Autumn Statement Update 2022
Corporate Tax Planning,
Personal Tax Planning,
Tax Reliefs including R&D,
VAT & Customs Duty
With looming recession, soaring inflation, staff shortages and low business confidence, there seems to be a continuing tough road ahead for business owners.
The Chancellor had said that his Autumn Statement would outline further tax rises and spending cuts to try and ease the effects of the recession. However, business owners need more than an austerity reboot to give them the confidence to continue to invest and grow.
Here’s our recap of the Autumn Statement announcements along with a reminder of some of the previous changes and U-turns that affect business owners and their companies.
It had already been confirmed that the main rate of Corporation Tax will rise to 25% from April 2023, affecting companies with profits of £250,000 and the small companies’ rate will remain at 19% for companies with profits up to £50,000 and there will be a tapered rate for companies between these two figures.
The Chancellor has not announced any changes to this which doesn’t help owner managed businesses especially against the backdrop of the significant increase in energy costs that is already cutting into profits.
Research & Development
Fearing fraud in connection with and abuse of this generous tax relief, the Chancellor has cut the deduction rate for the SME scheme to 86% and the credit rate to 10% but increased the rate of the separate R&D expenditure credit from 13% to 20%.
If you are currently making or considering whether a claim for R&D tax relief is appropriate, please get in touch with our specialist R&D team.
Capital Gains Tax (CGT)
CGT rates are currently between 10% - 28% and the Annual Exemption for gains is currently £12,300. Whilst the Chancellor did not go as far as most in the press feared by aligning capital gains tax rates with income tax rates, he did announce today the capital gains annual exemption would fall to £6,000 for disposals on or after 6 April 2023 and further reduce the exemption to £3,000 for disposals on or after 6 April 2024.
With the already increased speed at which capital gains tax on the disposal of UK residential property is collected (60 days), perhaps this was as far as the Chancellor risked going.
Any disposals in the pipeline already should be advanced, to before the end of the tax year, to maximise the current exemption.
The Chancellor announced the extension on the freeze on the £85,000 VAT registration threshold until 31 March 2026. This means even more small businesses will be caught by the need to register for VAT and be VAT MTD (making tax digital) compliant, meaning increased costs for small businesses and more tax revenue for the government.
Dividend tax remains at the current rate of 8.75%, 33.75% and 39.35% which was introduced 2022. Another blow to business owners.
The Chancellor has cut the dividend allowance to £1,000 from 6 April 2023 and reducing it further to £500 from 6 April 2024.
The previous, somewhat disastrous, mini-budget set out plans to cut the basic rate for taxpayers to 19% and abolish the 45% higher rate. Both measures have since been scrapped.
Today’s announcement of a freeze on the income tax personal allowance at £12,570 and the basic rate band at £37,700 until April 2026 will push many people into higher rate bands.
The Chancellor also announced a reduction in the threshold at which the additional rate of income tax of 45% kicks in.
This will reduce from £150,000 to £125,140 from 6 April 2023.
Initial estimate of increase in tax for someone earning £150,000 - £1,243 per year
Company car tax rates will remain lower for electric vehicles but will increase, albeit at a limited rate. The increase is by 1% a year for three years from 2025.
The Lifetime Allowance (LTA) will remain frozen under the announcements made by the then Chancellor, now Prime Minister, Rishi Sunak. The lifetime allowance will remain at £1,073,100.
The chancellor announced a freeze on the nil rate band for inheritance tax until April 2028. The nil rate band threshold is currently at £325,000 for an individual.
This hasn’t risen since 2009, meaning that more and more people are being dragged into the IHT net - the so called ‘fiscal drag’.
Having scrapped Kwasi Kwarteng’s proposed repeal of the recent changes to the IR35 off-payroll working rules, IR35 rules are set to remain beyond April 2023.
There were no new announcements today in this area.
The Chancellor accepted the recommendation to increase the living wage from £9.50 per hour to £10.42 per hour. This equates to a rise of 9.7 per cent. This is a great measure for millions of low paid workers; however, this will put even more financial pressure on businesses that may already be struggling.
Fiscal drag and stealth taxing
With some tax thresholds and allowances being frozen at current rates for areas such as income tax, capital gains tax and IHT, the government are using a ‘stealth tax’ approach to raise additional revenues. This ‘fiscal drag’ tactic has been used by other governments in the past to increase tax revenues without large tax rises.
Company Share Option Scheme and Seed Enterprise Investment Scheme
The Chancellor had already confirmed that the announcements in the Mini-Budget to make the Company Share Option Scheme and the Seed Enterprise Investment Scheme more attractive and no changes to these were announced today.
The previously announced low-tax, low-regulation investment zones will go ahead as planned with £12bn being invested to provide help and reliefs to businesses in the zones including:
Accelerated tax reliefs for structures and buildings.
100% tax relief on qualifying expenditure in plant and machinery.
No stamp duty land tax (SDLT) on purchases of qualifying commercial / business premises.
No business rates on newly occupied business premises.
No Employer NI payments on the first £50k of any new employees’ earnings.
These benefits could have a significant impact on businesses that are involved in developing these areas and businesses moving into these zones.
The Chancellor has not changed any of the above in today’s Autumn Statement.
Annual Investment Allowance (AIA)
The capital allowances 100% Annual Investment Allowance has been permanently set at £1m a year from April 2023. This means that businesses can now plan capital investments in plant and machinery and benefit from the 100% tax relief on investments up to £1m.
The measures are:
freezing the multiplier in 2023-24
75% relief for Retail, Hospitality and Leisure sectors in 2023-24, up to £110,000 cash cap
three-year transitional relief to limit bill increases at the revaluation
three-year supporting small businesses scheme for properties losing Small Business Rates Relief or Rural Rates Relief
delay improvement relief by one year to April 2024
With the government fearing another negative market reaction to more large tax announcements, it seems the Chancellor has stopped short of radically raising tax revenues in the immediate future. Fiscal stability has taken a front seat in an attempt to shorten the recession.
Owner managed businesses are continuing to bear the brunt of tax rises and threshold freezes with corporation tax, dividend rates and income tax rates set to rise.
With many announcements taking affect from April 2023 onward, now is the time to do a full review of both your corporate and personal tax structures. Contact our offices in Liverpool, Wirral and Chester for more help and advice.