Walker Accountancy

Following the disastrous ‘Mini-Budget’ in September, and the subsequent confusion and u-turns, the Chancellor, Jeremy Hunt, presented his Autumn Statement on 17 November 2022.

The statement, unlike the September statement, was fully supported by OBR (Office for Budgetary Responsibility) forecasts.

There has been a lot of speculation regarding tax increases over the past few weeks, may of which came to fruition, but, fortunately, three of the touted changes in respect of an increase in the rate of capital gains tax, an increase in the rate of dividend and a restriction in pension tax relief tax did not feature.

The main announcements relating to personal tax and small businesses were:

• Most income tax, national insurance and inheritance thresholds will be frozen until April 2028.
• The 45p ‘additional rate’ tax band threshold will reduce from £150,000 to £125,140 from 6 April 2023.
• The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and then to £500 from April 2024.
• The capital gains tax allowance will reduce from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.
• The stamp duty changes implemented as a result of the ‘mini-budget’ will now be temporary and will end in April 2025, at which point they will revert to their old limits.
• The VAT registration threshold will be frozen at £85,000 until March 2026.
• Research and development tax reliefs for small and medium sized enterprises (SME) will be reduced for spend after April 2023, but increased for businesses not qualifying for the SME scheme.
• The energy price guarantee will continue from April 2023 to April 2024, albeit with a higher typical bill limit of £3,000 per annum (up from £2,500). There will also be lump sum payments to those on certain benefits, pensioners and the disabled.
• There will be a treasury review to determine the support for energy bills to be offered to businesses from next April.
• Benefits, including the state pension, will increase by inflation (10.1%) from next April.
• The national living wage will increase from £9.50 to £10.42.
• In the accompanying documentation, company car and van benefit rates to April 2028 were also set.
• Electric cars will start to be subject to vehicle excise duty (road tax) from April 2025.

To expand on some of the changes in more detail:

Income tax and national insurance

The rates of income tax and national insurance remain unchanged from their current (ie post 5 November) levels, which are the same as they were in 2021-22.

The tax and national insurance thresholds, apart from the 45% tax threshold, will be frozen at current levels until April 2028.

The 45% tax threshold will reduce from £150,000 to £125,140.
There is a reason for the seemingly odd figure of £125,140: for income above £100,000, £1 of personal allowance is lost for every £2 of income, giving an effective tax rate for earned income between £100,000 and £125,140 of 60%, so the 45% threshold has been set at the top of this band.

Dividend tax

The rates of tax for dividends will remain at 8.75%/33.75%/39.35% (basic/higher/additional).

The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and then to £500 from April 2024.

Capital gains tax

Capital gains tax remains at 10% (for gains falling into the basic rate band) and 20% (higher rate) (18%/28% for residential property gains).

The capital gains tax allowance will reduce from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.

Research and development tax relief

There will be changes to research and development tax reliefs from April 2023.

For small and medium sized enterprises, the enhanced deduction will be reduced from 130% to 86% and the repayable credit cut from 14.5% to 10%.

For businesses not qualifying for the SME scheme, relief will increase from 13% to 20%.

The government will consult on the design of a single scheme for all businesses.

National Minimum/Living Wage

The new rates will be as follows:

Car and van benefit rates

The government is setting rates for Company Car Tax until April 2028. Rates will continue to incentivise the take up of electric vehicles.

The appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point 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 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

Car and Van Fuel Benefit Charges and van benefit charge will increase in line with CPI from April 2023.

Vehicle Excise Duty (VED)

From April 2025, electric cars, vans and motorcycles will begin to pay VED in the same way as petrol and diesel vehicles:

• new zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions 1 to 50g/km) currently £10 a year. From the second year of registration onwards, they will move to the standard rate, currently £165 a year
• zero emission cars first registered between 1 April 2017 and 31 March 2025 will also pay the standard rate
• the Expensive Car Supplement exemption for electric vehicles is due to end in 2025. New zero emission cars registered on or after 1 April 2025 will therefore be liable for the expensive car supplement. The Expensive Car Supplement currently applies to cars with a list price exceeding £40,000 for 5 years
• zero and low emission cars first registered between 1 March 2001 and 30 March 2017 currently in Band A will move to the Band B rate, currently £20 a year
• zero emission vans will move to the rate for petrol and diesel light goods vehicles, currently £290 a year for most vans
• zero emission motorcycles and tricycles will move to the rate for the smallest engine size, currently £22 a year
• rates for Alternative Fuel Vehicles and hybrids will also be equalised

I am just going to put this here, nothing more to say until the next U-turn (thanks to the BBC news website!) ….

