Budget, Business Growth, Personal Tax, Tax

Budget Announcements November 2022

Posted on by sharon baker
Autumn budget 2022
21
Nov

The new Chancellor, Jeremy Hunt announced the latest budget on 17 November 2022.

Mr Hunt introduced his statement with “British families make sacrifices every day to live within their means, and so too must their Government, because the United Kingdom will always pay its way”

The day before the Budget announcement, the Office for Budget Responsibility (OBR) confirmed that the UK is currently in a recession, and likely to be for the next year, with inflation at 11.1% for September 2022.

We’ll be facing difficult times in the coming year, so it’s more crucial than ever to make a plan.

The Government’s newest Budget attempts to support the economy, which is still set to grow by 4.2% this year, but with rising prices and unemployment affecting many households.

Here are our top takeaways for you:

1. Personal Income

Basic rate income tax sticks at 20% indefinitely

This was previously being reduced to 19%, but will stay at 20%

Dividend tax rates increase 1.25 percentage points

This one hasn’t been reversed, and means that dividend tax rates will now remain at:

Dividend allowance

At the moment everyone can receive £2,000 in dividends tax free, each tax year.

    • This will reduce to £1,000 in April 2023
    • The dividend allowance will reduce again to £500 from April 2024
    • This works out at an additional £87.50 tax if you’re a basic rate taxpayer, or £337.50 if you’re a higher rate taxpayer

Additional rate income tax

    • The additional rate income tax threshold was £150,000 and will reduce to £125,140 from 6 April 2023
    • This means an additional £1,243 income tax for tax payers earning between these 2 amounts.

Income tax thresholds

    • The personal allowance will remain frozen at £12,570 until 2028.
    • This is in effect a stealth tax, because as your income rises, the allowance won’t be rising with it, so more of your income will be taxed.
    • This needs to be taken into account when discussing pay rises, to make sure you’re benefiting.

2. National insurance

National insurance rate increase scrapped

    • This was previously being increased by 1.25 percentage points, but now reversed.
    • The health and social care levy has also been cancelled.

National insurance thresholds

    • have already risen to the same level as the personal allowance, at £12,570
    • This is also fixed until 2028

3. Capital gains tax

The capital gains tax (CGT) annual exemption is the amount of gain you receive, before paying capital gains tax.

    • This is currently £12,300 (or £24,600 for a couple)
    • This will drop to £6,000 or £12,000 per couple from April 2023
    • It will then reduce again to £3,000 or £6,000 per couple from April 2024.
    • NB: you don’t pay capital gains tax if you’re selling your only home, your “principal private residence”

4. Inheritance tax

    • The inheritance tax (IHT) nil rate band is £325,000, meaning that the value of your estate is less than this when you die, the estate won’t pay any IHT
    • This rate will be in place until April 2028
    • For residence, the nil rate band remains £175,000, tapering away from £2m.

5. Pension triple lock

The triple lock protection refers to a previous manifesto pledge that state pensions would always rise in line with the higher of:

    • average wage increase
    • previous September’s inflation figure, or
    • 2.5%

From April 2023 the state pension will increase by £870, as follows:

    • £203.85 per week (up from £185.15) for those who reached state pension age after April 2016
    • £156.20 per week (up from £141.85) for those who reached state pension age before April 2016.

6. Vehicle excise duty

From April 2025 electric cars will no longer be exempt from vehicle excise duty.

    • This is car tax to you and me, and is currently calculated based on the CO2 emissions of your vehicle, starting at £25 per year for cars with CO2 emissions up to 50g/km.
    • So an electric vehicle with no CO2 emissions will move to Band B, for emissions up to 50g/km, and pay £25 per year.
    • Most zero emission vans will move tho the standard annual rate for petrol and diesel light goods vehicles.
    • You can find the different vehicle bands here, at gov.uk

7. Stamp duty cuts remain until 31 March 2025

This hasn’t changed since the last Budget.

