Autumn Statement – The Chancellor looks to restore stability and trust

Autumn Statement – The Chancellor looks to restore stability and trust

Chancellor Jeremy Hunt has delivered his Autumn Statement. Just eight weeks after the Government’s disastrous September fiscal event, the new Chancellor having first reversed and unpicked his predecessor’s promises, stepped into the House of Commons to set out the Government’s financial plans.

Facing a £55 billion black hole and a deepening cost-of-living crisis, and keen to avoid tax increases and return to austerity, the Chancellor needed to walk a fine line in offering the support individuals, businesses and our public services need whilst rebuilding trust and stability for the financial markets and the UK’s reputation on the international stage.

Here, we outline what this means for individuals and businesses.

Top implications for individuals

The Autumn Statement looked to protect the most vulnerable in society from the impact of rising inflation and the resulting cost-of-living crisis, passing on that burden to middle and high earners.

Although the Chancellor has not directly raised personal taxes, the impact of freezing or lowering tax bandings and allowances will have a huge impact on the taxpaying public, particularly at a time when household costs are rising across the board, along with inflation.

Daniel Grainge, Partner and Head of Tax at Kreston Reeves said: “Whilst in his Autumn Statement the Chancellor went to great pains to avoid mentioning tax increases, the freezing of income tax thresholds, the lowering of the higher rate of income tax, taxing electric vehicles will to many feel like a tax increase.”

Here are our top implications for individuals.

Additional rate tax threshold  

Those who earn between £100,000 and £125,140 will continue to pay an effective tax rate of 60% as their personal allowance is eroded, but from 6 April 2023, any earnings above £125,140 will be taxed at the additional rate of 45%. This is down from the current £150,000 starting point and will mean an increase of £1,243 in tax burden for those with income over £150,000. If your income is in the form of dividends, the increase will be even greater at £1,392. The accelerated payment of bonuses and or dividends could help save some tax for higher earners, ahead of 6 April 2023.

Capital gains

Those with chargeable assets will face falling into or higher capital gains tax charges, as the annual exempt amount will decrease from the current £12,300 to £6,000 in 2023/24 and then £3,000 in 2024/25. Once again, those individuals with small gains on shares and other investments will feel the pinch. It may, therefore, be worthwhile considering bringing forward disposals to take advantage of the current £12,300 rate where practical to do so.

Dividend allowance

There were rumours that the dividend allowance, which currently stands at £2,000, would be withdrawn. Although the allowance has been singled out for a reduction, it will not be phased out completely. Instead, from 6 April 2023, it will drop to £1,000 and from 6 April 2024, there will be a further reduction to £500. Any company shareholders should always try and utilise their allowances as part of their overall remuneration strategy.

Freezing of personal allowance and higher rate band

Those on lower earnings will feel a significant squeeze in real terms as the Chancellor confirmed that the personal allowance will remain at £12,570 and the higher rate threshold at £50,270 until 5 April 2028, an extension of two years on the original 5 April 2026. With inflation running at 11.1%, this will undoubtedly drag a significant number of taxpayers into basic, higher and additional rate tax bands over the coming years.

National Insurance

The current National Insurance thresholds will be frozen, although it is worth noting that the threshold for Primary (employee’s) Class 1 National Insurance was raised from £9,880 to £12,570 with effect from 6 July 2022.

Inheritance Tax

The Inheritance Tax threshold will remain at £325,000 until April 2028, meaning that it will have been at the same level for a staggering nineteen years. During that time the average UK house has risen from £162,000 to £292,000, drawing more people into the Inheritance Tax net.

Divorcing couples

The proposed changes to the rules on divorcing couples are now confirmed. From 6 April 2023, couples will have three years to transfer assets after separating and take advantage of the no gain/no loss tax treatment that married couples are afforded. If the transfer is part of a formal divorce agreement, the couple will have unlimited time. If one of the parties moves out of the former marital home but has retained a financial interest, HMRC will allow an extended claim for main residence relief to be made at the point that the home is eventually sold.

Top implications for businesses

Laurence Parry, Partner at Kreston Reeves said: “With the economy in recession, the Chancellor’s aim is to minimise its length and depth. Only time will prove whether that will be a success. His announcements look to encourage growth and innovation, and not the support businesses have seen in recent years. Changes to the R&D tax credits will be closely watched as will plans to turn the UK into a new ‘Silicon Valley’.”

Here are our top implications for businesses and their owners.

Research & Development
As part of this reform, the Chancellor announced a change to the headline rates of R&D relief in an effort to curtail what the Government sees as ongoing misuse and abuse of the generous scheme.

Currently Small and Medium sized entities (SME’s) obtain an additional 130% deduction on their qualifying R&D spend resulting in a total tax deduction of 230% of the amount spent. Where the company was in an overall loss position, it could surrender these losses for a cash repayable credit equivalent to 14.5% of the loss surrendered.

Under the changes, which will take effect from 1 April 2023, the headline 130% rate will be reduced to 86% and the surrender amount will be reduced to just 10%. The net effect is the reduction in the overall repayment from HMRC from 33.35% to 18.6% of expenditure, resulting in a circa 45% reduction.

Conversely, the RDEC scheme which primarily targets larger businesses and is overall less generous than the SME scheme, will be increased from the current 13% rate to 20%.

The changes are likely to have a negative impact on smaller companies more so than larger ones and it will be interesting to see how these feed into the Government’s stated objectives of promoting innovation and investing in R&D.

Employment allowance
The employment allowance will be kept at the current amount of £5,000, ensuring the level at which businesses start to pay class 1 National Insurance will remain the same in the foreseeable future.

VAT
The Autumn Statement confirmed that the current VAT registration threshold of £85,000 will be maintained until April 2026.

Furthermore, import tariffs will be removed from over 100 goods for two years to help ease the current macroeconomic pressures faced by UK businesses.

You can download a full summary of the changes on our website at www.krestonreeves.com/news-and-insights

If the changes raise any questions, or you would like some more bespoke advice, get in touch with the Kreston Reeves Tax team by emailing [email protected] or phoning 0330 124 1399.