Insights

‘Difficult decisions’ was the catch phrase in yesterday’s Autumn Statement delivered by Chancellor Jeremy Hunt. He repeated this continually during his speech, which aimed to restore fiscal confidence among the financial markets and find a sustainable way to manage public finances. The economic situation is being described as the biggest drop in living standards on record. Almost every element of tax policy has been affected by what are described as ‘difficult but unavoidable decisions on tax and public spending’ to ‘face into the storm’ ahead.

The Autumn Statement continued with the reversals of tax-cutting announcements from the Mini Budget and some new tax measures, many of which will become effective from April 2023.

Key new measures for individual taxpayers

• Additional income tax threshold lowered

From April 2023 the threshold for paying the additional rate 45% rate of income tax is lowered to £125,140 from £150,000. Taxpayers who are earning over £150,000 will pay an extra £1,243 in income tax per year.

• Frozen personal tax thresholds

Income tax, inheritance tax and National Insurance thresholds will be maintained at current levels until April 2028. The personal allowance will stay at £12,570 and the higher rate tax bracket starts from £50,270. It is anticipated that freezing the tax thresholds will raise tens of billions of pounds in “stealth taxes” and push an estimated 3m people pushed into higher tax brackets.

• Dividend allowance is halved

The tax-free dividend allowance, currently £2,000, will decrease to £1,000 from April 2023 and will reduce again to £500 from April 2024.

This is expected to raise £1.2bn of income tax as it affects anyone in receipt of dividend income.

• Cuts to capital gains tax (CGT) allowance

The current annual exempt amount for (CGT) is £12,300 having remained largely unchanged for a number of years. From April 2023 it will be more than halved to £6,000 and will drop again to £3,000 from April 2024.

• Electric vehicles to pay road tax

Road tax is being introduced for electric cars, vans and motorcycles from April 2025.

• Stamp duty land tax (SDLT) thresholds to change

There are no immediate changes to the thresholds at which SDLT becomes applicable, however the reductions announced previously will end on 31 March 2025. The changes being introduced from 1 April 2025 are as follows:

- Nil-rate threshold to revert from £250,000 to £125,000 for all purchasers of residential property in England and Northern Ireland.

- First time buyers nil-rate threshold to revert from £425,000 to £300,000.

- First Time Buyers’ Relief will reduce from £625,000 to £500,000.

Key announcements for businesses

• Employers National Insurance Contributions (NICs) fixed

The threshold for employers’ NICs will be fixed until April 2028 and the removal of the planned increases to NICs that formed part of the Health and Social Care Levy goes ahead.

• Changes to R&D tax relief rates

In addition to the changes announced previously regarding costs that could form part of the claim and information that needs to be included within the R&D report accompanying the claim, the increase in the number of fraudulent claims and the abuse of the relief in general has resulted in a review of the amount of relief is that is made available.

The changes that apply to expenditure incurred on or after 1 April 2023 are:

- Increasing the Research and Development Expenditure Credit (RDEC) rate from 13% to 20%;

- Decreasing the small and medium-sized enterprises (SME) additional deduction rate from 130% to 86%;

- Decreasing the SME tax credit rate from 14.5% to 10%.

• Support for business rates

From 1 April 2023, business rate bills in England will be updated. Support will be provided through a multiplier freeze and a series of relief schemes, including extended and increased Retail, Hospitality and Leisure Relief.

• New tax avoidance measures

Legislation is to be introduced in the Spring Finance Bill 2023 detailing that shares and securities in non-UK companies acquired in exchange for securities in a UK close company will be deemed to be located in the UK. This is designed to stop the proliferation of offshore tax avoidance ‘investment’ schemes.

£79m is to be invested over the next five years to enable HMRC ‘to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers’. The current feeling is that the  level of fraud in relation to payments claimed and paid out during the pandemic is sufficient to warrant this level of additional funding as the amounts recovered will significantly exceed the costs of pursuing the abusive claims.

Three interesting omissions from the Autumn Statement

• Nothing on non-domiciled individuals

One measure that was not addressed in the Autumn Statement is the treatment of ‘non doms’, which was billed as an easy revenue generator for HMRC and one that would not impact ‘ordinary taxpayers’. We will await any further developments.

• SEIS expansion stays

The expansion to SEIS from April 2023 which was announced by Kwasi Kwarteng has not been affected. Eligible companies will be able to raise up to £250,000 in SEIS investments – a two-thirds increase. The gross asset limitation for companies will increase to £350,000 from £200,000 and eligible companies will be able to raise SEIS in the first 3 years of trading rather than 2 years currently.

• Lifetime allowance for pensions stays frozen

No mention was made of whether the tax-free lifetime allowance for pensions is to be extended. The lifetime allowance which determines how much can be saved tax-free into a pension has already been frozen at £1.07m until 2026. We will await any further developments.

If you are concerned about the impact of the autumn statement 2022 budget on your tax liabilities and would like to get in touch, please contact us via partners@rjp.co.uk.