After a tumultuous few months, with changing prime ministers and chancellors as well as mini-Budget U-turns, Chancellor Jeremy Hunt delivered his Autumn statement on 17th November. Many of the measures had been trailed in advance and contained few surprises.
The Autumn Statement 2022
This Autumn statement – which focused on stability, growth and public services - was very much about reassuring the markets and demonstrating fiscal responsibility – it had to be after Kwasi Kwarteng’s mini-Budget in September triggered market mayhem and a slump in the pound. It endeavours to fill the hole in the government’s finances with various stealthy tax hikes, a reduction in certain reliefs and prospective cuts to public expenditure.
The measures, which come after a period of considerable economic uncertainty and while the UK is facing a recession, may be necessary but will certainly not elicit an air of festive cheer. They will increase pressure on small businesses at a time when they are already facing rising costs across the board. However, there are glimpses of light at the end of the tunnel. The Chancellor has announced a £13.6 billion business rate relief package to help in light of the upcoming business rates rise in April 2023 and this will benefit about 700,000 companies.
Given that the autumn statement was the third fiscal event in the last few months, it would not be surprising if you are somewhat confused about what remains in force. We, therefore, summarise its key points below and look at how it will affect businesses:
Corporation Tax
The planned increase in the corporation rate (CT) rate from 19 % to 25% for companies with over £250,000 in profits will go ahead from April 2023. The rate for companies with profits below £50,000 remains at 19%.
Companies that have profits between £50,000 and £250,000 will pay tax at the 25% rate reduced by a marginal relief – this will provide a gradual increase in the effective corporation tax rate. Compared to the current flat rate of 19%, this new rate system will also add significant cost and complexity for businesses.
Dividend Tax Allowance
The annual dividend allowance – the amount of dividend income you do not have to pay tax on – will fall from £2000 in the current tax year to £1000 from April 2023 and £500 from April 2024. The rate of dividend tax will remain at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers.
Cutting the allowance will increase the tax burden on limited company owners paying themselves using dividends from their company profits.
Income Tax Threshold
The additional-rate income tax threshold will be lowered from £150,000 to £125,140 from April 2023, resulting in about 250,000 more people paying the 45% top rate of income tax.
Capital Gains Tax Allowance
Capital gains tax will need to be paid by business owners when they sell certain business assets, such as machinery and land. They will be relieved that there was no increase in the rate of capital gains tax (CGT) after the Autumn statement. However, the annual CGT allowance will be slashed from £12,300 in the current tax year to £6,000 in 2023/24 and down to £3,000 in 2024/25. Any profits or ‘gains’ that exceed the exemption will be taxed at the existing rates of 20% for higher and additional rate taxpayers and 10% for some basic-rate taxpayers. For residential property, the rates are 18% and 28%.
National Minimum Wage
If you have employees, the government has announced that the national minimum wage will rise from £9.50 per hour to £10.42 per hour for those aged over 23, which will add to employers’ costs when this kicks in in April 2023.
Employers’ NIC Secondary Threshold
The Autumn Statement fixes the level at which employers start to pay Class 1 Secondary NIC for their employees (the secondary threshold) at £9,100 until April 2028 which means that companies will pay more over the coming years for each person they employ.
Value Added Tax (VAT) Threshold Frozen
The VAT registration threshold of £85,000 will be frozen until 1 April 2026, effectively bringing more businesses within the scope of compulsory registration as their turnover increases in line with high levels of inflation.
Research and Development Tax Relief
Relief and Development reliefs support companies in the UK that work on innovative projects in the science and technology sectors.
Reforms were announced in this area. The Chancellor has reduced the R&D tax credit for small and medium-sized enterprises (SMEs) from 130% to 86% and the SME credit rate from 14.5% to 10% from April 2023. Meanwhile, the rate of Research and Development Expenditure Credit (RDEC) will increase from 13% to 20%, which is likely to benefit predominantly larger businesses.
While the increase in the RDEC will be welcomed by larger companies, the cuts to the SME regime have been criticised for severely reducing the support the government provides for innovative start-ups and scale-ups.
Off-Payroll Working Rules
The current off-payoff working rules will remain in force. The proposed repeal of IR 35 will not now go ahead, which means that end-user employers will retain responsibility for determining the deemed employment status for tax purposes of contractors that they engage through personal service companies.
Business Rates Packages
Happily, there was better news on business rates. Business rate bills will be updated, from 1 April 2023, to reflect changes in property values since the 2017 revaluation. To support this, the Chancellor has introduced a range of measures to provide relief around business rates in England over five years.
Retail, leisure and hospitality business rates relief will be increased from 50% to 75% from 2023/24 - although only up to a maximum of £110,000 per business. The government also announced that it would be freezing the business rate multipliers in 2023/24, and upward transitional relief caps will provide support to ratepayers facing large bill increases following the revaluation.For more information on the changes made by the November statement please contact a member of our tax team or email us.