Following the turmoil in the markets caused by last month’s mini-Budget, the Chancellor announced, on 3 October 2022, that the government is abandoning plans to abolish the 45% top rate of income tax.

Kwasi Kwarteng presented “The Growth Plan 2022” mini-budget on Friday 23 September 2022.

It was not a full budget, but contained key announcements relevant to individuals and small businesses which are summarised below.

National Insurance

As announced yesterday, the increase in employee and employer national insurance for the health and social care levy introduced in April 2022 will be cancelled with effect from 6 November 2022.

This means that for non-director employees and their employers, national insurance will revert to its previous rates of 12% (2% above the upper threshold of £50,270) for employees and 13.8% for employers from payrolls run after 6 November 2022.

The cut will also cover class 1A (employer benefits), directors’ and class 4 (self employed) national insurance.  However, since the reduction takes effect from 6 November and these taxes are calculated on an annual basis, there will be hybrid rates for the 2022-23 tax year.

Class 1A national insurance (normally aligned with employer national insurance) will be 14.53%.

For Directors, employee national insurance will be will be 12.73% (2.73% above the upper threshold of £50,270) and employer national insurance will be 14.53%.

Class 4 will be 9.73% for the main rate and 2.73% above the upper threshold.

The separate Health and Social Care levy due to come in from 6 April 2023 (at which point, national insurance was due to revert to its previous levels) will also be cancelled.

Income tax

Rishi Sunak had announced in the Spring Statement that the basic rate of tax would be reduced from 20% to 19% from April 2024.  Kwasi Kwarteng brought this forward, so that income tax will reduce to 19% from April 2023.

He also announced that the additional rate of tax of 45% will be abolished from April 2023, so that there will be a single higher rate of income tax for all earners of 40%.

The Income Tax rate cuts announced today do not apply to Scottish taxpayers since the Scottish Government set their own income tax rates and bands.

(Note: That does not mean that the highest marginal rate of income tax is 40% since the personal allowance is withdrawn at a rate of £1 for every £2 of income over £100,000, which gives an effective rate of income tax of 60% for earnings between £100,000 and 125,140.)

Dividend tax

The 1.25% increase in dividend rates implemented alongside the increase in national insurance rates will remain for the current tax year, but will be removed from April 2023.

The additional rate of dividend tax (currently 39.35%) will also be abolished from April 2023 in line with the removal of the income  tax additional rate of tax.

Business tax

Also announced yesterday, the increase in corporation tax rates due to take place in April 2023 will be cancelled, leaving corporation tax at 19%.

The Annual Investment Allowance (the maximum spend on capital items that can be written off in full in the year of purchase), which was due to fall from £1m to £200,000, will remain at £1m permanently.

There were also extensions to share option schemes to boost investment and employee share ownership.

The Chancellor also announced that the changes to IR35 (tax on service company workers) introduced in 2017 and 2021, pushing the onus on the end user to determine employment status, will be repealed from April 2023.

Charities

Charities can reclaim basic rate tax (currently at 20%) on donations made to them under Gift Aid.

The reduction in the basic rate of tax will reduce the tax that charities can claim under Gift Aid, however, there will be a four-year transition period for Gift Aid relief to maintain the Income Tax basic rate relief at 20% until April 2027.

Stamp Duty

The Chancellor announced a permanent increase in the nil rate band for stamp duty from £125,000 to £250,000.

The nil rate band for first time buyers will increase from £300,000 to £425,000 on the purchase of houses up to a value of £625,000 (increased from £500,000).

These changes will take effect from today.

Investment Zones

There will be new investment zones created throughout the company with tax incentives, such as accelerated tax relief for structures and buildings, 100% allowances on plant and machinery, nil rates of stamp duty and business rates and national insurance reliefs on new employee earnings up to £50,270 per year.

The government is in consultation with 38 local authorities (including Derbyshire, Nottinghamshire and Leicestershire) on the location of the zones.

Energy

The Chancellor confirmed the energy caps and financial help for domestic properties.

He also announced that businesses would be afforded similar protection.

The energy relief scheme is a temporary six-month scheme which will be reviewed after 3 months to inform decisions on future support.

Other duties

Alcohol duties will be frozen for a year from 1 February 2023.

A response to the previous consultation on future changes to the alcohol duty system was published today with reforms to introduced in August 2023.