Stability, Growth, and Public Services: The Autumn Statement 2022
Amidst growing inflation and an ongoing economic downturn, the government released its third budget on 17th November 2022. Stability, growth, and public services were identified as the Chancellor’s top three priorities. In order to support the economy and encourage growth, the administration sought a balanced approach that included both tax increases and public spending restrictions.
Income Tax Rates
The administration had earlier said that the basic income tax rate would decrease from 20% to 19% starting in April 2024. This was supposed to be expedited so that it would start in April 2023. The administration does intend to implement the cut eventually, but this will not happen until the economy is stable and a change is affordable. Therefore, the basic rate of income tax will always be 20%.
The government announced a plan to eliminate the 45% additional rate of income tax, beginning in April 2023, in the Mini Budget on 23rd September 2022. On 3rd October 2022, the government announced that it would not pursue this plan. The threshold for individuals to pay the additional rate will be reduced from £150,000 to £125,140 beginning 6th April 2023.
Non-savings and non-dividend income will be taxed at a higher rate for taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will be applicable throughout the United Kingdom.
Income Tax Allowances
The personal allowance and higher rate threshold for income tax were already set to remain at their current levels until April 2026 and will now be extended for another two years until April 2028. They will be £12,570 and £50,270, respectively.
For 2023/24, the government will increase the married couple’s allowance and the blind person’s allowance by inflation.
The government has also declared that the following dividend income tax rates would be in effect beginning in April 2023:
- The dividend ordinary rate – 8.75%
- The dividend upper rate – 33.75%
- The dividend additional rate – 39.35%.
The corporation tax due on directors’ overdrawn loan accounts will continue to be paid at the dividend upper rate of 33.75%. Furthermore, the dividend allowance will be reduced from £2,000 to £1,000 in April 2023 and to £500 in April 2024 by the government.
National Insurance Contributions
The government published its proposals for new investment in health and social care in England in September 2021. The proposals were meant to result in permanent increases in spending not only in England but also by the devolved governments. To fund the investment, the government imposed a 1.25% Health and Social Care Levy across the UK, modelled after the National Insurance Contributions (NICs) system but earmarked for health and social care.
For 2022/23, the Health and Social Care Levy Act included a temporary 1.25% increase in both the main and additional rates of Class 1, Class 1A, Class 1B, and Class 4 NICs. The NIC rates were supposed to revert to 2021/22 levels in April 2023, to be replaced by a new 1.25% Health and Social Care Levy.
However, the government has:
- Reversed the temporary increase in NICs.
- Completely cancelled the Health and Social Care Levy.
According to the government, delaying the Levy will save nearly £10,000 in tax for 920,000 businesses next year. Savings for SMEs are expected to be around £4,200 on average for small businesses and £21,700 for medium-sized businesses starting in 2023/24, according to the government. Furthermore, it will assist nearly 28 million people in the UK in saving £330 on average in 2023/24, with an additional saving of around £135 on average this year.
Details for Employees and Employers
The changes took effect for payments of earnings made on or after 6th November 2022, so:
- Primary Class 1 NICs (employees) generally reduced from 13.25% to 12% and 3.25% to 2% and
- Secondary Class 1 NICs (employers) reduced from 15.05% to 13.8%.
The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year so that the rate will generally be 14.53%.
Although the government anticipates that the majority of workers will receive the NICs decrease in their November paychecks directly from their employers’ payrolls, some may have to wait until December or January, depending on how complicated their employer’s payroll processing is.
If you need any help with your company payroll, Hysons can relieve your staff of the burden and provide you with regular management to alleviate the stress of accounting and allow businesses to thrive.
Details for Self-Employed
Following the principle detailed above, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.
Regarding the NICs upper earnings limit and upper profits limit, a similar strategy to that described above for income tax thresholds will be used. The primary threshold for NICs and the lower profits limit were raised to match the personal allowance starting in July 2022 and will remain at this level from April 2023 to April 2028. From April 2023 through April 2028, the Class 2 lower profits barrier will likewise be established to coincide with the lower earnings cap. They will once more be £12,570 and £50,270, respectively.
Additionally, the government will set the small profit threshold and lower earnings limit at the levels of 2022–23 in 2023–24, or £6,396 and £6,725 annually, respectively. For 2023–2024, the government will raise the Class 2 and Class 3 NIC rates to £3.45 and £17.45, respectively. Last but not least, the government will set the starting point for employers’ Class 1 NIC payments for their workers at £9,100 from April 2023 through April 2028.
The government has announced that the annual exempt amount for capital gains tax will be reduced from £12,300 to £6,000 in April 2023 and to £3,000 in April 2024. Together with the changes to the Dividend Allowance, these measures will raise more than £1.2 billion per year beginning in April 2025.
