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Employers will need to update their systems to reflect the changes in the National Living and Minimum Wage rates from 1 April 2023. They are:
As this will increase the payroll costs of affected business owners these changes will need to be factored into business plans for 2023-24. |
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Readers may have noted that the Chancellor announced a significant reduction in the annual Capital Gains Tax allowance, currently £12,300, from April 2023. It is reducing to £6,000 from April 2023 with a further reduction to £3,000 from April 2024. Taxpayers who are contemplating the disposal of a chargeable asset next year, which will create significant chargeable gains, should consider organising these disposals before, rather than after, 5 April 2023; unless they have already crystalised gains during 2022-23 and fully used their £12,300 tax-free allowance. And don’t forget, married couples and civil partners both qualify for the £12,300 allowance in which case organising joint ownership of these assets before disposal may be beneficial. |
What is fiscal drag?
The Oxford dictionary defines it as:
‘The deflationary effects of a progressive taxation system on a country’s economy. As wages rise, a higher proportion of income is paid in tax’
The recent comments made by the Chancellor in the Autumn Statement, froze most Income Tax allowance and rates at current levels until 2028.
This means that wage earners who receive pay increases until April 2028, to try and keep spending power intact, will pay income tax on any increase. In certain circumstances, they may also see their taxable income boosted into the 40%, or 45%, Income Tax bands.
If wage increases continue to lag behind inflation, then wage earners will suffer a double hit to their spending power in coming years.
Changes to these support payments were announced in the Autumn Statement last month. They include:
1. State Pension – will increase in line with inflation.
2. Cost of living payments – 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 Cost of Living payment, and individuals on disability benefits will receive an additional £150 Disability Cost of Living payment in 2023-24. These payments will be made on a UK-wide basis.
3. Uprating of benefits – the government is protecting the most vulnerable in society by increasing benefits in line with inflation, measured by September CPI which is 10.1% this year. Around 19 million families will see their benefit payments increase from April 2023. This includes increasing the State Pension by inflation, in line with the commitment to the Triple Lock. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth). This will ensure pensioners on the lowest incomes are protected from inflation and do not lose some of their State Pension increase in the Pension Credit means test. Some disability benefits are devolved in Scotland, so it is for the Scottish Government (SG) to decide uprating. Department for Work and Pensions (DWP) benefits are fully devolved in Northern Ireland, so it is for the Northern Ireland Executive to decide uprating in Northern Ireland.
The new Chancellor of the Exchequer, Jeremy Hunt, has delivered his Autumn Statement to the House of Commons against a backdrop of a worsening cost of living crisis and with confirmation from the Office for Budget Responsibility OBR that the UK has now entered into a recession.
The OBR has stated that the economy is still forecast to grow by 4.2% this year. GDP is then predicted to fall by 1.4% in 2023, before rising by 1.3% in 2024.
As expected, the Chancellor set out billions of pounds in tax increases and spending cuts to continue the restoration of market stability after the disastrous mini-budget.
The following summary of the measures announced by the Chancellor as part of the Autumn Statement measures is split into two sections:
Please call if you need to discuss how these changes may affect your business or tax affairs in the coming months.
Taxation changes
Income Tax
The Chancellor has announced that the Income Tax additional rate threshold will be reduced from £150,000 to £125,140 with effect from 6 April 2023. This move will see an estimated 250,000 further taxpayers pay the additional rate of Income Tax of 45% from next April.
It had been previously announced that there would be no increase in the Income Tax Personal Allowance and higher rate threshold until April 2026. The Chancellor has now confirmed that the thresholds will be maintained at their current levels for a further two years until April 2028. Higher rate threshold will remain frozen at £37,700 and the personal tax allowance will remain at £12,570 through to April 2028.
This is effectively a “stealth tax” increase. Wage earners benefitting from annual increases in their earnings up to April 2028 will find themselves paying tax on the full value of any increases. This is because, with personal allowances frozen until April 2028, any increases in earnings will be taxed and, in some cases, this may push earnings into the higher rate tax bands especially for those who will now be subject to the 45% rate (with its new reduced limit).
Regional variations to Income Tax rates may apply in Wales and Scotland.
Income Tax and dividend income
The current £2,000 dividend tax-free allowance is to be reduced to £1,000 from April 2023 and to £500 from April 2024.
The 1.25% increase in the tax rates payable on dividend income, which took effect in April 2022 remains in place.
The rates that apply in all regions of the UK from 6 April 2023 are as follows:
Inheritance Tax
No changes to present rates and allowances were announced. These rates and allowances will remain frozen at current levels until April 2028.
The nil-rate band will continue to be £325,000 and the residence nil-rate band at £175,000, for this period.
Stamp Duty Land Tax
On 23 September 2022, the then Chancellor, Kwasi Kwarteng, announced a permanent increase in the SDLT nil rate band to £250,000 (from £125,000). There was also an increase in the nil-rate threshold for first-time buyers making a purchase of up to £425,000 (from £300,000). The first-time buyers relief also increased the nil-rate threshold to £425,000 (from £300,000) for first-time buyers of properties costing up to £625,000 (from £500,000). There is no relief available for first-time buyers spending more than £625,000 on a property. There are a number of requirements that must be met in order to qualify for the relief.
