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The Budget - 18 November 2022

The Autumn Statement on 17 November 2022 contained several significant tax announcements, which we have summarised below.

However, it was not presented as full Budget, so HM Treasury did not release the full schedule of tax rates and allowances which we are used to receiving on such fiscal occasions. This leaves the opportunity open for the Chancellor to introduce further tax changes in his Spring Budget, which is expected to be held in early March 2023.

Income tax

The main income tax rates unchanged for 2023/24 at: 20%, 40% and 45%. The higher rate threshold was set at £37,700 for 2021/22 to 2025/26, and Chancellor Hunt has extended that freeze until 2027/28.

With the personal allowance also fixed at £12,570 until April 2028, but the blind person's allowance and the married couples' allowance (where at least one person was born before 6 April 1935), have been increased:

Tax Allowance

2022/23
£

2023/24
£

Change
£

Personal Allowance

12,570

12,570

0

Marriage Allowance

1,260

1,260

0

The Married Couple's Allowance *

  • Maximum

9,415

10,375

+960

  • Minimum

3,640

4,010

+370

Blind Person's Allowance

2,600

2,870

+270

The additional rate of tax (45%) currently applies to income above £150,000, but that threshold will be reduced to £125,140 from 6 April 2023. Taxpayers have their personal allowance tapered away at £1 for every £2 above £100,000, which means their personal allowance completely disappears at £125,140.

The freeze or reduction of income tax thresholds and allowances, coupled with inflation of around 10%, will drag many more people into higher rates of tax every year. Once a person's income tips them into the 40% band (over £50,270) their savings allowance drops from £1,000 to £500 per year. Additional rate taxpayers have a zero savings allowance.

A trap to watch out for is the high income child benefit charge ( HICBC), which starts to claw back the child benefit received by the family where the highest earner has total relevant income over £50,000. This means that some taxpayers who pay tax at the basic rate (20%) will be subject to the HICBC and need to submit a tax return to declare that liability.

Taxpayers who are resident in Scotland pay income tax on their earnings, profits and rental income at different rates and from different thresholds from taxpayers in the rest of the UK. However, capital gains, savings and dividends received by Scottish residents are taxed at the same rates across the UK.

The Scottish income tax rates for 2023/24 are due to be announced by the Scottish government on 15 December 2022.

Dividend tax

Chancellor Hunt has decided to cut the dividend allowance (effectively a zero-rate band) from £2,000 to £1,000 from 6 April 2023, and halve it again to £500 for the tax year 2024/25.

Once that allowance has been used up, any additional dividends received are taxed as the top slice of income as they fall within the highest tax band for the taxpayer:

Tax year:

2022/23

2023/24

Basic rate band

8.75%

8.75%

Higher rate band

33.75%

33.75%

Additional rate band

39.35%

39.35%

In 2023/24 the reduction in the dividend allowance will cost a basic rate taxpayer £87.50, a higher rate taxpayer: £337.50 and an addition rate taxpayer: £393.50, if those individuals would otherwise fully use the allowance.

Capital Gains Tax

The main rates of capital gains tax (CGT) remain at 10%, for gains within the basic rate band and those subject to business asset disposal relief, and 20% for other gains. However, gains from residential property are taxed at 18% within the basic rate band and 28% at higher rates.

The annual capital gains exemption had already been frozen at £12,300 from 2021/22 to 2025/26. Chancellor Hunt has decided to cut this exemption to £6,000 for the tax year 2023/24 and cut again to £3,000 for 2024/25. Any annual exemption unused in a tax year cannot be carried over to the next year.

The Office of Tax Simplification has estimated that lowering the exemption to £6,000 will mean a further 235,000 individuals will have to complete a self-assessment tax return to declare their gains. Where the gain arises from the disposal of a residential property in the UK the taxpayer also has to report the gain within 60 days of the completion date of the deal, using the UK Property service.

Inheritance tax

The inheritance tax threshold (nil rate band) has been fixed at £325,000 per person since 2009 and it will now be kept at that level until at least April 2028.