The inheritance tax nil-rate bands are already set at current levels until April 2026 and will remain so for another two years until April 2028. The nil-rate band will remain at £325,000, the residence nil-rate band at £175,000, and the residence nil-rate band taper will remain at £2 million. To find out how you could benefit from our inheritance tax services, contact Hysons and book a free accounting consultation.
Corporation Tax Rates
The previously announced increase in the rate of corporation tax for many companies from April 2023 to 25% would not take effect. However, on 14 October 2022, the government announced that this increase will now be implemented, and this has been confirmed. This means that beginning in April 2023, the rate for companies with profits exceeding £250,000 will rise to 25%. The 19% rate will be reduced to a small profit rate for businesses with profits of £50,000 or less. Profits between £50,001 and £250,000 will be taxed at the main rate, reduced by a marginal relief, resulting in a gradual increase in the effective corporation tax rate.
- Bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million
- From April 2023 the rate of diverted profits tax will increase from 25% to 31%.
The Annual Investment Allowance (AIA) allows for a full write-off of certain types of plant and machinery up to certain financial limits per year. The limit has been set at £1 million for some time, but it is set to be reduced to £200,000 in April 2023. The government has announced that the AIA’s temporary £1 million level will become permanent and that the proposed reduction will not take effect. Companies investing in qualifying new plant and machinery can benefit from capital allowances, also known as super-deductions, until 31st March 2023. These exemptions do not apply to unincorporated businesses.
Companies incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cash flow. The government will also extend the 100% first-year allowance for electric vehicle charge points to 31st March 2025 for corporation tax purposes and 5th April 2025 for income tax purposes.
If you need help with business plans and finance applications, we offer business accounting services that prevent valuable time and resources from being tied up within your company, allowing you to focus on driving growth.
Research and Development
The Research and Development Expenditure Credit (RDEC) rate will climb from 13% to 20% for spending on or after 1st April 2023, however the additional deduction for small and medium-sized businesses (SME) will fall from 130% to 86%, and the SME credit rate will drop from 14.5% to 10%.
According to the government, “this reform ensures that taxpayer support is as effective as possible, improves the competitiveness of the RDEC scheme, and represents a step toward a simplified, single RDEC-like scheme for all.” The government will consult on the design of a single scheme and consider whether additional support for R&D-intensive SMEs is required. The R&D tax reliefs will be reformed, as previously announced in the Autumn Budget 2021, by expanding qualifying expenditure to include data and cloud costs, refocusing support on innovation in the UK, targeting abuse, and improving compliance.
The VAT registration and deregistration thresholds will remain unchanged for another two years, beginning on 1st April 2024, at £85,000 and £83,000, respectively. The UK’s VAT registration threshold, at £85,000, is more than twice as high as the EU and OECD averages, according to the government.
To give industry and taxpayers long-term certainty, the government will set the rates for taxing company automobile perks until April 2028. Rates will keep encouraging the adoption of electric vehicles. Additionally, starting on April 6, 2023, both the van benefit charge and the car and van fuel benefits will rise in step with inflation. Furthermore, starting in April 2025, electric automobiles, vans, and motorbikes will be subject to the same vehicle excise taxes as gasoline and diesel vehicles. According to the government, as the adoption of electric vehicles continues to increase, this will ensure that all users of the road start making a fair tax contribution.
Welfare, Work and Pensions
Cost of Living Payments
In 2023–2024, the government will give households receiving means-tested benefits an additional £900 cost-of-living payment. Households with pensioners will get an extra £300, while anyone receiving disability benefits will receive an extra £150. The state pension is one of the benefits that will be increased by the government in accordance with inflation. Starting in April 2023, the normal minimum income guarantee for the pension credit will also rise in step with inflation.
The Autumn Statement outlines steps to make sure energy companies that are generating enormous profits contribute more. The Energy Profits Levy will be raised to 35% starting on 1st January 2023 and extended through to the end of March 2028. Additionally, a new, temporary 45% Power Generator Levy will be imposed on the extraordinary returns generated by electricity generators. Through the winter, the Energy Price Guarantee (EPG) will be in effect, capping annual energy costs at £2,500. It will cost £3,000 starting in April 2023. A nationwide goal to reduce energy use by 15% by 2030 has also been set by the government. This goal will be achieved through public and private investment as well as a variety of no-cost and low-cost measures.
Hysons, Chartered Accountants are Here to Help
It can be challenging to determine precisely what is and isn’t applicable to you and your organisation considering the scope of the budget’s coverage. For more than 30 years, Hysons, Chartered Accountants has provided a range of accounting services to individuals, non-profit organisations, and businesses. Our knowledgeable team can assist with any inquiries you may have regarding the effects of the Autumn Budget and how you can maintain financial stability thanks to their experience. Contact our friendly group of knowledgeable accountants today and let us assist you to understand what it all means for you.