These changes were one of the only surviving measures from the mini-Budget. It was announced as part of the Autumn Statement that these measures will remain but as a temporary SDLT reduction until 31 March 2025 and not as a permanent change as originally announced.
It is important to note that these measures apply to England and Northern Ireland only. Any changes to the Land and Buildings Transaction Tax in Scotland or the Land Transaction Tax in Wales would be announced separately.
National Insurance
The Chancellor also confirmed that the National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) that were already fixed at their current levels until April 2026 will now be maintained for an additional two years until April 2028.
The 1.25% rise in National Insurance contributions (NICs) that came into effect at the start of the 2022-23 tax year on 6 April 2022 was reversed on 6 November 2022. There have been no further changes announced and the cancellation of the ring-fenced Health and Social Care Levy of 1.25% due to be introduced from April 2023 remains in place and will not go ahead as originally planned.
The alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570 that came into effect on 6 July 2022 will stay at this level until April 2028.
The government will fix the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) at 2022- 23 levels in 2023-24. The LEL will remain at £6,396 per annum (£123 per week) and the SPT will remain at £6,725 per annum. The Upper Secondary Threshold will stay fixed at £50,270 per annum until April 2028, to remain aligned with the UEL and UPL.
The government will use the September CPI figure of 10.1% to uprate the Class 2 and Class 3 NICs rates for 2023-24. The Class 2 rate will be £3.45 per week, and the Class 3 rate will be £17.45 per week.
Capital Gains Tax
The Chancellor announced a significant reduction in the annual exempt amount applicable to Capital Gains Tax (CGT). This rate had previously been fixed at £12,300 from April 2021 to April 2026 for individuals, personal representatives, and some types of trusts for disabled people.
The exempt amount will now be reduced to £6,000 from April 2023 before being further reduced to £3,000 from April 2024.
Corporation Tax
The Chancellor had previously announced on 17 October 2022 that the planned increases in Corporation Tax (CT) rates from April 2023 would be going ahead.
From1 April 2023, there will be two rates of CT.
Corporation Tax and banking companies
From 1 April 2023, the rate of surcharge on banking companies will be 3% and the surcharge allowance will increase from £25m to £100m.
Diverted Profits Tax
The rate of Diverted Profits Tax will increase from 25% to 31% from 1 April 2023. This will maintain the 6% differential above the main rate of CT.
Corporation Tax – R&D Relief
The Research and Development Expenditure Credit (RDEC) rate will increase to 20% (from 13%) with effect from 1 April 2023. From the same date, 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%.
R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. This will effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and target abuse and improve compliance. These changes will be legislated for in the Spring Finance Bill 2023.
Windfall Taxes
The Energy Profits Levy (EPL) will increase to 35% (from 25%), effective 1 January 2023. The investment allowance will be reduced from 80% to 29% for qualifying investment expenditure thereby maintaining its existing cash value. The Levy is scheduled to end on 31 March 2028, raising £40 billion over the next 6 years. This will bring the headline tax rate for the sector to 75%.
The Chancellor also announced the introduction of a temporary Electricity Generator Levy. This will see a temporary 45% tax that will be levied on certain extraordinary returns from low-carbon UK electricity generation. The tax will apply to extraordinary returns arising from 1 January 2023.
Vehicle Excise Duty (VED)
VED will become applicable on electric cars, vans and motorcycles from April 2025 in the same way as it currently applies to petrol and diesel vehicles. This change will apply to new and existing zero emission cars.
Company Car Tax
The rates of company car tax that apply until April 2028 have been announced in order to provide long term certainty for taxpayers and industry.
The rates will continue to incentivise the take up of electric vehicles:
First Year allowances for electric charging points
Businesses can currently benefit from First Year allowances on qualifying electric charging points for cars and vans. To qualify for the relief the company must use the charging point in their own business. This relief was set to expire in 2023 but has now been extended for a further two years, to 31 March 2025 for Corporation Tax purposes and to 5 April 2025 for Income Tax purposes.
VAT
There will be no changes to the 20% rate. The £85,000 registration limit and the £83,000 deregistration limit will now remain at these levels until 31 March 2026.
Other announcements
National Living Wage increases
The NLW will increase to £10.42 per hour (previously £9.50) from 1 April 2023.
The full changes to the National Minimum Wage rates from 1 April 2023 are as follows:
Council Tax flexibility
The government is to raise the cap on the level of council tax rises by increasing the referendum limit for council tax rises to 3% per year from April 2023.
Business rates
Business rate bills in England will be updated from 1 April 2023 to reflect changes in property values since the last revaluation in 2017. A package of targeted support worth £13.6 billion has been announced to help support businesses with this change as well as increased costs.
These measures are as follows:
Energy price guarantee scheme
The Chancellor announced that the energy price guarantee scheme which will see the average household have their energy bills capped at £2,500 a year will remain in place until the 31 March 2023.
