Autumn Statement – How Does it Affect You?

Small businesses and contractors weren’t expecting any good news in the Autumn Statement, and this time, there were no surprises.

The Chancellor didn’t find time to mention the biggest change arriving in April 2023 – a large increase in corporation tax (see below). Perhaps that’s because this Chancellor didn’t come up with the idea – the new Prime Minister did, when he was Chancellor. The new Chancellor said he wanted the UK to be the location of the ‘next Silicon Valley’. Many will find it hard to reconcile that to the hit SMEs and their owners will face in 2023.

Freezes to tax thresholds over the next five years mean that everyone will pay more tax. Pay increases will be welcomed, but the tax taken as a percentage will increase, despite no increase in buying power. People will not feel richer, but on average will pay more in tax as a proportion of their income.

The last Prime Minister and her Chancellor thought the Off-Payroll Working rules, known by some as ‘new IR35’ were so bad for business and growth that they announced a repeal. This measure was a victim of the ‘Bonfire of the U-Turns’ in early October, and the repeal was abandoned. There is no mention of any new review of Off-Payroll or IR35 in the documents released today by the Treasury – they seem to have decided that everything is working well in that area, after all.

In detail

Corporation tax

• Corporation tax is going up to 25% in April 2023. The Budget documents say that the rate will be 25% for those with profits over £250k. They fail to mention that for those making profits between £50k and £250k, the effective rate is 26.5%. For an SME making around £100k per year the extra corporation tax is almost £4k.

 

• Income tax thresholds – the point at which tax rates increase, will be frozen for even longer than planned, until April 2028. This freeze also applies to National Insurance and Inheritance Tax. In addition, the Additional Rate threshold will drop from £150k to £125,140 (the £140 is due to the overlapping with the withdrawal of the personal allowance over £100k which would happen otherwise).

 

 

• Dividend tax rates are not going to change, having increased in April 2022 by 1.25% already. However, the dividend allowance, permitting some ‘tax free’ dividend income, will reduce by £1,000 in April 2023 – halving the current amount. As an example, this will cost a person receiving £60k in dividends £337 per year. The allowance will halve again a year later, to £500.

 

• Capital Gains tax has had a generous Annual Exempt Amount – like an additional personal allowance if you have gains to declare – for many years. Currently £12,300 per year, this will reduce to £6,000 next year, and then £3,000 from April 2024.

 

• The VAT registration threshold will remain at £85k for several years. The Employment Allowance, which allows small businesses to minimise or extinguish their Employers NIC contributions on a small staff, will be kept at £5k for the time being.

 

• Increases in the thresholds applying to Stamp Duty Land Tax of £125k will be maintained until 31 March 2025.

 

• The Annual Investment Allowance is permanently set at £1m from April 2023, intended to support business growth and investment.

 

• The Energy Price Cap, which currently means average household bills will not exceed £2,500, will be loosened so that the average bill under the scheme reaches £3,000.

 

• There will be additional help to those on some benefits, pensioners and those with disabilities.

 

If you have any queries arising from the Autumn Statement, please do not hesitate to contact your Workwell accountant. Get in touch.