Jeremy Hunt’s first fiscal statement to Parliament was a budget in all but name. Much of the content had been widely speculated on or leaked in advance, presumably to avoid a repeat of the shock to the markets, and the country, triggered by the Truss government’s disastrous September mini-budget.
The country knew in advance that the government was planning to raise in the region of £55 billion by way of a combination of tax increases and governmental spending cuts and this was confirmed today when Jeremy Hunt announced new tax rises estimated to raise almost £25 billion.
A large proportion of the tax rises stem from freezing of allowances for an extended period of time – through to April 2028 in many instances. This brings more people into the tax system over time in a process called “fiscal drag” but what the media refer to as stealth taxes. Some of the measures however involve tax rises effective from April 2023 including reducing the point at which the top rate of income tax is payable and significant changes to the capital gains tax exemption and dividend allowances.
The detailed measures announced are set out below:
Income Tax Thresholds
The government announced previously that the Personal Allowance (PA) and Higher Rate Threshold (HRT) would remain fixed at the current levels of £12,570 and £50,270 respectively until 5 April 2026. It was announced today that these thresholds will remain fixed for an additional two tax years up to 5 April 2028.
The measures announced today also indefinitely delay the proposed reduction to the basic rate of Income Tax. The basic rate of income tax therefore remains at 20%. This applies to taxpayers in England, Wales and Northern Ireland only.
The Additional Rate Threshold (ART), where individuals start paying the additional rate of 45%, is currently set at £150,000. From 6 April 2023 this will be lowered from £150,000 to £125,140.
The tax-free allowance for dividend income will reduce from £2,000 to £1,000 from 6 April 2023 and then reduce further to £500 from 6 April 2024. The dividend tax rate remains at 8.75% for basic rate taxpayers, 33.75% for higher rate and 39.35% for additional rate, including trusts.
Capital Gains Tax measures
The Capital Gains Tax (CGT) Annual Exemption is reduced from £12,300 to £6,000 from 6 April 2023 and then reduced further to £3,000 from 6 April 2024. The exemptions for trustees will continue to be half those for individuals.
This will result in many more taxpayers having CGT liabilities and needing to report accordingly, as well as increasing the incidence of CGT 60-day reporting for UK residential property disposals.
The freeze on the threshold at which estates are liable to pay Inheritance Tax (IHT) is extended through to 5 April 2028. The nil-rate band will remain at £325,000 and the residence nil-rate band at £175,000, with the level at which the residence nil-rate band tapering starts remaining at £2 million. This will continue the trend of more estates being required to report and pay IHT over that period.
The state pension is to be uprated in line with the government’s commitment to the Triple Lock.
This means the state pension will increase by 10.1% from April 2023.
From April 2023 payments will be:
- £203.85 a week (currently £185.15) for the full, new flat-rate state pension (for those who reached state pension age after April 2016); and
- £156.20 a week (currently £141.85) for the full, old basic state pension (for those who reached state pension age before April 2016).
Stamp Duty Land Tax
The changes, announced on 23 September 2022, increasing the amount that a purchaser can pay for residential property before they become liable to Stamp Duty Land Tax (SDLT), will end on 31 March 2025.
The measure increased the residential nil-rate tax threshold from £125,000 to £250,000.
The nil-rate threshold for First Time Buyers’ Relief was increased from £300,000 to £425,000 and the maximum amount that an individual can pay for a property, while remaining eligible for First Time Buyers’ Relief, was increased from £500,000 to £625,000.
The 3% surcharge on additional dwellings continues to apply indefinitely.
The thresholds for National Insurance Contributions have been frozen, as follows:
The Secondary Threshold for National Insurance Contributions (NICS), which is the threshold applicable to employers, has been frozen until 5 April 2028.
This means that employers will pay 13.8% on employee wages over £175 per week. (There are no employer contributions on weekly earnings of £175 – £967 for employees aged under 21 and qualifying apprentices aged under 25).
The freezing of the secondary threshold is estimated to generate £5.8 billion by 5 April 2028.
The Primary Threshold for NIC, which is the threshold applicable to employees, has been frozen at current levels until 5 April 2028.
This means that employees will be able to earn £242 a week without paying NIC.
The Class 2 and Class 4 NIC thresholds have also been frozen at current levels until 5 April 2028.
Cancellation of Health and Social Care Levy
The previously announced 1.25% Health and Social Care Levy will now not come into force.
National Living Wage (NLW)
From 1 April 2023 the government will increase the NLW for those aged over 23 to £10.42 an hour.
National Minimum Wage (NMW)
From 1 April 2023 the following increases in NMW will apply:
- Increasing the rate for 21-22 year olds by 10.9% to £10.18 an hour;
- Increasing the rate for 18-20 year olds by 9.7% to £7.49 an hour;
- Increasing the rate for 16-17 year olds by 9.7% to £5.28 an hour;
- Increasing the apprentice rate by 9.7% to £5.28 an hour; and
- Increasing the accommodation offset rate by 4.6% to £9.10 an hour.
The increase in the amount of the Employment Allowance to £5,000 announced in the Spring Statement has been maintained.
Measures affecting Electric Vehicles
From April 2025, electric cars, vans and motorcycles will begin to pay Vehicle Excise Duty (VED) in the same way as petrol and diesel vehicles.
