The Chancellor, Jeremy Hunt, presented his Autumn Statement on Thursday 17 November 2022.
The announcements have received mixed response, with many professional commentators highlighting that further tax measures and spending cuts may be announced after the 2024 election by whatever government comes to power.
Although headline income tax rates remain unchanged the thresholds at which different rates of tax apply remain unchanged except for the upper tax rate of 45% that will apply from £125,140, previously £150,000, from April 2023.
The term ‘fiscal drag’ has been much used by professional commentators to highlight that although basic and higher rates of tax thresholds have remained unchanged, it will, in a period of increasing wages, bring more individuals into paying higher rates of tax.
For example, the number of people paying 40% or 45% tax has risen from 4.1 million in 2019 to 6.1 million prior to the Autumn Statement and will rise further.
Below is a summary of the main announcements and their impact upon you.
Rates of tax remain unchanged with the exception of the upper rate threshold decreasing from £150,000 to £125,140 from April 2023. The thresholds will remain unchanged until 2028.
The tax-free dividend allowance of £2,000 will be reduced to £1,000 from April 2023, reducing further to £500 from April 2024.
It is important that if you do have a limited company that advantage is taken of the tax-free dividend allowance.
Inheritance tax thresholds remain unchanged to 2028 but capital gains tax annual exemption of £12,300 (first £12,300 of any capital gain free of tax) reduces in April 2023 to £6,000 and then to £3,000 from April 2024.
If you have a share portfolio, then speak to a financial adviser about selling some shares that may be liable to capital gains tax in future years and rebuying to crystalise any gains in the current year taking advantage of the £12,300 annual exemption.
If you recall corporation tax will rise from April 2023 from 19% to 25% in a stepwise fashion depending on the level of profits for trading companies, with investment companies moving straight from 19% to 25% from April 2023.
From April 2025 vehicle excise duty on electric cars will apply.
Electric cars are still tax efficient for companies when bought new. Not only is tax relief available at the full cost if bought, and on the monthly rentals if hired, with the income tax benefit in kind (BIK) being only 2%. For example, an electric car costs £50,000, and tax relief is available in the company such that corporation tax is reduced by £9,500 ( £50,000 x 19% -corporation tax).
The income tax payable as a BIK is based on manufacturer retail price (MRP) as opposed to price paid. But assuming MRP is £50,000, then income tax is calculated on £1,000 ( £50,000 x 2%).
The BIK will remain at 2% until April 2025 and then increase by 1% each year after until 2028.
National Minimum Living Wage
From April 2023 this will increase by 92 pence per hour. GP Practices will need to take this into account for budgeting purposes with the additional add-on costs of national insurance and pension payments.
Other Measures and Previous Announcements
The reversal of the additional 1.25% on national insurance announced by the previous Chancellor in his mini budget remains as does the support by way of stamp duty assistance.
The national insurance credit allowance thankfully remains intact, and this will benefit most of you with PAYE schemes.
For most of you, the previous announcement relaxed off-payroll workers rules that were much welcomed. Unfortunately, these reforms have been cancelled and the rules introduced in 2017 and 2021 remain unchanged.
Once again despite detailed lobbying and tentative promises, nothing has changed relating to lifetime allowance tax rules.
Indeed, the lifetime allowance threshold remains unchanged and like the income tax thresholds, will by ‘fiscal drag’ mean this will drag more of you into this tax regime.
The annual allowance tax charge lobbying would appear to have more success in that certain technical changes will hopefully benefit individuals this year, mostly GP’s, who would have suffered high levels of Annual allowance tax due to the consumer price index (CPI) for September 2022 attaining 10.1%.
The BMA have published and circulated to members details of the above and more information is awaited.