Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
A Skilfully Crafted Budget
Inevitably, much of the information and excitement when a Chancellor arrived with the traditional red dispatch box has been dissipated with most key measures leaked in advance and we had already been forewarned of the plan to raise around £55bn broadly divided equally between spending cuts and tax increases, ushering in a new age of austerity, presumably accompanied with unrest and strikes.
In the 2021 Autumn Statement (delivered by Chancellor Rishi Sunak) government interest payments for 2022/23 were forecast at £33.7bn. By the time of the 2022 Spring Statement, the Office for Budget Responsibility (OBR) was predicting that figure would reach £83bn. In this budget it is forecast to increase to £120.4bn. The scale of this cost will have profoundly influenced Hunt’s plans.
This budget introduced few tax changes but still we will all be paying a lot more tax, stealth tax.
Rates and threshold are largely frozen, so that if your income rises due to inflation and other factors, you will move more swiftly into higher rates of tax on a higher proportion of that income. You see nothing dramatic just now but gradually over the next few years, you will be paying a lot more tax. And if you thought of incorporating, if that is indeed possible, the main rate of Corporation Tax is increasing to 25% and the rate of tax on dividends is also set to rise, and now with a smaller 0% band. So, you’re stuffed.
The VAT threshold is also frozen so that means that more business will be forced to register for VAT, and for some small businesses that cannot pass on the VAT to their customer, this will hit profits hard.
But nothing dramatic overnight, just a gradual ramping up of the tax take by the government.
Just in case you were wondering how you could (illegally) avoid paying these higher taxes, HMRC will be spending a further £79m over the next five years to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers, but they have not forgotten about you so tread carefully.
Of course this was only the Autumn Statement and we can expect the budget in about 4 months’ time.
It is interesting to note that one obvious target for additional tax was completely ignored. That is the legal tax avoidance that non doms like Rishi Sunak’s wife can exercise. If that exemption had been removed, surely that would have raised quite a lot of tax. I am sure they had their reasons.
Capital Gains Tax
The CGT annual exemption will be cut from £12,300 to £6,000 with effect from 6 April 2023 and halved again to £3,000 in April 2024.
The rates of CGT remain at 10% and 20% for most assets, but 18% and 28% for residential properties.
None of the various reliefs were reduced or removed.
However, reducing the annual exempt amount will mean that people with small gains that currently would be paying no tax, will now be subject to tax. More people will need to report gains on their self-assessment tax returns.
Many small investors rely on a mixture of tax-free capital gains and dividends to achieve a reasonable return on their investments. The changes will mean they area affected by the reduction in the CGT threshold and higher rate of tax on dividends.
If you are thinking of selling up, you might consider bringing that forward to get he benefit of the higher annual exemption.
The inheritance tax nil rate band was fixed at £325,000 per person in April 2009, and it will now remain at that level until April 2028.
The residence nil rate band, which was introduced in 2017/18 at £100,000, then gradually rose to £175,000 in 2020/21, will also be fixed at that level until April 2028.
The residence nil rate band can only be claimed where the deceased’s main home is left to a direct descendant, step-child or adopted child. So, have children and save tax.
Renewable generators – 45% windfall levy
This is a new temporary 45% levy on the profits of electricity generators to raise an extra £14bn over the next five years.
But it only affects:
- “Generators whose output exceeds 100GWh
- Aggregate revenue in excess of £10m produced at an average output price above £75/MWh.
The Autumn Statement made no changes to the contribution percentages.
The Lower Earnings Limit (LEL) will remain at £6,396 per annum for tax year 2023/24
The primary threshold (PT) will remain at £12,570 per annum until April 2028, i.e. up to and including tax year 2027/28. The primary threshold is the point at which the employee starts to pay national insurance contributions
The secondary threshold (ST) will remain frozen at £9,100 until April 2028, i.e. up to and including the 2027/28 tax year. The secondary threshold is the point at which the employer starts to pay national insurance contributions
The UEL, upper secondary threshold (UST), apprentices upper secondary threshold (AUST) and veteran upper secondary threshold (VUST) will also remain frozen at £50,270 until April 2028T
there are no changes to the NIC thresholds when comparing tax year 2022/23 to 2023/24.
Employers already start paying class 1 NIC at a much lower pay level than employees and frozen threshold will create a real cost for many employers as wage rates rise.
National Minimum Wage
These rates apply UK-wide and there is no devolution/
Rates will rise from the first full pay reference period starting on or after 1 April 2023. The rates will be as follows, compared to the rates that applied in 2022/23:
The National Living Wage (adults 23+)increases from 9.50 to 10.42.