From 1 April 2023, this guarantee will change so that the typical household will pay on average £3,000 a year (an increase of £500). This will save the Exchequer around £14 billion next year while still saving the typical household £500 a year off their energy bills, compared to the price of the energy price cap.
The government will also double to £200 the level of support for households that use alternative fuels, such as heating oil, LPG, coal or biomass, to heat their homes.
Cost of Living Payments
The Cost of Living support package to help over 8 million households in receipt of mean tested benefits is to be extended. This will see an additional Cost of Living Payment of £900 in 2023-24. The payments will be made in more than one instalment. DWP and HMRC will provide further detail on timing of these payments and eligibility dates in due course.
There will also be a new Cost of Living payment for pensioners who will receive an additional £300 and an additional £150 payment for those on non-means-tested disability benefits in 2023-24.
Benefits Uprating
The government will also raise benefits, including working age benefits and the State Pension, in line with inflation from April 2023. These payments will rise by September Consumer Price Index (CPI) inflation – 10.1%. As a result of uprating these working age and pension benefits around 19 million families will see their benefit payments increase from April 2023.
| 1 November 2022 – Due date for Corporation Tax due for the year ended 31 January 2022.
19 November 2022 – PAYE and NIC deductions due for month ended 5 November 2022. (If you pay your tax electronically the due date is 22 November 2022.) 19 November 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2022. 19 November 2022 – CIS tax deducted for the month ended 5 November 2022 is payable by today. 1 December 2022 – Due date for Corporation Tax payable for the year ended 28 February 2022. 19 December 2022 – PAYE and NIC deductions due for month ended 5 December 2022. (If you pay your tax electronically the due date is 22 December 2022). 19 December 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2022. 19 December 2022 – CIS tax deducted for the month ended 5 December 2022 is payable by today. 30 December 2022 – Deadline for filing 2021-22 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2023-24. |
| The way businesses register for VAT changed on 1 August 2022. A new VAT Registration Service (VRS) has been created to manage the process.
One of the key features of the new VRS is that every business will be automatically signed up to Making Tax Digital (MTD) VAT as part of registration. This removes the need for businesses to take that extra step. To complete a VAT registration, you will need your:
If you are registering a limited company, they must have a Company Registration Number and a Corporation Tax Unique Taxpayer Reference (UTR) to complete the VAT registration process. Individuals and Partnerships do not need to have a Self-assessment UTR to register for VAT, but if they do have one, they must supply it. HMRC recommend that you have this information to hand when starting an application. If you are waiting for information to register you can save and edit the application for 7 days by clicking ‘Save and Exit’. This will soon be increased to 28 days. |
| Business owners who are minded to celebrate the forthcoming Christmas break with their staff are reminded that there is a tax-free allowance for the provision of an annual party or other event for the benefit of staff and their partners. The present limit to tax relief is £150 per head. If this amount is exceeded, the full cost of the benefit is taxable not the excess over £150.
Where it’s not possible to calculate individual costs, an averaging process can be adopted. There are also other considerations that must be met to qualify for this relief. Another way to benefit staff tax-free for Christmas is to consider making small gifts. You don’t have to pay tax on a benefit (gift) to your employee if all of the following apply:
Gifts that fall into this category are known as a ‘trivial benefit’; and whilst they may be much more than trivial in substance, you don’t need to pay tax or National Insurance or let HMRC know you are making the gift. Any gifts that do not meet this definition will likely be taxable. Gifts to directors are treated in a similar fashion with one over-riding condition: a director cannot receive trivial gifts of more than £300 in total each tax year. This restriction only applies to the directors of “close companies”. A close company is a limited company with five or fewer shareholders. Watch out for VAT charge If you recover the input tax charged when you buy gifts for employees, and if the total value of gifts given to an employee in a tax year exceeds £50, then you will have to account for VAT on the total value of gifts provided. If this is the case, you may be advised to avoid recovering the VAT in the first place. |
Criminals claiming to be from HMRC have targeted individuals by email, text and phone with their communications ranging from offering bogus tax rebates to threatening arrest for tax evasion. Contacts like these should sound alarm bells – HMRC would never call threatening arrest.
Anyone contacted by someone claiming to be from HMRC in a way that arouses suspicion is advised to take their time and check the scams advice on GOV.UK.
Taxpayers can report any suspicious activity to HMRC. They can forward suspicious texts claiming to be from HMRC to 60599 and emails to [email protected]. Any tax scam phone calls can be reported to HMRC using the online form on GOV.UK.
The tax reductions set out in the Kwarteng/Truss mini-budget of 22 September 2022 have been scrapped, apart from the cancellation of the NIC increase for 2022-23, the withdrawal of the Healthcare Levy from April 2023, the changes to Stamp Duty Land Tax and the increase in the Annual Investment Allowance.
As we are confronted with yet a further new face at 10 Downing Street, the cabinet may need more time before announcing their plans for the economy.
We will be reporting on these developments in the next newsletter.
Hopefully, the new government will be mindful that recent changes in political circles have had a disastrous impact on small businesses across the UK. Double digit inflation and higher interest rates are compounding external pressures and making life difficult across multiple business sectors.