Where an individual leaves an interest in their main home to one or more children or other direct descendent, they can also benefit from the residential nil rate band worth a further £175,000 per person. That exempt amount has also been also frozen until April 2028, although the value of residential properties has increased significantly since 2020/21 when it was introduced.

National Insurance Contributions

The NIC rates and thresholds have been tossed up and down by the last three Chancellors, so thankfully Hunt has decided there should be no further changes in this area, for now.

The increased NIC thresholds as applied from 6 July 2022 are still in place. The rates across classes 1 and 4 of NIC were increased by 1.25 percentage points on 6 April 2022, then reduced by the same amount from 6 November 2022. However, classes 1A, 1B and 4, which are calculated annually are charged at hybrid percentages for 2022/23.

The freezing of thresholds until April 2028 also applies to NIC. The primary threshold (PT) where an employee starts to pay the main rate of class 1 NIC is frozen at £12,570. The upper threshold of the main rate is also fixed at £50,270 to tie-in with the basic rate band for income tax.

The secondary threshold (ST) where employers start to pay secondary class 1 NIC is fixed at £9,100. However, the government claims that 40% of employers will not pay employers NIC as their liability will be covered by the employment allowance, which is held at £5,000 per year.

The NIC rates and thresholds for class 1 NIC 2023/24 will be:

Thresholds per year

2022/23

(from 6/11/22)

2023/24

Class 1 employees:

Lower earnings limit (LEL):

£6,396: 0% to PT

£6,396: 0% to PT

Primary threshold (PT):

£12,570 to UEL: 12%

£12,570 to UEL: 12%

Upper earnings limit (UEL)

Above £50,270: 2%

Above £50,270: 2%

Directors on annual or cumulative pay:

£12,570 to UEL: 12.73% Above £50,270: 2.73%

£12,570 to UEL: 12% Above £50,270: 2%

Class 1 employers:

Secondary threshold (ST)

Above £9100: 13.8%

Above £9100: 13.8%

Classes 1A & 1B (annual charge)

14.53%

13.80%

The rates and thresholds of NIC classes 2 and 4 paid by the self-employed, and the voluntary rate (class 3), have not yet been announced for 2023/24.

National Minimum wage

The national minimum wage rates are increased in line with the rate of inflation for pay periods starting on and after 1 April 2023. The new hourly rates will be:

Pay periods from

Living wage: age 23 +

£/hr

Adult:

age 21-22

£/hr

Youth:

age 18 -20

£/hr

Under 18

£/hr

Apprentice

£/hr

Accommodation daily off-set

£/day

1 April 2023

10.42

10.18

7.49

5.28

5.28

9.10

1 April 2022

9.50

9.18

6.83

4.81

4.81

8.70

From 2024 the Living Wage age threshold of 23 will be reduced to 21, meaning there will be only one adult rate.

Health and Social Care Levy

The health and social care levy proposed by Chancellor Sunak, and scrapped by Chancellor Kwarteng, will not be imposed from April 2023.

Corporation Tax

When Sunak was Chancellor, he increased the main rate of corporation tax to 25% to apply on profits above £250,000 from 1 April 2023. Companies with profits below £50,000 per year will continue to pay corporation tax at the small profits rate of 19%.

Where total profits lie between £50,000 and £250,000 the company will pay a marginal rate of 26.5% in that band calculated by a marginal relief formula.

Capital Allowances

The super deduction allowances set at 130% or 50% of new qualifying expenditure will expire on 31 March 2023. These allowances can only be claimed by companies, not sole traders or partnerships.

The annual investment allowance (AIA) limit was due to reduced to £200,000 on 1 April 2023, but Chancellor Hunt has decided to make the £1m cap permanent. The AIA can be claimed by any form of business and may apply to second hand equipment as well as items which are purchased brand new.

Businesses can continue to claim a 100% first year capital allowance for the cost of installing charging points for electric vehicles, until 31 March 2025.

R&D

The rates of deduction for qualifying R&D expenditure available under the R&D schemes for SMEs and large companies are adjusted to take into account the changes in corporation tax rates from 1 April 2023.

