Another month another Budget, and more tax to pay!

The Chancellors Autumn Statement

In this month’s article from TAG Accountants, Wolverhampton our tax advisors focus on the tax measures announced by the Chancellor in his recent Autumn Statement which included “eye-watering” cuts in public spending and tax rises for those with the ‘broadest shoulders.’

Let us hope this is the last Budget until March – but who knows!

For pensioners and those on means-tested benefits, their 2023/24 payments will be increased in line with the 10.1% inflation in the year to September 2022. There will also be further support for those struggling with energy bills albeit being paid for by tax increases and spending cuts.

Personal income tax allowances

Previous announcements confirmed that income tax personal allowance (£12,570) and higher (40%) rate threshold (£50,270) would be frozen until 5 April 2026, – now, they will be frozen until 5 April 2028.

As earnings increase, this move will result in more higher rate taxpayers, hence they will be raising more tax without the need to increase income tax rates themselves.

From 6 April 2023, the income level at which the additional income tax 45% rate starts to apply will be reduced from £150,000 to £125,140. So, for these individuals, once their income exceeds £125,140, they will no longer be entitled to a personal allowance and will move straight into 45% income tax.

On a positive note, there were no measures to further restrict tax relief for pension contributions, which means sacrificing salary for pension contributions remains a good tax-saving option.

National insurance

No more changes to NIC rates and bandings were announced. As with the main income tax bandings, NIC thresholds are now also frozen until 5 April 2028. Employers’ NIC will still apply at 13.8% to earnings more than £9,100 a year (or £175 per week) and employees (and the self-employed) will continue to pay 12% and 9% respectively on earnings/profits between £12,570 and £50,270 with being 2% applied thereafter.

Tax on dividends

For all individuals, the first £2,000 of dividend income is taxed at 0%. However, this dividend allowance will be reduced to £1,000 in the 2023/24 tax year and then again to just £500 in the 2024/25 tax year.

Income tax rates applied to dividend income outside of the allowance have only recently been increased to 8.75%, 33.75%, and 39.35% (for dividend income falling into basic rate, higher rate, and additional rate bands respectively).

If you are a director/shareholder, you will need to consider the best strategy for extracting profits from your company from 6 April 2023 considering these changes – we are here to help.

Capital gains tax

There was speculation that the rates of Capital Gains Tax (CGT) paid by individuals would increase to align with the rates of income tax.
Rather than take that approach, the Chancellor has announced that the current £12,300 annual tax-free CGT exemption will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.

If you are planning any capital disposals soon, please contact us to discuss the best strategy for timing the sale.

VAT registration

The VAT registration threshold remains frozen at £85,000, instead of increasing each year in line with inflation. This will now remain at this level until at least March 2026.

Car benefits in kind

For electronic or ultra-low emission company cars (emitting less than 75g of CO2 per kilometre), there will be annual increases in the benefit-in-kind percentages, so that from the 2025/26 tax year, taxes paid by employees and employers will increase as a result.

For all other company car users, there will be a one percentage point increase (up to a maximum of 37%) in the calculation of the benefit-in-kind in 2025/26 before being fixed for the following two tax years.

The fixed multipliers used to calculate benefits-in-kind on employer provided vans, van fuel (for private journeys in company vans) and car fuel (for private journeys in company cars) will increase in line with the Consumer Price Index (CPI) from 6 April 2023.

There will also be Vehicle Excise Duty for electric cars, vans, and motorcycles from April 2025.

R&D tax credits

Concern was again expressed about the alleged abuse of Research & Development (R&D) tax reliefs.

Plans are in place to merge two existing schemes in the future and from 1 April 2023:

• The Research and Development Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.
• For SME companies, the additional R&D tax relief deduction will be reduced from 130% to 86%.
• Where SME companies are loss-making, the payable credit will be reduced from 14.5% to 10%.

Stamp duty land tax

Previous announcements have not been reversed in respect of Stamp Duty Land Tax (SDLT) in England and Northern Ireland. The starting threshold was increased from £125,000 to £250,000 (and, for First Time Buyers, from £300,000 to £425,000) from 23 September 2022.

However, these are now to be temporary changes, and, from 1 April 2025, the thresholds will return to their original rates.

Need help with any of that?

There really is a lot to digest and there is no question that most people and businesses will be paying more tax over the next few years at least.

So, with that in mind, if you need any assistance with any of the issues raised above or perhaps would like to discuss how the impact of these changes could be minimised, call our friendly tax team here at TAG Accountants, Wolverhampton in complete confidence on 01902 783172, or alternatively, contact us using our online enquiry form, which you can find HERE.

We very much look forward to hearing from you.