    • Stamp duty thresholds were raised from £125k to £250k, and this will remain in place.
    • This means that if you’re buying a home, you will only pay stamp duty on the purchase price above £250k, instead of £125k.
    • For first time buyers, the threshold is now £425k, instead of £300k.
    • Be aware: that if you’re buying a second home, or a property to rent out, you will pay stamp duty at 3%.
    • This applies to buying property through your limited company too.

Business changes

1. Corporation tax increases to 25% from 1 April 2023

This is a misleading headline. Corporation tax of 25% only applies if your company profits are over £250k.

If your profits are below £50k, the current corporation tax rate of 19% remains for you.

The interesting bit is what happens if your profits are between £50k and £250k, because then tapered rates apply, and it’s not what you think.

Profits

CT %

Tax Due

Increase from 19%
£50,000 19.00% £9,500 £0
£75,000 21.50% £16,125 £1,875
£100,000 22.75% £22,750 £3,750
£150,000 24.00% £36,000 £7,500
£200,000 24.63% £49,260 £11,260
£250,000 25.00% £62,500 £15,000

You can see that there are significant tax increases, the higher your profits, so it will be crucial to be aware of your tax obligations, and work with us to make sure that you’re as tax efficient as possible, and pay the least tax as legally possible.

Please be aware: HMRC have not yet released guidance on how the taper rates will work, so this is based on the old rules from 2014/15.

These calculations should therefore not be relied upon as tax advice, and everyone’s situation is different, so please speak to us for specific tailored guidance.

2. VAT registration threshold stays at £85,000

This has not moved since 2017, and is set to remain in place until April 2026.

This is effectively an increase in VAT. As business revenue starts to rise over the years with inflation, the threshold stays the same, so more businesses are going to come into the VAT regime.

The VAT deregistration threshold similarly hasn’t moved from £83,000 since 2017.

3. R & D relief

This is a big change, and could be a reaction to the dodgy R & D claims which have been made by the more unscrupulous R & D consultants. These are the ones who guarantee a claim whatever, sometimes as a percentage of your revenue. We always use specialist R & D experts, and work closely with them to get the right claim in place.

Previously for every £100 of R & D cost, you would get a further £130 deducted from your profits before working out your corporation tax. This has now reduced to £86 for every £100, or 86%.

At the same time,

4. Bankers bonus cap abolished

The previous mini-budget removed the cap on bankers’ bonuses, which was previously capped at 100% of a banker’s annual salary.

This cap has been abolished. The reasoning here is that these high earners will spend more, and so contribute to our economy.

5. Alcohol duty freeze cancelled

Truss’s Chancellor called for a freeze on alcohol duty increases, from 1 February 2023.

This has been cancelled.

6. Energy bills support

For households

The current scheme of support runs out in April 2023. This means that we’ll be paying around £500 above the previous cap for household energy, with an average household payingn £3,000 a year.

We do have additional energy initiatives to help those struggling:

  • Households on means-tested benefits will get £900 support payments next year
  • £300 payments will be made to pensioner households, and £150 for individuals on disability benefit.

The energy bill relief scheme for business

  • This still remains in place for business, which aren’t covered by the energy price cap.
  • More information from gov.uk here, but it mainly relates to establishing better contracts and prices in the energy markets.

Discounts will also be provided, to bring your energy prices in line with Government baseline of:

    • £211 per megawatt hour (MWh) for electricity
    • £75 per MWh for gas

For comparison, wholesale costs in England, Scotland and Wales for this winter are currently expected to be around:

      • £600 per MWh for electricity
      • £180 per MWh for gas

That’s a lot of information!

It really is. And as always the devil will be in the detail, and the above is only a guide, as everyone’s situation is different.

Get in touch with us today if you’d like to understand how the Budget changes affect you!

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The information in this report is based upon our understanding of the Chancellor’s 2022 Autumn Statement, in respect of which specific implementation details may change when the final legislation and supporting documentation are published.

Our blog is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. Pension eligibility depends on individual circumstances.

Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

sharon baker