Autumn Statement - Nov 22
Another month, another budget. We’re in high hopes here that this statement, whilst difficult to palate in some areas, will be the last until the Spring.
However, like the mini budget, the financial markets may well have a say on whether further interim measures are needed.
Addressing soaring inflation was the main principle of the autumn statement, and it marks the completion of a full U-turn in economic policy in just over 50 days. Inflation insidiously eats away at disposable income even more so than taxation, and needs to be brought under control.
In terms of economic context, it was a surprise to hear from the Office of Budget Responsibility (OBR) that the UK economy is forecasted to grow by 4.2% in 2022. However, we are now said to be in recession, and that is expected to continue through much of 2023, sadly along with a third of the global economy.
It was a budget lighter on spending cuts, heavier on tax rises. Less charitably it was stealthy by nature.
Income tax, National Insurance (NIC) & Inheritance Tax
The thresholds for these taxes were already locked in until Apr 26, by Rishi Sunak when chancellor. This lock has been extended for a further 2 years, with the exception of the additional rate of tax threshold which has been cut from £150,000 to £125,140.
This is significant. Tax thresholds set the intervals at which additional rates of tax fall due. When thresholds are frozen, it rarely gets the same level of attention as tax rate rises because the impact is less obvious on the surface.
As earnings rise as they generally do, a greater percentage of income is exposed to higher rates of tax. To illustrate the effect, the Institute of Fiscal Studies has estimated an additional £30bn of tax revenues per year on income tax alone.
The personal allowance (the point at which the basic rate of tax becomes due – currently £12,570) and higher rate of tax threshold (the point at which the higher rate of tax becomes due – currently £50,270), will remain the same for a further 2 years - until Apr 28.
NIC Rates for employees, employers and for the self-employed will remain frozen for a further 2 years, as will the rate at which inheritance tax becomes due – currently £325,000.
Some good news, the employers allowance of £5,000 (Employers NIC rebate for small business) has also been frozen.
Dividends are a distribution of a Company’s profits to it’s shareholders.
Jeremy Hunt coined the term ‘unearned income’ when describing dividends in his announcement. All the insight you need as to the governments view of director remuneration.
Tax efficiency is still a primary factor when choosing a Company as your business’ trading vehicle. But there’s no doubt the continuing squeeze on dividend rates and allowances will have an impact on the extent of the tax saving.
The tax free dividend allowance, already subject to a £3,000 cut in the last 5 years, will be cut again from it’s current level of £2,000, to £1,000 from Apr 23, then £500 from Apr 24.
Capital gains tax (CGT)
CGT is the tax due on the gain we make when we sell an asset, such as an investment property, some shares or certain personal possessions.
CGT raises only a small percentage (around 1%) of total tax revenue, so any amendments here would have needed to be large to make a difference.
The tax free CGT allowance will be cut from it’s current level of £12,300, to £6,000 from Apr 23, then £3,000 from Apr 24.
The cut to the CGT thresholds is sure to influence the timing for those of you considering the sale of an asset in the next few years, perhaps even putting paid to planned disposals all together.
There is a slight nervousness in the Government around windfall taxes. They are keen not to penalise profits of a cyclical nature, or set too dangerous a precedent that could stifle future investment.
An ‘Energy Profits Levy’ of 25% on UK oil and gas extractions has been in place since May this year. This will increase to 35% from 01 Jan 23 and be extended until Mar 28. An additional levy targeting larger electricity generating firms will also be introduced.
Universal help with domestic energy bills will end in Apr 23, to be replaced by more targeted support for low earners, disabled individuals and pensioners.
The State Pension and Public Spending
There was some speculation as to whether the Government would maintain it’s ‘triple lock’ on the state pension. It did.
The triple lock was introduced by the Conservative/Lib Dem coalition government in 2010. It promises to lock state pension increases to the higher of 1) the Consumer Price Index (the generally recognised measure of inflation); 2) the rate of earnings growth (the average increase in wages); or 3) 2.5%.
This is an expensive promise. Along with the commitment to Defence, Welfare, Education and NHS spending, as well as infrastructure projects such as HS2 and the Sizewell Power Plant, this guarantee hopes to ward off any accusations of a return to George Osborne style austerity, and provide a much needed nod to growth.
The National Minimum Wage (NMW), the minimum statutory amount an employer can remunerate their staff, will increase from £9.50 to £10.42 from Apr 23. This could be challenged with businesses struggling to make ends meet as it is.
The planned Stamp duty changes impacting base thresholds and first-time-buyer rates will be withdrawn in Mar 25.
VAT Threshold frozen at £85,000. Good news for non VAT registered businesses with price sensitive trade.
Electric vehicles will no longer be exempt from road tax. Furthermore, benefit-in-kind rates on company electric vehicles will rise, albeit still significantly lower that of petrol/diesel cars.
One from the small print. The current cap on annual council tax rises has been increased from 2.99% to 5%.
If you have any queries or concerns about today’s statement, please let me know.