Please note this content was written contemporaneously, and may well now be superseded
This was an eagerly anticipated Autumn Statement, which was packed with a substantial amount of content (albeit much of it having been predicted by the Press – leaked maybe?). The Chancellor delivered on his promise of “eye-watering” tax rises in today’s Autumn Budget, but also softened this slightly with some welcome news for the most vulnerable.
As expected, the Chancellor cited Covid funding and Russia’s invasion of Ukraine as the two factors that have left the UK economy needing to be rebuilt.
Declaring that 1/3rd of the world, including the United Kingdom, is in recession, and starting off with a sweeping statement that the Government’s priorities are “Stability, growth, and public services”, the Chancellor set about explaining how these priorities would need to be funded, mostly it seems by sweeping tax increases. Of course, not all tax increases are immediately transparent, and an extended freeze to tax and National Insurance thresholds (the point from where tax and/or National insurance becomes payable) has a similar effect as an increase in the tax rates themselves. Indeed, as average pay increases, an increasingly higher number of individuals will find themselves being pulled into the tax system or having to pay higher rate taxes for the first time.
So how and where has the Chancellor made these changes?
Income Tax and National Insurance
The Income Tax Additional Rate threshold will be reduced from £150,000 to £125,140, presumably from April 2023 (effective start date was not included in the announcement but doubtless will be confirmed in due course).
Other Income Tax thresholds, including Inheritance Tax thresholds, will remain frozen at their current level until April 2028, as will employee and self-employed National Insurance thresholds. This is a 2-year extension to the previous plan to freeze the thresholds until April 2026.
National Insurance for employers – the NIC secondary threshold, over which employer NIC kicks in, will remain at £9,100 until April 2028. It was originally frozen until April 2026.
Overall, we must accept that we are looking at 5 or more years of frozen Income Tax and National Insurance thresholds. As workers’ pay increases over the years, this manifests itself as a significant and enduring tax and NIC increase, and it’s difficult to visualise how this can be kickstarted again when we reach 2028. It’s unlikely that any future government will push thresholds up to where they would have been without this newly announced freeze, so it can be assumed that we will continue to be worse off in real terms indefinitely, if/when the threshold clock restarts in 2028.
Capital Gains Tax
The Capital Gains Tax exemption limit will be reduced over 2 years, to £6,000 from April 2023, and then £3,000 from April 2024. Anyone considering a capital disposal might want to consider accelerating it, to make the most of the current £12,300 CGT exemption still in place until 5 April 2023.
Dividend Tax
Those of our clients who operate through a Limited company will be impacted by the reduction in the tax-free dividend allowance, down from the current £2,000 per annum, to £1,000 in 2023-24 and then a further reduction to £500 in 2024-25. This has all the hallmarks of the start of a complete phasing out of the tax-free allowance – watch this space.
Windfall Tax
A big hooray for the increase in Windfall Tax rates, from 25% to 35% but will it be any more effective in generating this elusive tax than it was at the previous rate? Unless companies are efficiently targeted, then possibly not.
Other announcements:
VAT – No change to the VAT threshold or VAT standard rate. We can probably thank Brexit for this. For years it’s been widely expected that the VAT threshold would be brought down to be more in line with the VAT thresholds across the EU. The Chancellor made reference to the UK VAT threshold being the lowest in Europe, but then went on to say that it would remain at its current level until March 2026. It looks like the annual VAT threshold increase is a thing of the past, but successive chancellors have resisted the urge to reduce the threshold or increase the VAT standard rate, so we should be grateful for that.
Electric Cars – From April 2025 electric cars will no longer be exempt from Vehicle Excise Duty. Is this the thin end of the wedge? Having cajoled the public into having a love affair with EV’s are they now planning a tax raid to plug the hole that the dwindling fossil fuel vehicles will leave? Most likely, but hopefully not for some time to come.
Research and Development – R&D relief for small and medium entities (SME’s) to be cut to 86%, and R&D credit rate to be cut to 10%, both from April 2023. The Government has pledged to protect £20bn in R&D investments in 2024-25 but is also intent on reforming the R&D system to ensure that public money is spent effectively and best supports innovation. The Chancellor also announced that there would be more checks on R&D claims, in an effort to identify those that are excessive or fraudulent.
Stamp Duty Land Tax (SDLT) – The temporary reduction in the SDLT threshold will remain in place until March 2025.
National Living Wage – Increasing to £10.42/hour from April 2023 for over 23-year-olds.
Business Rates – The Chancellor announced a revaluation of business properties in 2023 but stated that there would be a package of targeted support to help with business rates costs, worth £13.6bn over the next 5 years. Business rates multipliers will be frozen in 2023-24 and upward transitional relief caps will provide support to ratepayers facing large bill increases following a revaluation. Relief for the retail, hospitality and leisure sectors will be extended and increased, and there will be “additional support” for small businesses. We’ve not been told what that additional support will be.
Energy Price Guarantee (EPG) – This will be maintained at £2,500 throughout the winter but will be increased to £3,000 from April 2023. Additionally, cost of living payments will continue to be paid to the most vulnerable.
Pensions and Benefits – The Chancellor kept this little gem until the very end of his speech, and much to the delight of everyone in the house, he confirmed that the Pension triple lock would remain, meaning a 10.1% increase to pensions from April 2023. He went on to announce that other means tested benefits would also be increased in line with inflation.
There were announcements around extended funding for the NHS and education sectors, and a stirring speech about the UK’s plans for scientific and technological innovation, the Chancellor announcing that he wants the UK to be the “New Silicon Valley”.