Condies Autumn Statement Report
November 18, 2022 | Active practice updates
Jeremy Hunt’s first statement as Chancellor was always going to contain bad news for many and formalises the almost complete reversal of the measures announced by his predecessor only weeks ago.
As expected, tax rises were at the fore and also as expected there were “stealth” increases enacted largely by the freezing or reduction in allowances and bands, rather than an increase in the actual tax rates themselves.
As far as income tax is concerned, the headline change is the reduction in the threshold at which the additional tax rate comes in, from £150,000 to £125,140, which is also the level of income at which the personal allowance is fully withdrawn. Together with the freezing of the personal allowance until 2028 (a further two-year freeze from previous announcements) and the continued freezing of the various tax bands, most people will find that they will increasingly pay more tax as their wages rise, further tightening household disposable income alongside the current high inflation rate.
Of course, these income tax measures do not apply in Scotland and we wait with bated breath for the Scottish Government’s budget and spending review which is expected on 15 December. Will they opt to follow suit and reduce the threshold at which the additional tax rate becomes payable? Will they retain the current 5 tax bands system? Given they had publicly said they would not follow on with the previous Chancellor’s decision to scrap the additional tax rate, it is likely they will opt to increase their tax take by matching the reduction in the additional band threshold.
One further measure for income tax announced in the Autumn Statement that does affect taxpayers throughout the UK, is the reduction in the Dividend Allowance from the current £2,000 per annum to £1,000 from April 2023 then £500 from April 2024, a substantial reduction from the £5,000 this allowance was originally set at when it was first introduced. Coupled with the recently imposed increase in dividend tax rates this is a blatant targeting of company business owners who have historically been thought to often pay less than other taxpayers with similar income levels.
The freezing of the income tax allowances has been matched for national insurance, meaning more people will find themselves paying over the next few years that have not previously had to pay.
It seems clear that, while the Chancellor has tried to spread the tax burden wide, there is a particular emphasis on business owners as, along with the reduction in the Dividend Allowance, there has been a huge reduction in the capital gains annual exemption announced. It had been thought that capital gains tax rates would perhaps be increased to match income tax rates however he has instead opted to reduce the exemption, firstly to £6,000 from April 2023 then £3,000 from April 2024, taking this back to levels not seen for many years. This decrease does not only affect business owners, of course, with landlords affected when selling rental properties and savers also being impacted as gains within share portfolios will have much less scope to realise gains tax free.
Rather unsurprisingly the inheritance tax thresholds have also been frozen, again until 2028, a further stealth tax that is expected to see increased revenues as more and more estates exceed the nil rate band due to continued rises in house prices.
In addition to the new measures announced, certain other measures that had previously been announced were formally confirmed, mainly the increase in the corporation tax rate to 25% from April 2023, the scrapping of the previous increase in national insurance and the scrapping of the Health & Social Care levy that had been planned for begin in April 2023.
As well as these more “headline” announcements, other measures include:
- The Annual Investment Allowance will continue at £1million per annum for qualifying business capital expenditure.
- VAT registration and de-registration threshold have been frozen at existing levels despite the impact inflation will be having on VATable turnover.
- Research and Development tax relief for SMEs will reduce from 130% to 86% whilst the research and development expenditure credit increases from 13% to 20%.
- Employment allowance is to remain at £5,000 giving eligible employers relief on their class 1 national insurance contributions.
If you have any questions regarding the announcements contained in the Autumn Statement, please don’t hesitate to get in touch.