour from April 2023.
VAT Registration Threshold
There will be no changes to VAT registration threshold of £85,000 until 1st April 2026.
The government will increase business rates from 1 April 2023 to align with the current property valuations.
A set of reliefs were also introduced, including a freeze in the business rates multiplier for 2023/24. Upward caps set at 5%, 15% and 30% for small, medium and large properties respectively will also apply to help reduce the impact on new commercial valuations to help protect businesses.
Businesses losing eligibility or seeing reductions in small business rates relief or rural rates relief will see increases capped at £600 per year from 1st April 2023.
There will be relief changes from 50% to 75% for leisure, retail, and hospitality businesses that will also be extended.
However, business rates improvement relief will apply from 2024 (instead of 2023) until at least 2028. This relief prevents an increase in rates for 12 months if the value of a property increases as a result of qualifying improvements.
The Chancellor announced planned changes to Transfer Pricing from April 2023.
Large multinationals running businesses within the United Kingdom shall maintain standard formats for transfer pricing documentation. This is in line with OECD guidelines.
Autumn Budget 2022 impact on individuals
The Chancellor also made the following announcements that will affect private individuals and households.
Income Tax Changes
Regarding income tax, the current tax-free personal allowance of £12,570 and the higher rate tax threshold will be frozen until 2028.
The additional rate tax band will be reduced from £150,000 to £125,140, and the previously proposed rate of 45% will be applied on earnings above this level for 2023/24.
Dividend Allowance & Income
Individuals will experience a cut in the tax-free dividend allowance from £2,000 to £1,000 in 2023/24. These cuts will continue into the future, with an expected dividend allowance of £500 for the 2024/25 tax year.
The tax rate that will apply to dividend income will continue with the current rates that are set.
Capital Gains Tax
Capital gains tax will remain a the current levels, however the annual exempt amount will go down from £12,300 to £6,000 next year, and then to £3,000 from April 2024.
The Chancellor will negate one of Liz Truss’ policies by reversing property tax cuts. These changes will occur after 31 March 2025.
Annual Tax on Enveloped Dwellings (ATED)
The government will increase the annual tax on enveloped dwellings (ATED) by 10.1%. These changes will take place during the 2023-24 ATED charging period.
National Insurance Contributions
The Autumn Statement confirmed many of the National Insurance Contribution (NIC) thresholds will remain fixed from 2023/24 to April 2028.
However, the Class 1 National Insurance Contribution (NIC) threshold was confirmed for 2023/24 only.
For 2023/24 Class 2 National Insurance for self-employed will increase to £3.45 from April 2023 for those with profits of £12,571 and above. This will be collected as one annual payment.
The government has reversed the Health and Social Care Levy, which is expected to affect approximately 30 million workers in 2023-24.
The Chancellor has further frozen the main inheritance tax threshold for two more years until April 2028.
Company Car Tax
Benefit in kind (BIK) was already set to increase to 2% for electric vehicles in the 2023/24 tax year, and the Chancellor committed to keeping this rate until April 2025.
After this period the BIK rate for Electric Vehicles (EVs) will increase to 3% for the 2025/26 tax year, 4% for 2026/27 and 5% for 2027/28. All non-evs will also see the same 1% increase per annum over the timescale.
Stamp Duty Land Tax
On 23 September 2022, the mini budget proposed cuts to England’s and Northern Ireland’s Stamp Duty Land Tax. This will be reversed from 31st March 2025.
Do we need to add something like this in: “as allocation of expenditure on qualifying assets within the AIA rules can still provide a first year allowance and acceleration of tax relief”.
The UK government has always been in a tight spot when it comes to prioritising spending. However, with the recent changes in leadership and an increase in economic difficulty, they have had to make some drastic choices.
While this may be difficult for businesses and private individuals alike, it is important to stay up-to-date on these changes so that you can plan accordingly.
To find out more about how these changes will impact you specifically, please don’t hesitate to get in touch with our expert accountants in Wimbledon.