The Autumn Statement 17.11.2022

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They flagged there were going to be tough actions, even cited ‘throwing the kitchen sink’ at this budget this morning.

I asked for a kind budget for business owners at this incredibly difficult time and balancing all things this budget was a welcome Autumn Statement, in comparison to what we were led to believe!

So, what were the headlines for small business owners:

Taxes

Personal Tax:

The higher rate band previously meant that individuals earning over £150,000 were taxed at 45p for employment/self-employment income, the band has been reduced so those earning over £125,140 (this is the amount after you have lost every penny of your personal allowance) will now be taxed at 45p this higher rate rather than at 40p.

This also includes the band for dividends, so if you earn over £121,140 in 2023/24 these will be taxed at 39.35% rather than on amounts over £150,000.

Whilst no other cuts have been made, personal tax thresholds will be maintained at current levels until April 2028. This in effect is a clear attempt to avoid some of these political decisions being framed as ‘tax rises’. Instead taxes for income tax and national insurance being frozen, mean that the bands stay the same as peoples pay goes up. Which in effect will be where tax will be raised.

Dividend allowance:

The first £2,000 of dividends is currently tax free, this will reduce to £1,000 from April 2023 and £500 April 2024. As a business owner taking £50k of dividends and salary, this will cost you an extra £337.50 next year and a further £506.25 the year after.

Capital Gains Tax:

If you sell anything, such as a second property, personal assets of £6k*, or a business, then previously we had £12,300 of tax free allowance before you are charged capital gains tax. This has now been reduced to £6,000 for 2023-24. In 2024-25 the level will decrease again to £3,000.

 2022/232023/242024/25
Annual exemption12,3006,0003,000

Anything over this level will be taxed at 10% or 20% depending on whether you have any of your remaining band available up to £50,270 (after considering employment income), or 18%, and 28% if residential property.

Benefit in Kind Tax:

Company car tax for electric vehicles will increase 1% each year over the next three years.

 2022/232023/242024/25
BIK rate2%3%4%

Corporation Tax:

Ok so no change to the impending 25% increase in corporation tax for profits over £50,000. However, it doesn’t mean you’ll just be taxed at 25% if you earn £100,000 of profits, what does it mean. We’re bringing back Marginal rates so it’s a little more complex, but bear with me, the bands will be taxed like this:

 Marginal Rate
£0 to £50,00019%
£50,000 to £249,99926.5%
£250,000 plus25%

Say you have profits of £100,000, you’ll be taxed on your first slice of £50,000 at 19% and the rest at 26.5%, like so:

ProfitsRateTax
£50,00019%£9,500
£50,00026.5%£13,250
Effective rate and total tax
£100,00022.75%£22,750


So, we can see an effective rate of 22.75%

Research & Development

There are huge reforms coming with R&D and it merits it’s own article, but the headline from the budget:

For those qualifying under the SME regime:

  • R&D enhanced deduction reduced from 130% to 86% for SMEs for expenditure incurred from 1 April 2023).
  • Tax credit rate for loss making companies reduced to 10% from 14.5%

This means, that for every £100 you spend instead of getting £230 relief to take against your taxable profits, you’ll only get £186. Also if you’ve made a loss and you surrender that for a tax credit, then instead of receiving £6.34 for each £100, you’ll receive £3.53.

Still worth doing of course, but a 44% reduction in tax credits for those who rely on this as a stream of revenue are going to be affected!

For larger businesses, or those who have to claim under RDEC (claimed grants perhaps):

  • R&D Expenditure Credit (RDEC) increased from 13% to 20% for expenditure incurred from 1 April 2023 (broadly 10.5% net benefit increased to 15%).

Windfall Tax

We will see a temporary windfall tax which increases tax from 1 Jan – 28 March.

Other fixed items, rather than changes:

No changes to the VAT registration and deregistration thresholds, these will be maintained at £85,000 for an additional two years.

The Inheritance tax nil rate band and residence nil rate band will be fixed at their current rates until April 2028.

Stamp Duty land Tax will stay until 31 March 2025 meaning that you will not pay SDLT if a property is less than the threshold of £250,000 (If you’re a first time buyer £425,000 on a property worth £625,000, and £150,000 for non-residential land and properties).

No change to the employment allowance of £5,000 available to employers to cover national insurance costs, and national insurance will stay at the same levels and thresholds with no movement.

Other note worthy items:

  • 10.1% increase in the state pension, benefits and tax credits
  • An increase in the National Living Wage from the current level of £9,50 an hour for over-23s to £10.42 from April.
  • Electric vehicles will no longer be exempt from vehicle excise duty from April 2025.
  • Business rates will be reviewed. This afternoon, ratepayers in England will be able to see the future rateable value for their property and get an estimate of what their business rates bill may be from 1 April 2023 through the Find a Business Rates Valuation Service

So we’re told we can weather the storm, there will definitely be a pinch for those business owners who are facing increased energy costs, inflationary rises, and a squeeze on salaries in the new year with nearly £1 increase in the National Living Wage, but the budget was kinder than I was expecting.

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