Many of the Autumn Statements announcements were widely anticipated and reported in the press and it will come as no surprise that there are some tax rises on the way, though some of them won’t bite until a few years down the line to avoid supressing the economy any further in the short-term.
After September’s disastrous ‘mini-Budget’, most of which has since been cancelled, this announcement seems to be more thought through, bearing in mind the Office for Budget Responsibility’s (OBR) gloomy outlook for the UK economy. As the Chancellor mentioned several times in his announcement, there has been a difficult ‘balancing’ act to carry out in order to reduce government debt while also addressing high inflation, low growth and a projected increase in unemployment.
Below is a summary of the most significant tax announcements likely to impact individuals and small businesses.
Cut in Tax-Free Dividend Allowance
From next April the tax-free dividend allowance will decrease from £2,000 to £1,000. It will be further reduced to £500 from April 2024. This brings down the dividend allowance to 10% of what it was when first introduced in 2016 at £5,000. This will increase the personal tax paid by limited company directors drawing dividends from their companies.
As a reminder, an extra 1.25% was added to dividend tax this year and while it was originally meant to contribute to the Health and Social Care Levy which has since been abolished, it remains as a permanent increase to dividend tax rates.
Cut in Additional Rate Tax Threshold
The threshold at which the 45% additional rate of tax becomes payable will fall from £150,000 to £125,140 from April 2023. There is a logic to the threshold not being rounded to the nearest thousand and this relates to the tapering of the tax-free personal allowance. For every £2 of income over £100,000, £1 of the £12,570 personal allowance is lost. £125,140 is the threshold at which the entire personal allowance is lost and is now also the level at which 45% tax becomes payable.
Cut in Capital Gains Tax Annual Exempt Amount
The current annual capital gains tax exempt amount of £12,300 will be reduced to £6,000 from April 2023 and £3,000 from April 2024. This will bring many more individuals into the capital gains tax net, including those selling assets such as shares. Owners of buy-to-let properties and businesses can also expect to pay more capital gains tax when disposing of those properties or businesses.
Personal Allowance, National Insurance and Inheritance Tax Thresholds Frozen
Personal allowance, national insurance and inheritance tax thresholds will be frozen for a further two years beyond what had already previously been announced and this means that they will remain at their current levels until at least April 2028. With the impact of high inflation increasing wages, state pension and asset values, freezing these allowances this will result in more individuals paying income tax, national insurance and inheritance tax over the next few years where they may not previously have expected to do so.
Freeze on Employers’ National Insurance Threshold
The National Insurance Contributions (NICs) Secondary Threshold at which employers begin to pay the 13.8% employers’ NICs is frozen at £9,100 until April 2028. With significant inflationary increases in wages this is likely to increase employers’ national insurance costs over the next few years.
While the national insurance threshold is frozen until 2028, a commitment was made to retain the £5,000 employment allowance until March 2026. This allowance is of significant benefit to the smallest of employers as outlined here. The government state that 40% of employers do not pay NICs as a result of this employment allowance.
Business rates are based on the rateable value of a property and these valuations take place every 5 years. The next revaluation will come into effect on 1 April 2023, based on rateable values from 1 April 2021. To help with this an ‘Upwards Transitional Relief’ scheme will be available for 2023-24 to cap bill increases caused by changes in rateable values. The ‘upward caps’ will be 5%, 15% and 30%, respectively, for small, medium and large properties.
Further business rates support has been announced for 2023-24, including the freezing of business rates multipliers and increasing relief for retail, hospitality and leisure sectors from 50% to 75%. Business rate increases for the smallest of businesses losing eligibility or seeing reductions in the Supporting Small Business Scheme (SSBS) will be capped to £600 per year from 1 April 2023.
Research & Development Reliefs
The additional R&D deduction for small and medium-sized enterprises (SME) will be cut from 130% to 86% and the SME credit rate will also decrease from 14.5% to 10% from 1 April 2023. This means the effective tax relief for loss-making start-ups with valid R&D claims will reduce from the current 33.35% to 18.60%.
VAT Registration Threshold Frozen
The £85,000 threshold at which businesses are required to register for VAT has been frozen until March 2026. With high inflation and rising costs, many more currently non-VAT registered businesses planning to increase their prices over the next few years may find themselves needing to register for VAT and this is something that should be planned for well in advance. The UK’s VAT registration threshold still remains one of the highest amongst the EU and OECD members.
As previously announced, corporation tax will increase from April 2023. The rate will remain 19% for companies with profits of £50,000 or under (which the government says is 70% of all actively trading companies) but will increase to 25% for those with profits over £250,000. For companies with profits between those two thresholds, the corporation tax rate increase will be tapered.
Stamp Duty Land Tax (SDLT) Increases
The SDLT cuts announced in September have been made temporary and will end on 31 March 2025. This means the current temporary SDLT threshold of £250,000 will revert back to £125,000 from April 2025, along with the first-time buyers threshold which will go back to £300,000 from the current £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed will go back to £500,000 from the current £625,000.
Electric cars, vans and motorcycles are currently exempt from paying Vehicle Excise Duty (road tax). This will cease from April 2025 when they will be subject to the tax.
Hidden in the detail of the Autumn Statement document was also an increase in the benefit-in-kind (BIK) rates for company electric cars. The rate for pure electric cars is currently 2% but will be increasing by 1% per year from 2025-26 to 2027-28, by which time it will become 5%.
The government has taken the Low Pay Commission’s (LPC) advice to increase the National Living Wage (NLW) from 1 April 2023 by 9.7% to £10.42 an hour for those aged 23 and over. This represents the largest in increase in the NLW ever and is well above the general increase in average earnings.
National Minimum Wage (NMW) rates will also increase as follows:
|Age||From 1 April 2023||Current Rate|
|23 and over||£10.42||£9.50|