The rates applicable will be:
- New zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions 1 to 50g/km), currently £10 a year. From the second year of registration onwards, they will move to the standard rate, currently £165 a year;
- Zero emission cars, first registered between 1 April 2017 and 31 March 2025, will pay the standard rate;
- New zero emission cars registered on or after 1 April 2025 will be liable for the Expensive Car Supplement, which applies to cars costing more than £40,000 when bought new. The supplement is an extra £355 per year for five years, on top of the standard rate;
- Zero and low emission cars first registered between 1 March 2001 and 30 March 2017, currently in Band A, will move to the Band B rate, currently £20 a year;
- Zero emission vans will move to the rate for petrol and diesel light goods vehicles, currently £290 a year for most vans; and
- Rates for Alternative Fuel Vehicles and hybrids will also be equalised.
Company Car Benefit in Kind Tax Rates
The current benefit in kind percentages applicable for electric and ultra-low emission cars are to remain until 5 April 2025.
Appropriate percentages for electric and ultra-low emissions cars emitting less than 75g of CO2 per kilometre will increase by 1% in 2025-26; a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum percentage of 5% for electric cars and 21% for ultra-low emission cars.
Rates for all other vehicle bands will be increased by 1% for 2025-26 up to a maximum of 37% and will then be fixed in 2026-27 and 2027-28.
Van Benefit Charge and Car & Van Fuel Benefit Charges
The car fuel benefit charge applies when an employer provides an employee with fuel for a company car that is available for private use.
From 6 April 2023, car and van fuel benefit charges and van benefit charge will increase in line with CPI.
First Year Allowance for Electric Vehicle Chargepoints
There is an extension to the 100% First Year Allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
Annual Investment Allowance
The Annual Investment Allowance provides businesses with a 100% tax deduction on qualifying investment up to an annual level. The government has confirmed that the annual level will remain at £1 million indefinitely.
Companies can also continue to benefit from the super-deduction and first-year allowances until 31 March 2023.
From 1 April 2023 the business rates multiplier will be frozen for another year at 49.9p for small businesses, whilst the standard multiplier will remain at 51.2p.
Counteracting this though, the government are continuing with the revaluation of properties from 1 April 2023. This means despite a freeze in multiplier, business rate bills may still increase due to a higher rateable value and because many businesses will no longer be able to benefit from Small Business Rates Relief.
The revaluation will be carried out over a three-year transitional period, running from 1 April 2023 to 31 March 2026, seeing increases capped at 5% for small, 15% for medium and 30% for large properties.
Businesses will be able to make property improvements and not have to pay additional business rates for 12 months following the completion of the improvements works effective from 1 April 2024.
Help for the retail, hospitality and leisure sector continues with a 75% business rates discount, from 1 April 2023 for 12 months, to eligible properties, subject to a cap of £110,000 per business. The discount has increased from 50% as previously mentioned in the Autumn statement 2021.
As announced on 14 October 2022, the increase to the main rate of corporation tax to 25% will go ahead from 1 April 2023. This applies to companies with taxable profits of £250,000 or more. The rate for companies with taxable profits of £50,000 or less remains at 19%, and a tapered rate will apply to companies with taxable profits between £50,001 and £249,999.
Research and Development
The Chancellor expressed concerns around significant error and fraud existing in Research and Development (R&D) tax relief claims made by small and medium-sized enterprises (SMEs). He therefore announced changes to the regime.
The relief that can be claimed by businesses through the research and development expenditure credit (RDEC) and the R&D tax relief for SMEs is to change.
The new rates, effective from 1 April 2023, will be:
- 20% for RDEC, up from the current 13%;
- 86% additional deduction for SME, down from the current 130%; and
- 10% for SME payable credit, down from the current 14.5%.
Also effective from 1 April 2023, data licensing and cloud computing expenditure will qualify for R&D tax reliefs. Overseas subcontracting and non-UK payroll externally provided workers will no longer qualify for R&D tax relief, with exemptions for R&D expenditure that cannot be conducted within the UK.
The freeze on the VAT registration threshold of £85,000 has been extended until 5 April 2026.
Direct support measures
One-off direct support payments were announced as follows:
- £900 Cost of Living payment for households on means tested benefits
- £300 Pensioner Cost of Living payment
- £150 Disability Cost of Living payment
These will be paid sometime in 2023/24. The total Cost of Living direct support payments will cost the government £12.2 billion.
There was also an increase in the amount of the support payment previously announced to those households who are off the gas grid, such as those households using heating oil. This is particularly relevant to households in our region who should now receive £200 at some point this winter. No payment mechanism details have yet been announced.
Energy Price Guarantee (EPG)
The Energy Price Guarantee (EPG) caps the unit price of electricity and gas that a typical household pays. This will be maintained throughout the winter until 31 March 2023, limiting the bills for typical energy use to £2,500 per year. From 1 April 2023, the EPG will increase to £3,000 for typical energy use.
Energy Price Measures for Businesses
The increase in energy prices for businesses has led the government to announce a discount on per kilowatt hour wholesale gas and electricity prices for non-domestic consumers for 6 months beginning 1 October 2022. Further announcements are to follow on the position effective from April 2023.
Making Tax Digital
There were no announcements made relating to deferral of the commencement of the Making Tax Digital ITSA regime, which is very bad news.
M+A Partners look forward to welcoming Norfolk’s new Mayor in due course!