As UK is still in the process of recovering from Brexit and the covid-19 pandemic the country is facing an acute economic challenges due to the cost of living crisis led by the Russia-Ukraine war. The chancellor has unveiled his final Autumn Budget 2022 to overcome the economic turmoil due to high inflation, and lower economic growth which has resulted in a higher cost of living for the British public. Here are the key points from Chancellor Jeremy Hunt’s statement below:
Autumn Budget 2022-Summary for Individuals
- Income tax and National Insurance Threshold: Income Tax and National Insurance tax-free allowance will be frozen to £12570 until April 2028. The higher tax threshold will remain unchanged until April 2028. It means you will be paying income tax at 40% on earning above £50270. For example, if you have a 25 hours per week employment contract with a national minimum wage of £9.5 per hour then you do not have to pay any income tax or national insurance under the current income tax threshold. However, you will be paying £6.25 per week or £324.48 per year in tax and national insurance with the same employment contract from April 2023 due to the higher national minimum wage. It is estimated an additional £5bn will be added to the HM treasury every year due to higher national minimum wages of £10.42 from April 2022.
- Additional rate Income: You will be paying income tax at 45% if you earn more than £125140 from April 2023. The additional tax rate threshold is set to £150,000 according to the current tax law. With the new Finance Act 2023, you will pay £1,243 more tax in a year from April 2023 if you earn £150,000 in a year.
- Inheritance Tax Threshold– According to the current legislation you do not need to pay any inheritance tax if the total estate’s market value is less then £325,000 (net). If the estate is a residential property and it is your main home, then the tax-free limit is increased to £500,000. This rule will remain unchanged until April 2028.
- Director’s Dividend Allowance -According to the current legislation (finance act -2022), directors can claim tax-free dividend allowance of £2,000. However, from April 2023 (Finance Act-2023) director’s dividend allowance is reduced from £2000 to £1,000, and £500 from April 2024. If you are a limited company director, you will be paying between £87.50 to £393.5 more on your income tax depending on whether if you are a basic rate (8.75%) taxpayer or higher rated taxpayer (33.75%) or additional rated taxpayer (39.35%). This can be painful for limited company directors especially if they have to pay corporation tax at 25% from April 2023. An early dividend payout prior to April 2023 would help you to save money.
- Cut on Capital gains annual exempt amount – the exempt amount on the capital gain will be reduced from £12,300 to £6,000 from April 2023, further reducing from April 2024 to £3,000. For example, if you are a landlord paying tax at 40% and you gained £15,000 by selling a residential property. According to the current legislation (FA2022), your capital gain tax will be £756. However, it will increase to £2520 in April 2023 and to £3360 in April 2024. This is a direct hit to the landlords specially if they are planning to exit due to the property market instability. If you are a landlord and planning to sell your property, try to complete it by 5th April 2023 to save £1764 on your capital gain tax.
- Stamp Duty Land Tax (SDLT) – Good news for the first time buyers as the increases to the SDLT tax free threshold (from £125,000 to £250,000) and the increased nil-rate threshold paid by first-time buyers from £300,000 to £425,000, which came into force on 23 September 2022, remain only until March 2025. After this date, the allowances will revert to their previous levels.
Autumn Budget 2022 Summary For Small Businesses and Corporation Tax:
- Corporation tax – The Government previously announced that the rate of corporation tax will increase from April 2023 to 25% from the current 19%. However, you will be paying 19% if your taxable business profit is less than £50,000. This will help small business owners to save more on their corporation tax bills. We have not noticed there are any restrictions on owning multiple companies to split the profit. Effective tax planning can help you to save thousands on your tax bill. We are still reviewing the legislation regarding the restrictions. We would recommend contacting your accountant to develop a proactive tax plan to reduce your corporation tax bill.
- Reforms to Research and Development (R&D) tax reliefs for small businesses – R&D tax relief helps UK businesses to invest in innovative and problem-solving projects in science and technology. Under the current rule, you will get an additional tax relief of 130% of the full cost in addition to the full cost. For example, if you spend £1000 on an innovative project then you can claim £2300 under the current R&D tax relief rule. If your company is making a loss then you can claim a 14.5 % refund of £333.5 from HMRC. However, for expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. For example, if you spend £1000 on a qualified project, you can claim £1860 under R&D expenses. If the company is loss-making then you can claim £186 from HMRC from April 2023.
- Business Rates: There will new business rate valuation will be updated to reflect the current property since the last property valuation in 2017. There are tax reliefs in the retail, hospitality, and leisure sectors. Additional relief will be available for small businesses.
- VAT Threshold: Mandatory VAT registration threshold is set at the current rate of £85,000 on taxable sales and it will remain constant until April 2024. This threshold will force hundreds of small businesses in the UK to register for the VAT because of the higher inflation-led sales price.
- Investment zones – The government will refocus the investment zones programme on a limited number of the highest potential knowledge-intensive growth clusters. Work is being undertaken to identify these clusters and will be announced in the coming months.
In our opinion, the chancellor could have offered more support to small businesses and investors as small business owners will face uncertainty in next year due to the higher inflation and higher wages payment. Investors will be paying more tax. For example, real estate developers and property owners will be facing real challenges next year due to the higher interest rate and higher capital gain tax. There have been very few giveaways and investments in infrastructure, however, the headlines have been dominated by tax hikes and the increase in the national living wage. Many critics said the chancellor has been reckless with the tax rises which will result a lower growth to the economy.