Companies using the SME scheme will see the allowable deduction reduced from 130% to 86%, This translates into almost 13% less tax relief for small companies undertaking R&D. However, the most significant changes will be felt by companies that make losses after the R&D deduction has been taken into account, as they will have a significantly reduced payable tax credit, down from 14.5% of the loss to 10%.

Large companies that use the R&D expenditure credit scheme will be able to deduct 20% in their tax computations instead of 13%.

Company Cars

The Chancellor has set out the taxable benefits for all company cars which will apply until April 2028.

Drivers of electric and low emission cars will see their taxable benefit increase by one percentage point of the vehicle's list price each year. By 2027/28 the taxable benefit for electric cars will be 5% of list price, and for low emissions cars (emissions of less than 75g/km) it will be 21% of list price.

The taxable benefit for other company cars will rise by 1 percentage point in 2025/26 only, after which the benefit rate will be frozen. No car will have a taxable benefit of more than 37% of list price.

The advisory fuel rate, used for reimbursing employees when they charging an electric company car for a business journey, will increase from 5p to 8p per mile from 1 December 2022.

Vehicle Excise Duty (VED)

All electric vehicles have been subject to a zero rate of vehicle excise duty (VED) or 'road tax' for many years, but that is about to change.

From April 2025 newly registered electric cars will be subject to the lowest first year VED rate of £10. From the second year the standard VED rate of £165 will apply to electric cars, unless the vehicle cost over £40,000, when the expensive car supplement applies to take the VED up to £520 per year.

Electric cars which were registered between April 2017 and 31 March 2025 will all pay the standard rate of VED, which is currently £165. Electric cars registered before April 2017 will pay VED for band 2 which is currently £20 per year.

Other electric vehicles such as vans, motorcycles and tricycles will also become subject to positive VED rates from April 2025.

The full rates of VED for 2023/24 and later years, have not been announced.

VAT

The VAT registration threshold has already been frozen at £85,000 since April 2017, and it will now be fixed at that level until April 2026.

Chancellor Hunt mentioned in his speech that the UK's VAT registration threshold more than twice as high as the average in OECD and EU countries. This could be an advance warning that the VAT registration threshold may be cut in future.

SDLT

On 23 September 2022 the lower band of stamp duty land tax (SDLT) was removed for residential properties, so that tax now starts at 5% on the acquisition of properties costing over £250,000. First time buyers can benefit from a nil rate band for SDLT of up to £425,000. Chancellor Hunt has put a time limit on these SDLT cuts, saying they will be removed on 1 April 2025.

SDLT only applies to property purchases in England and Northern Ireland. It will be up to the Welsh government to decide whether to follow the Chancellor's lead and to alter the Welsh land transaction tax (LTT), as it did in October. The Scottish government did not amend the thresholds of its land and buildings tax in September.

Annual tax on enveloped dwellings (ATED)

Thus tax applies where a UK residential property, which is worth over £500,000, is held by a company or other non-natural person (eg a trust) and it is not commercially let out or used for some other qualifying purpose.

All properties which are potentially subject to the ATED charge must submit an annual ATED return by 30 April with the chargeable year, which runs from 1 April to 31 March. If the ATED is not due because a relief applies an ATED relief return must be submitted. There are penalties for not submitting ATED returns on time.

The rates of the annual tax on enveloped dwellings (ATED) for 2023/24 have been increased by the rate of inflation (10.1%) for all bands:

Property value

£

2022/23

£

2023/24

£

500,001-1,000,000

3,800

4,150

1,000,0001-2,000,000

7,700

8,450

2,000,001-5,000,000

26,050

28,650

5,000,001-10,000,000

60,900

67,050

10,000,001-20,000,000

122,250

134,550

Over £20,000,000

244,750

269,540

Note that the ATED charge for 2023/24 to 2027/28 is based on the property's open market value at 1 April 2022 or at acquisition if later. It is up the property owner to provide that valuation or ask HMRC for a valuation band check.

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