The Chancellor has pledged to meet the economic challenges facing the country, confirming several changes to fill a £55 billion gap in the UK’s public finances.
In our summary, we highlight the key points from the Autumn Statement relevant to you and your business.
Dividend allowance reduction
The Government will reduce the dividend allowance from £2,000 to £1,000 from April 2023, and to £500 from April 2024.
Individuals have a dividend allowance each year which means they only pay tax on any dividend income above the dividend allowance. The dividend allowance was originally introduced at £5,000 and has been steadily reduced over time.
Individuals with investment income and company owners who extract profits through dividends will now face higher tax bills resulting from the reduced allowance.
Tax rates and allowances frozen until April 2028
Rather than opting to increase the headline rates of tax, the Chancellor decided to extend the freeze on a broad number of tax thresholds, and this will cause an effective increase in taxes as inflation pushes more individuals into higher rate bands.
The below tax thresholds had already been fixed at their current levels until April 2026, and will now be frozen for a further two years until April 2028:
- Income tax personal allowance – £12,570
- Income tax higher rate threshold – £50,270
The personal allowance and the higher rate income tax threshold for dividend and savings income, applies across the UK. The higher rate income tax threshold for non-savings and non-dividend income (for employment and sole-trader income) will only apply to taxpayers in England, Wales, and Northern Ireland.
The Scottish Government is expected to announce tax and spending plans on 15th December.
National Insurance rates frozen until April 2028
In July 2022, the NIC primary threshold for employees and the Class 2 Lower Profits Threshold for the self-employed were reduced.
They will both now be frozen until April 2028.
Employers generally start to pay Class 1 Secondary NICs on their employees’ wages at £9,100. This threshold will also be frozen until April 2028.
Where eligible, some companies can claim the Employment Allowance to reduce their employers annual National Insurance liability by up to £5,000. The Government advise that this allowance means 40% of businesses do not pay NICs and will be unaffected by this change. It is expected that the largest employers will contribute the most.
The National Insurance thresholds apply across the UK.
Reduction in Income Tax additional rate threshold
In a blow to higher earners, the Government announced the income tax additional rate threshold (ART) will fall from £150,000 to £125,140 from 6th April 2023. This means more taxpayers will pay income tax at the higher rate of 45% from April 2023, once their income goes above £125,140.
The ART applies to non-savings and non-dividend income, like employment and trading income. The new threshold will apply to taxpayers in England, Wales, and Northern Ireland. The Scottish Government is expected to announce its own tax and spending plans on 15th December.
The ART for savings and dividend income will apply UK-wide.
Capital Gains Tax annual exempt amount – reduced
The Government will reduce the Capital Gains Tax (CGT) exemption most individuals can claim from £12,300 to £6,000 from April 2023 and to just £3,000 from April 2024. This will mean individuals selling shares, property and other assets liable to CGT, will face higher tax bills when the reduced exemption kicks in.
Inheritance tax thresholds – frozen
The inheritance tax (IHT) nil-rate bands will be frozen until April 2028.
The nil-rate band will be frozen at £325,000, and the residence nil-rate band will be frozen at £175,000. The residence nil-rate band taper will be frozen at £2 million.
Over time, asset price inflation will cause more and more estates to be caught in the IHT net.
Stamp Duty Land Tax (England and Northern Ireland only)
On 23rd September 2022, the Government increased the nil rate threshold for Stamp Duty Land Tax (SDLT) from £125,000 to £250,000 for purchasers of residential property and increased the threshold for first-time buyers from £300,000 to £425,000.
The maximum purchase price for which First Time Buyers’ Relief can be claimed increased from £500,000 to £625,000.
The Chancellor confirmed that this will be a temporary reduction which will remain in place until 31st March 2025.
Business rates (England only)
From 1st April 2023, business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017.
The business rates multipliers will be frozen in 2023-24 and support will be available, worth £13.6 billion over the next five years, as businesses transition to new bills following the revaluation.
The relief for retail, hospitality and leisure sectors will be extended and increased, and there will be additional support provided for small businesses.
Local Authorities in England will be compensated for the loss of income as a result of these business rates measures and will receive funding for administration and IT costs.
Changes to Research & Development rates
Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology.
Previously, the rules allowed small and medium companies to:
- deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
For expenditure after 1st April 2023 the extra deduction will be reduced from 130% to 86% making a total deduction of 186% and the tax credit rate for loss making SMEs will reduce from 14.5% to 10%.
For large companies, the research and development credit (RDEC) rate will be increased from 13% to 20%. This also applies to small and medium companies subcontracting to large companies.
These changes are to come into effect from 1st April 2023. The Government plans to consult on the design of a single simplified scheme. However, these changes already put both systems on a par with one another where companies are profitable and tax is paid at 19% as the effective rate of relief is a little over 16% in each case. R&D relief will continue to provide additional free funding and support.
National Living Wage increase
The Government will increase the National Living Wage from a current hourly rate of £9.50 to £10.42 for those aged 23 and over from 1st April 2023.
The minimum rate for 21 to 22 year olds will increase from £9.18 to £10.18, for 18 to 20 years olds from £6.83 to £7.49 and for apprentices and under 18’s from £4.81 to £5.28.
While this is good news for an anticipated two million low paid earners, the impact to small business will be felt in increasing wage bills.
VAT thresholds – frozen
The VAT registration and deregistration thresholds will also be frozen at £85,000 and £83,000 respectively for a further period of two years from 1st April 2024.
Vehicle excise duty (VED) for electric cars
The Chancellor announced a significant change to the way electrical car taxation works and from April 2025, electric cars, vans and motorcycles will start to pay VED in the same way as petrol and diesel vehicles.
Company car tax rates
To give longer term certainty for taxpayers and businesses, the Government is setting rates for Company Car Tax until April 2028. The rates will continue to promote the use of electric vehicles.
Percentages for electric and ultra-low emission cars emitting less than 75g of CO2/km will increase by 1% in 2025-26; a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.
Rates for all other vehicles bands will be increased by 1% for 2025-26 up to a maximum of 37% and will then be fixed in 2026-27 and 2027-28.
To continue to promote business investment in charging infrastructure, the First Year Allowance (FYA) for electric charge points will be extended until 31st March 2025 for companies and 5th April for non-corporate businesses.
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Date published 27 Oct 2022 | Last updated 17 Nov 2022This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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