Chancellor Jeremy Hunt's Autumn Statement 2022 has taken the UK's tax burden to a new, post-war high!
The aim of this has been to get the UK's finances in order. The government has been running a £55bn annual budget deficit. To bridge this gap between public spending and tax revenue, the Chancellor felt it necessary to impose £25bn worth of tax hikes. In addition to this, there will also be £30bn in public spending cuts that are scheduled to take place by 2027/28.
After the mini-budget tax cutting announcements landed so badly in the debt markets, Hunt has returned to many of the tax-raising policies Rishi Sunak brought in when he was chancellor. Higher inflation, coupled with rising interest rates, has highlighted just how much successive government spending pledges cost in terms of borrowing, and the interest bill on that debt.
The Autumn Statement has emphasised how it is now beholden on all tax payers to fund public services. This leads to the question as to whether this larger state, and a greater tax burden, can enable the economy to grow sufficiently to tackle the issue of inflation. Alternatively, is the UK now trapped in an era of stagflation, namely rising prices and anaemic growth!?
In this post we cover the following announcements and what they mean for your finances. Click on the links to go to each relevant section.
|1. Personal taxes||2. Business taxes|
|Income tax bands||VAT|
|Dividend tax||Employers National Insurance|
|Capital Gains Tax||Research & Development tax relief|
|Stamp Duty Land Tax||Annual investment allowance and first year allowances|
|Energy support||Business rates|
|Electric vehicles||The Seed Enterprise Investment Scheme|
The personal allowance (£0 up to £12,570) and higher rate threshold (from £50,271) are to be frozen until April 2028. As previously announced by the Chancellor, the basic rate of tax (£12,571 to £50,270) will remain at 20% indefinitely.
A key change for additional rate taxpayers however, is the cut in the additional rate threshold which will reduce from the current level of £150,000 to £125,140 from April 2023. This will add up to an additional £1,392 of extra tax for those whose income is subject to this tax band.
National insurance rates have also been frozen for this time period. Previous policy meant these freezes were supposed to end in April 2026. As previously announced, the health and social care levy due to be introduced from April 2023 was abolished, and the additional 1.25% National Insurance surcharge has also been reversed, effective from 6 November 2022.
Known as stealth taxation, the freezing of thresholds and rates will have the effect of dragging more workers into higher bands and paying more in tax through the effect of wage inflation. It's expected this will raise £26bn for the Treasury's coffers. It will also mean more people are dragged into the taxation system, thereby placing an additional administrative strain on HMRC.
There were changes to the dividend tax rates as well. From April 2023, the dividend allowance will be cut from £2,000 to £1,000. It will then be cut again to £500 from April 2024.
The basic rate of tax on dividend income at 8.75%, the higher rate at 33.75%, and the additional rate at 39.35% remain unchanged. Unlike the reversal of the health and social care levy, the additional 1.25% tax rates will not be reversed.
The threshold at which you pay Capital Gains Tax (CGT) will be lowered from £12,300 to £6,000 from April 2023. It will then be cut again to £3,000 from April 2024. Those concerned about paying CGT on the disposal of assets would be advised to look carefully at the timing of such disposals, or other forms of ownership as an alternative.
The announcements also fix the CGT proceeds reporting limit at £50,000 which takes effect from April 2023.
The nil gain, nil loss transfers between spouses when they are separating, has been extended to 3 years. This is also unlimited if the assets in question are subject to a formal divorce agreement. Previously married couples had until the end of the tax year of separation to benefit from this exemption.
A policy that remains from Kwasi Kwarteng's mini budget is the doubling of the value at which Stamp Duty Land Tax (SDLT) kicks in, standing at £250,000. The exemption for first time buyers that rose under Kwarteng from £300,000 to £425,000 also remains.
However, Hunt stressed that these changes are no longer permanent. Instead, from 1 April 2025:
The Energy Price Guarantee (EPG) remains in place. However, some people will have to pay more from April 2023. This is because providing this support is projected to cost the government £55bn this winter. That is seen as an unsustainable level of expenditure, given the government's financial predicament.