The National Minimum Wage increases as follows:
Adult (age 21 – 22) increases from 9.18 to 10.18
Youth (age 18 – 20)increases from 6.83 to 7.49
Under 18 (but above compulsory school leaving age)increases from 4.81 to 5.28
Apprentice increases from 4.81 to 5.28
In addition, the daily accommodation offset will increase from £8.70 to £9.10.
R&D and audio-visual reliefs
There are already proposals for reforms to the research and development (R&D) relief regimes but Hunt wants to go further highlighting, “significant error and fraud” in the small and medium-sized enterprise (SME) relief, suggesting that the generosity of the relief made it a particularly attractive target for abuse.
He announced changes to the rates for the two R&D schemes. These rates will apply to expenditure incurred on or after 1 April 2023.
The rate of super-deduction for the SME relief is to be reduced from 130% to 86% while the rate that losses can be surrendered for payable credit is reduced from 14.5% to 10%.
At the same time, the RDEC rate which applies to larger enterprises will rise from 13% to 20%.
It seems likely that this package of changes will help with the plan to move to a single scheme (based around RDEC) for all sizes of company.
The UK has a suite of eight creative-sector reliefs, five of which are collectively referred to in this consultation as audio-visual reliefs. These are film tax relief (FTR), animation tax relief (ATR), high-end TV tax relief (HETV), children’s TV tax relief (CTR) and video games tax relief (VGTR). A consultation has been launched to consider these reliefs and ensure they remain competitive and enhance the industry within the UK.
The consultation will run until 9 February 2023.
Vehicle duty – electric cars and vans
New zero-emission cars registered on or after 1 April 2025 will be liable for a £10 payment, equivalent to the lowest first-year rate of VED that applies to sub 50g/km emission cars. The following year, they will be subject to the standard annual duty charge, currently £165 a year.
Electric cars first registered between 1 April 2017 and 31 March 2025 will pay the standard rate from the same date.
Zero-emission vans will move to the current £290 rate for petrol and diesel light goods vehicles and electric motorcycles and tricycles will have to pay the lowest VED rate, currently £22 a year.
Another concession that will go in 2025 is the exemption for electric vehicles from the annual £355 expensive car supplement (applicable for the first five years).
For company cars emitting less than 75g of CO2/km, the benefit in kind rate will stay at 2% and then go up by 1% a year from 2025–26 to a maximum of 5%.
Measures to incentivise growth
Annual investment allowance
The annual investment allowance (AIA) will be set at a permanent level of £1m from 1 April 2023. This amounts to full expensing for an estimated 99% of UK businesses, which means that those businesses can write off the cost of qualifying plant machinery investment in one go.
Electric vehicle charge points
The Chancellor stated that in the Spring Finance Bill 2023, the government will legislate to extend the 100% first year allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes, and to 5 April 2025 for income tax purposes. This will ensure that the tax system continues to incentivise business investment in charging infrastructure.
With the corporation tax rate set to increase to 25%, as originally planned, the proposed amendments to the capital allowances super deduction were not required, so those deductions are withdrawn from 1 April 2023.
Income Tax Changes in Scotland
The government has two main ways in which to raise additional revenue:
- Increase taxes.
- Freeze Tax thresholds – stealth tax.
The Chancellor applied both strategies in his Autumn Statement.
For Scottish taxpayers, the Scottish government decides on the rates and thresholds that apply. They have complete discretion on which rates and thresholds to use and do not have to mirror those that apply anywhere else in the UK.
Personal Allowance Freeze Extended
In his speech, the Chancellor reassured the general public that the Conservative government would not raise the headline rates of taxation.
However the Autumn Statement announced a two-year extension to the freeze in the personal allowance and higher rate thresholds. This now means that the personal allowance – which has been £12,570 since 2021/22 – will remain at that level until April 2028, while the higher-rate threshold will also stay at its current level of £50,270.
Real wages should grow between now and April 2028, meaning the extended freezes will result in more taxpayers either paying tax or paying more tax within the higher or additional rate bands.
Given the current rate of inflation is outstripping wage growth, these allowance freezes will pinch taxpayers in the years to come, as individuals will have to grapple with the dual issue of their wages not going as far to cover an increased cost of living, coupled with an increased tax burden over time.
Separately, the Autumn Statement announced an uprating of the married couple’s allowance (MCA) and blind person’s allowance by 10.1% for 2023/24. This means that the MCA will be valued between £4,010 and £10,375, while the blind person’s allowance will be valued at £2,870.
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