On 17 November 2022, the government presented its third fiscal statement in as many months. This time the Chancellor sought to lay out three core priorities of stability, growth and public services, with an intention to repair the public finances through a mixture of public spending restraint and tax rises.
The largest tax rise will come through the freezing of income tax rates and allowances over several years at a time of high inflation. This will mean that each year large numbers will pay higher rate tax, or will lose their personal allowances for the first time.
There is also a reduction of more than 75% in the capital gains tax annual exempt amount which may mean landlords wish to consider bringing forward any disposals they may have planned in advance of the introduction of MTD in April 2024 and / or the introduction of the EPC regulations in 2025.
Income tax rates and allowances
The previously announced cut in the basic rate of income tax has been shelved and instead the basic rate will remain at 20% indefinitely. The higher and top rates remain at 40% and 45% respectively.
The income tax personal allowance and higher rate threshold were already fixed at their current levels until April 2026 and will now be maintained for an additional two years until April 2028 at £12,570 and £50,270 respectively. The personal allowance will also continue to be withdrawn from those with taxable incomes over £100,000.
One of the major announcements in November’s autumn statement was that from 6 April 2023, the point at which individuals start to pay the top rate will be lowered from £150,000 to £125,140. This is the point at which the personal allowance is fully withdrawn.
There were no further changes to dividend tax rates, so from April 2023, the rates of taxation on dividend income will remain as follows:
- dividends within the basic rate band – 8.75%
- dividends within higher rate tax – 33.75%
- dividends subject to top rate tax – 39.35%.
In addition, the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024. For most business owners taking a small salary and the remainder of their income in the form of dividends, this will mean a further £1500 of income becomes subject to tax at 8.75%.
Corporation tax due on directors’ overdrawn loan accounts will also remain at 33.75%.
National Insurance contributions
No further changes were made to National Insurance Contributions.This means that for payments of earnings made on or after 6th November 2022:
- primary Class 1 NICs (employees) will be charged at either 12% or 2% and
- secondary Class 1 NICs (employers) will be charged at 13.8%.
For Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%. This will drop to 13.8% for the 2023/24 tax year.
For the self-employed, Class 4 NICs will also be averaged across 2022/2023 tax year so that the rate will generally be 9.73% or 2.73%, dropping to 9% or 2% in the 2023/24 tax year.
A similar principle to that outlined above for income tax thresholds will be followed in respect of the NICs upper earnings limit and upper profits limit. The NICs primary threshold and lower profits limit are aligned with the personal allowance and will be maintained at this level from April 2023 until April 2028. The Class 2 lower profits threshold will also be fixed from April 2023 until April 2028 to align with the lower profits limit. They will again be £12,570 and £50,270 as appropriate.
In addition, the government will fix the lower earnings limit and the small profits threshold at 2022/23 levels in 2023/24, namely £6,396 and £6,725 per annum respectively.
The government will uprate the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 per week and £17.45 respectively.
Finally, the government will fix the level at which employers start to pay Class 1 NICs for their employees at £9,100 from April 2023 until April 2028. The Employment Allowance remains in place; the government has stated that as a consequence 40% of businesses do not pay NICs and will be unaffected by this change, with the largest employers contributing the most.
Although no changes have been announced to capital gains tax rates, the government has stated that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
For those making disposals of assets, the reduction in the annual exempt amount will represent a significant increase in the tax burden, for example a landlord selling a residential property in 2024/25 will have to pay an additional £2604 in tax (assuming a 28% tax rate) as compared to selling the same property before 5 April 2023. The reduction in the annual exempt amount will also mean that a greater proportion of property disposals give rise to a capital gains tax charge and so require a 60 day CGT return to be made.
The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.
Corporation tax rates
There were no further changes announced. This means that from April 2023, the corporation tax rate will increase to 25% for companies with profits over £250,000 and for all closely held investment companies. The 19% rate will become a small profits rate payable by trading companies with profits of £50,000 or less. Trading companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Coupled with dividend tax rates remaining at the increased rates, this represents a significant tax increase for many business owners. In a change to the position applying for many years, there will in many cases now be little difference in the overall tax burden whether a business owner draws their income in the form of salary and dividends, or all of it through the PAYE system.
