Autumn Statement 17 November 2022
This year has not been normal. There have been four Chancellors and three fiscal statements. The challenge following Jeremy Hunt’s first Autumn Statement has been to identify what, if any, of Kwasi Kwarteng’s proposals survived, and understanding the steps he has taken to fill the holes in the government finances.
One of Mr Hunt’s tax-raising measures is a promise to freeze the main thresholds for income tax and inheritance tax for the next five years. The effects of inflation will draw more people into paying these taxes and more of them into liability for higher rates. There are also more obvious tax rises through reductions in reliefs and exemptions and a lowering of the point at which the top rate of income tax applies.
Key points
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Basic rate of income tax to remain at 20% and additional rate at 45% for 2023/24
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Most tax rate bands frozen at current levels until 5 April 2028
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45% rate will apply to income above £125,140 in 2023/24
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Dividend income and capital gains to be more heavily taxed from 2023/24
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No changes announced to pension tax reliefs
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Inheritance tax thresholds now frozen until 5 April 2028
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Corporation tax rate increase to 25% from 1 April 2023 restored
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VAT registration threshold frozen at £85,000 for two more years, to 31 March 2026
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Affirmation of support for the state pension ‘triple lock’ with an inflation-linked increase from April 2023
Further details are given below.
Corporation tax
The CT rate will remain 19% until 31 March 2023. It will then increase to 25% for companies with profits over £250,000. The ‘small profits rate’ that was familiar before April 2015 will be reintroduced, at 19% for companies with profits up to £50,000. Between £50,000 and £250,000 there will be a tapering calculation that produces an effective marginal rate of 26.5% on profits within that band. The limits will be divided between the number of associated companies (companies under the common control of one or more persons, including both individuals and companies).
Value Added Tax
The level at which a business is required to register for VAT (taxable turnover of £85,000 in the last 12 months, or expected in the next 30 days) has been fixed since 1 April 2017. This has now been extended to 31 March 2026. The effect of inflation will require many businesses that are trading below the threshold to register and account for VAT.
Personal tax
The tax-free personal allowance and the 40% tax rate threshold will be fixed until 5 April 2028, while the 45% rate will apply to income above £125,140 from 6 April 2023. A person with earnings above £150,000 will pay an additional £1,243 compared to 2022/23.
Although ‘freezing the thresholds’ avoids the appearance of a direct tax increase, the effect of inflation will bring many more people into the higher rate bands. More people are likely to have to file self-assessment returns because they will have tax liabilities that are not completely settled under PAYE.
Two other thresholds remain fixed, as they have been since they were introduced: the income levels at which the High Income Child Benefit Charge begins to claw back Child Benefit receipts (£50,000 since 2012/13) and at which the tax-free personal allowance is withdrawn (£100,000 since 2010/11).
These rates and thresholds will not automatically apply in Scotland, where tax rates on non-savings, non-dividend income are set by the Scottish Parliament, which will announce its Budget on 15 December.
National Insurance Contributions
Changing the rates of NIC twice in the middle of a tax year has created considerable complexity for employers and their software providers, and there are a number of situations in which anomalous and possibly unfair liabilities can result. Overall, however, the restoration of the original rates combined with the increased threshold (which was not changed in November) will lead to lower charges for many people.
The Autumn Statement included details of the rates and thresholds for 2023/24. The Upper Earnings Limit (above which individual contributions fall from 12% to 2%) and the Secondary Threshold (above which employers pay 13.8% on all earnings) will remain fixed at their current levels (£50,270 and £9,100) until 5 April 2028. The Autumn Statement comments that many small businesses will not be adversely affected because of the Employment Allowance, which covers the first £5,000 of employer contributions for qualifying companies.
Dividend income
Dividend rates will remain at their current higher levels in 2023/24 and for the foreseeable future. The additional rate of 39.35% will apply to those with total income above £125,140 in 2023/24. In addition, the dividend allowance will be reduced. It was introduced in April 2016 at £5,000, then cut in April 2018 to £2,000; it will now fall to £1,000 on 6 April 2023 and £500 on 6 April 2024.
A company owner who takes profits mainly in the form of dividends, and has total income between £50,000 and £125,140, will pay £337 more tax in 2023/24 as a result of this change. However, the benefit of the allowance is not just financial: it means that taxpayers with a small amount of dividend income do not have to report it to HMRC, because there is no tax to pay. The reduction in the allowance will require many more people to file self-assessment tax returns to settle what will often be a relatively small tax liability.
Pension contributions
The tax reliefs and the restrictions on the amounts that can enjoy relief (Annual Allowance and Lifetime Allowance) remain the same.
Inheritance Tax (IHT)
The IHT nil rate band (NRB) has been frozen at £325,000 since 6 April 2009; the residence NRB has been £175,000 since 6 April 2020. This has been extended for another two years until April 2028, bringing more people within the scope of IHT as assets (particularly houses) rise in value.
Capital Gains Tax
The annual exempt amount (AEA), which is currently £12,300, is being reduced to £6,000 for 2023/24 and then to £3,000 for 2024/25. For someone with gains above £12,300, this will mean extra CGT payable on residential property gains. This reduction in the AEA will also mean that many more taxpayers will need to file the CGT pages of the self-assessment tax return.
State pension
Following some speculation the state pension will be uprated by inflation. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023.
Energy costs
From April 2023, the government will adjust the Energy Price Guarantee (EPG), which places a limit on the price households pay per unit of gas and electricity. This means that a typical household in Great Britain will pay £3,000 per annum (up from the current £2,500 per annum) from April 2023 to April 2024.
If you have any questions
To discuss how these changes may impact your own situation, please get in touch with your usual Warrener Stewart contact or email us on info@warrenerstewart.com