How the Autumn Budget 2022 affects you…

Posted: 17 / 11 / 2022

By Sedulo Tax Partner, David Evans. Image: Posted by: HM Treasury and The Rt Hon Jeremy Hunt MP. Photographer: Andrew Parsons, OGL 3, via Wikimedia Commons

The Chancellor, Jeremy Hunt has delivered his Autumn Statement to announce new tax and spending measures. According to Mr Hunt, “unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future. So today we deliver a plan to tackle the cost of living crisis and rebuild our economy”.

After the debacle over the mini-Budget, there has been a lot of build-up in the media over recent days which appears to be an effort to ensure the markets weren’t taken by surprise by the announcements today. We’ll see over the next couple of days whether this has been a successful approach. On Kwasi Kwarteng’s mini-Budget, the Chancellor said he was “correct to identify growth as a priority, but unfunded tax cuts are as risky as unfunded spending, which is why we reversed the planned measures”.

Unlike the tax cutting mini-Budget, the Autumn Statement was very much a tax raising event. I’ve summarised everything announced today below.

INCOME TAX (NOT SCOTLAND)

• • Threshold at which the additional rate of income tax applies cut from £150,000 to £125,140 from 2023/24.
  • Tax free personal allowance will be frozen at the current level (£12,570) for a further 2 years on previous announcements, until April 2028
  • Higher rate threshold will be frozen at the current level (£50,270) for a further 2 years on previous announcements, until April 2028
  • Basic rate of income tax staying at 20%, higher rate staying at 40% and additional rate staying at 45%
  • Dividend rates staying at:
    • 0% for the dividend allowance
    • 8.75% at basic rate
    • 33.75% at higher rate
    • 39.35% at additional rate
  • Dividend allowance reduced from £2,000 to:
    • £1,000 for 2023/24
    • £500 for 2024/25
  • No change to personal allowance loss starting at £100,000 of income

By freezing the thresholds, as people’s pay increases they will find themselves paying more tax. As incomes rise, more people will fall into the higher rates of tax. This is known as “fiscal drag”.

Clients, particularly high earners, should consider accelerating income prior to April 2023 to mitigate against the increased tax rates.

NATIONAL INSURANCE

• Thresholds staying at current levels for a further 2 years on previous announcements, until April 2028
• From July 2022 the primary threshold and lower profits limit were increased to £12,570 to match the income tax personal allowance and this will remain in place at this level until April 2028.
• The upper earnings limit and upper profits limit will remain at £50,270.
• The lower earnings limit will remain at £6,396 per annum (£123 per week)
• The small profits threshold will remain at £6,725 per annum.
• The Upper Secondary Threshold, Apprentices Upper Secondary Threshold, and Veteran Upper Secondary Threshold, will stay fixed at £50,270 per annum until April 2028.
• The Freeport Upper Secondary Threshold will also be fixed at £25,000 per annum.
• The government will use the September CPI figure of 10.1% to uprate the Class 2 and Class 3 NICs rates for 2023-24. The Class 2 rate will be £3.45 per week, and the Class 3 rate will be £17.45 per week.
• Employer secondary threshold fixed at £9,100 until April 2028.
• No change to employment allowance at £5,000.

CAPITAL GAINS TAX

• Annual exempt amount reduced from £12,300 to:
  • £6,000 for 2023/24
  • £3,000 for 2024/25
• No mention of any changes to Business Asset Disposal Relief (formerly known as Entrepreneurs Relief).

The changes to the annual exemption will mean more people need to report disposals (even if they don’t make a gain) as the reporting exemptions are linked to a multiple of the annual exemption.

CORPORATION TAX

• Increase to 25% in April 2023 going ahead.
• No changes to previously announced AIA remaining at £1 million.
• 130% super deduction will still end 31 March 2023.

INHERITANCE TAX

• Nil rate band fixed at £325,000 for further 2 years on previous announcement to April 2028.
• Residence nil rate band fixed at £175,000 for further 2 years on previous announcement to April 2028. Taper of the residence nil rate band will continue to start at £2 million.

VAT

• Registration threshold will be maintained at £85,000 for 2023/24, 2024/25 & 2025/26. Apparently £85k is more than twice as high as EU averages.
• Deregistration threshold will be maintained at £83,000 for 2023/24, 2024/25 & 2025/26.

SDLT

• On 23 September 2022, the nil- rate threshold of Stamp Duty Land Tax was increased from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland.
• At the same time, the nil-rate threshold paid by first-time buyers was increased from £300,000 to £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000.
• These will now be a temporary SDLT reduction. The SDLT cut will remain in place until 31 March 2025.

ANNUAL TAX ON ENVELOPED DWELLINGS (ATED)

• Rates will be increased by 10.1% for 2023/24. New rates will be published in due course.
• As a recap, ATED is an annual tax charge payable by companies which own UK residential property worth more than £500,000. The rates for the 2022/23 tax year are currently:

R&D

• From 1 April 2023:
  • RDEC rate will increase from 13% to 20%
  • SME additional deduction will reduce from 130% to 86%
  • SME repayable tax credit will reduce from 14.5% to 10%

These measures will make R&D relief for SME clients much less generous compared to previous years, particularly when combined with the increased corporation tax rate. If clients are considering spending money on R&D activity they should consider bringing that forward prior to April 2023.

According to the Chancellor “The OBR have confirmed that these measures have no detrimental impact on the level of R&D investment in the economy”.

OTHER

• Electric cars will start paying road tax from April 2025 (I’ve seen this referred to as a “Tesla Tax” in the press!)
• Electric cars will see the benefit in kind percentage increased to 5% over the next few years:
  • 2022/23 rate = 2%
  • 2023/24 rate = 2%
  • 2024/25 rate = 2%
  • 2025/26 rate = 3%
  • 2026/27 rate = 4%
  • 2027/28 rate = 5%
• £79 million investment into HMRC to tackle tax avoidance
• No online sales tax.
• Package of business rates reliefs announced to help with the revaluation of property for the purposes of rates calculations from April 2023
• Living wage increased from £9.50 per hour to £10.42 per hour for over 23’s from April 2023
• Household energy cap extended for one year beyond April 2023 but made less generous with annual bills capped at £3,000 rather than £2,500
• State pension triple lock remains.

If you’d like to discuss how the changes announced in the Autumn Statement affect you then contact David Evans or Sarah Richards.