As of April 2023, the EPG cap will be raised to reflect the price of energy. As a result, bills for the average household will rise by £500, to £3,000. Support will instead be targeted rather than universal, and consequently the wealthier will have to pay their own way.
The government is also trying to tackle the energy crisis by extending the Oil and Gas levy (also known as the windfall tax) to 31 December 2028. This was previously due to end by 31 December 2025. The levy has been increased to 35% and there is also an additional levy of 45% being introduced that applies to what the Chancellor referred to as ‘extraordinary profit’ from certain electricity generators.
From April 2025, owners of electric vehicles will be liable to pay vehicle exercise duty (VED). For new zero-emission cars, with CO2 emissions 1 to 50g/km, registered from 1 April 2025, owners will pay £10 for the year. From the second year of registration onwards, they will move to the standard rate of £165 per year.
For the owners of zero-emission cars first registered between 1 April 2017 and 31 March 2025, they will also pay the standard annual rate as of 1 April 2025.
Despite much speculation prior to the announcement, the state pension triple lock has been retained.
The Inheritance Tax (IHT) nil rate bands are to be frozen at their current rates until 2027/28. This will mean more estates are drawn into IHT as asset values continue to increase. Of note, the standard nil rate band (£325,000) has been at the same level without any increase since April 2009!
The threshold at which a business must register for VAT is to be frozen until 31 March 2026. This will mean more businesses are dragged into the VAT regime as prices rise. This could also mean a further price rise for consumers as the additional VAT liability is passed on them. That is potentially inflationary, something the Chancellor was keen to bring down as part of these measures.
The Employers National Insurance threshold will be frozen until April 2028. The Employment Allowance will remain at its new, higher level of £5,000. Treasury calculations suggest that this means 40% of all businesses still won't need to pay any contributions.
The government have been concerned that Research & Development (R&D) tax relief has been open to fraud. HMRC calculated that losses to erroneous claims hit £469m in 2021. This means from April 2023, the deduction rate for the SME scheme has been reduced to 86% from 130%. The SME repayable credit has also been cut from 14.5% to 10%.
However, the rate of the separate R&D expenditure credit has increased from 13% to 20%. Data licensing and cloud computing expenditure has been added as qualifying expenditure. Finally, non-UK payroll externally provided workers, and overseas contractors, have been removed as qualifying expenditure, with exemptions for expenditure that cannot be conducted within the UK.
Additionally, in line with previous announcements, relief for expenditure on externally provided workers and subcontractors is to be restricted such that only UK based costs are eligible for R&D relief. An exemption will be available where it is not possible for the R&D activity to be performed in the UK however, the detail of how this exemption will apply is yet to be announced.
The Chancellor announced that he wanted the UK to be the next Silicon Valley during his statement. Cutting innovation reliefs in this way may make this vision more of a challenge to achieve.
The Annual Investment Allowance (AIA) has been set to £1m permanently rather than decreasing to £200,000 in April 2023 as was previously planned. Also, the first year allowances have been extended to include the purchase and installation of electric vehicle charge points to 31 March 2025.
The business rates multiplier will be frozen from April 2023 instead of being uprated as previously planned. This will remain as follows:
From 1 April 2023 for 1 year, there will be a 75% business rates discount to organisations that occupy eligible retail, hospitality, and leisure properties up to a cap of £110,000 per business.
Bill increases will be capped at £600 per year for businesses losing eligibility for, or seeing reductions in small business rates relief, or rural rate relief, as a result of the 2023 business rates revaluation.
There will be a 3 year transitional relief to limit bill increase as a result of the 2023 revaluation. Furthermore, improvement relief delayed by 1 year to 1 April 2024. This would've given businesses 100% business rates relief on qualifying improvements to existing properties up to 31 March 2028.
From April 2023, there will be 4 changes to the Seed Enterprise Investment Scheme (SEIS) limits as follows:
This will be a welcome change for both companies and investors as this will widen the number of companies eligible to still acquire investment through SEIS, and will mean investors who may have previously exhausted their investment limits will be able to invest further under SEIS and benefit from 50% tax relief.
The content of this post was created on 18/11/2022 and updated on 23/11/2022.
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