No further changes have been announced. This means that the Annual Investment Allowance (AIA), which gives a 100% write-off on certain types of plant and machinery will have a permanent annual limit of £1million going forward.
Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses.
The government will also extend the 100% first year allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
Research and development
In a significant change, the government has announced that for expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.
This government states that ‘this reform ensures that taxpayer support is as effective as possible, improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all’. The government will consult on the design of a single scheme and consider whether further support is necessary for R&D intensive SMEs.
Assuming a 25% corporation tax rate from April 2023, the reduction in the SME additional deduction will mean that the tax benefit of R&D expenditure will reduce from 24.7p currently to 21.5p for each £1 of spend from April 2023.
The government will set the rates for the taxation of company car benefits until April 2028 to provide long term certainty for taxpayers and industry. Rates will continue to incentivise the take up of electric vehicles, but the benefit in kind chargeable on zero emissions vehicles will increase.
In addition, from April 2025 electric cars, vans and motorcycles will begin to pay Vehicle Excise Duty in the same way as petrol and diesel vehicles. According to the government, this will ensure that all road users begin to pay a fair tax contribution as the take up of electric vehicles continues to accelerate.
From 6 April 2023 car and van fuel benefits and the van benefit charge will increase in line with inflation.
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2024, staying at £85,000 and £83,000 respectively.
National Living Wage and National Minimum Wage uprating
The government will increase the National Living Wage (NLW) and National Minimum Wage from 1 April 2023 as follows:
- the rate for 23 year olds and over to £10.42 an hour
- the rate for 21-22 year olds to £10.18 an hour
- the rate for 18-20 year olds to £7.49 an hour
- the rate for 16-17 year olds to £5.28 an hour and
- the apprentice rate to £5.28 an hour.
Other than for 21-22 year olds, the minimum wage increase is 9.7%, slightly less than the 10.1% inflationary increase in benefits and pensions.
Stamp Duty Land Tax
A number of changes were made to the Stamp Duty Land Tax (SDLT) regime earlier this year. While these remain, the tax cuts made in September are now considered to be temporary, with the government planning to reverse them after 31 March 2025.
Until 31 March 2025, the residential nil rate tax threshold is increased from £125,000 to £250,000.
Again, until 31 March 2025, the nil rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased to £625,000.
The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes.
There are no changes in relation to purchases of non-residential property. Higher rates also continue to apply to purchases residential properties other than your main home.
The Autumn Statement sets out reforms to ensure businesses in the energy sector who are making extraordinary profits contribute more. From 1 January 2023, the Energy Profits Levy will be increased to 35% and extended to the end of March 2028 and a new, temporary 45% Electricity Generator Levy will be applied on the extraordinary returns being made by electricity generators.
The Energy Price Guarantee (EPG) will be maintained through the winter, limiting typical domestic energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000.
The government is also setting a national ambition to reduce energy consumption by 15% by 2030, delivered through public and private investment, and a range of cost-free and low-cost steps to reduce energy demand.
Seed Enterprise Investment Scheme
As previously announced, from April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.
Company share option plan
As previously announced, from April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.
Welfare, work and pensions
The government will increase benefits in line with inflation, including the state pension. The standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023.
The government will provide households on means-tested benefits with an additional £900 cost of living payment in 2023/24. Pensioner households will receive an additional £300 and individuals on disability benefits will receive an additional £150.
The benefit cap will be raised in line with inflation, so that more households will see their payments increase as a result of uprating from April 2023. The cap will be raised from £20,000 to £22,020 for families nationally and from £23,000 to £25,323 in Greater London. For single adults it will be raised from £13,400 to £14,753 nationally and from £15,410 to £16,967 in Greater London.
The government will bring forward the nationwide rollout of the In-Work Progression Offer, starting with a phased rollout from September 2023, to support individuals on Universal Credit (UC) and in work to increase their earnings and move off benefits entirely. This will mean that over 600,000 claimants on UC whose household income is typically between the equivalent of 15 and 35 hours a week at the NLW will be required to meet with a dedicated work coach in a Jobcentre Plus to increase their hours or earnings.