Information correct as of 17 November 2022
Just 55 days after the Mini Budget, Chancellor Jeremy Hunt has outlined his plans to address the £55billion gap in public finances, control inflation and manage the impending recession.
The Chancellor had already abandoned many of the tax measures included in his predecessor’s mini budget. Yesterday’s statement confirmed the speculation of significant tax rises and spending cuts in an attempt to manage an economy battered by the Covid-19 pandemic, conflicts in Ukraine war and years of slow growth. The measures will impact all business sectors along with the household budgets of millions of people.
The devil is always in the detail and we will continue to review the ongoing consequences of the statement. In the meantime we hope the following highlights, which we feel will be the most significant to our clients, are helpful.
Personal
Income Tax Basic Rate Band: In an move to ensure that ‘those with the broadest shoulders’ pay the most tax, the threshold for the 45% tax band has been reduced from £150,000 to £125,140 from April 2023. As a result, taxpayers within this bracket will pay up to £1,243 more in Income Tax each year.
It was also announced that the personal allowance, the amount an individual can typically earn before paying Income Tax, will continue to be frozen at £12,570. The higher rate tax threshold will also remain as is at £50,270. Both these allowances will remain at these rates until 2028.
Whether this change will be adopted by Scotland, who set their own income tax rates is yet to be seen. Scottish income tax rates are due to be confirmed in the Scottish budget, scheduled for 15 December 2022.
National Living Wage: The National Living Wage for over-23s will be increased from an hourly rate of £9.50 to £10.42 from April 2023. This will be worth over £1,600 to a full time worker.
Capital Gains Tax (CGT): The CGT annual exemption limit, currently at £12,300, will be reduced to £6,000 from April 2023 and then halved again to £3,000 from April 2024. Anyone who might be considering a capital disposal may want to consider the timing of this to make the most of the current £12,300 CGT exemption which will remain until 5 April 2023.
Annual Dividend Allowance: The Annual Dividend Allowance, the amount you can earn from dividends before dividend tax is paid, will be reduced from £2,000 to £1,000 with effect from April 2023, then reduced again to £500 from April 2024. This means more people will end up paying tax on their dividends and potentially have to fill in self-assessment tax returns each year.
Inheritance Tax (IHT): The Inheritance Tax nil-rate band has been frozen and the Chancellor announced an extension to the freeze meaning IHT will remain at this level until tax year 2027/28.
Stamp Duty Land Tax (SDLT): In England and Northern Ireland, the SDLT nil rate band of £250,000 introduced in September will remain in place until 31 March 2025. Similarly the maximum value of a property on which first-time buyers’ relief can be claimed will remain at £425,000 until the same date.
Electric Vehicles: Electric cars, vans and motorcycles will no longer be exempt from vehicle excise duty (VED) from April 2025. New zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED, 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.
Please see information below for changes announced regarding electric company cars.
Energy Price Cap: From April 2023, the energy price guarantee (EPG) will rise to £3,000 a year for the typical household, up from £2,500, and will be extended for 12 months. For households that use fuels such as heating oil, LPG, coal or biomass the level of support will double to £200.
The Chancellor also announced further support for the most vulnerable households, with additional cost of living payments of £900 provided to households on means-tested benefits.
Please note the EPG is an average and is not a fixed limit on what every household might pay. Your household energy bill will depend on how much energy you actually use.
Energy Windfall Tax: As widely expected from 1 January 2023, the windfall tax on energy companies, the ‘Energy Profits Levy’, will be increased from 25% to 35% and extended from December 2025 until March 2028. In addition, a new and temporary tax of 45% will be charged on extraordinary profits, defined as electricity sold at above £75MWh, and will also run until 31 March 2028.
Business
National Insurance Contributions NICs: The National Insurance threshold of £12,570 and employer’s NIC payments of 1.25% will be frozen until April 2028. To soften the impact of this change for employers, the increased Employers’ Allowance of £5,000 will remain in place which, according to Government estimates, will result in 40% of all businesses paying no NICs at all.
Company Electric Vehicles: The rates applied when determining company car benefits for electric vehicles are set to increase. An EV is currently taxed as a benefit in kind (BIK) when made available for private use by an employer for an employee with a cash equivalent of 2% of the list price, a rate the Government committed to until April 2025. This rate will increase to 3% in 2025/26, 4% in 2026/27 and 5% in 2027/28. Non EVs will also see the same 1% increase per annum over the same timescale.
Research & Development (R&D) Tax Relief: For SMEs the additional deduction rate for expenditure on R&D will decrease from 130% to 86% from April 2023. The credit rate for loss making SMEs will decrease from 14.5% to 10%. The R&D credit rate, more often used by larger corporate companies/groups that do not qualify for the SME scheme, will increase from 13% to 20%.
Corporation Tax/Diverted Profits Tax: As confirmed in October, the main rate of corporation tax will increase to 25% from 1 April 2023. However, the rate of diverted profits tax will be rising by 6% from the same date. From April 2023, the rate of diverted profits tax will increase from 25% to 31%. This will retain a 6% points differential above the main rate of corporation tax, with the aim of providing a deterrent against diverting profits out of the UK.
VAT: The VAT threshold is due to remain at £85,000 until March 2026. It is worth noting that as inflation bites this could affect turnover meaning more businesses may be caught by this threshold sooner.
As always, the information outlined above is for general guidance purposes only. We understand that every individual and business has different circumstances and you should always seek appropriate professional advice before you act on any of the information provided.
We know that we are heading into a recession and there will be challenging times ahead. Therefore if you would like more information on any of the above information or require wider business or planning guidance, please do get in touch.
