The new Chancellor of the Exchequer, Jeremy Hunt, delivered his Autumn Statement to the House of Commons on 17 November, against a backdrop of a worsening cost of living crisis and with confirmation from the Office for Budget Responsibility (OBR) that the UK has now entered into a recession.

The OBR has stated that the economy is still forecast to grow by 4.2% this year. GDP is then predicted to fall by 1.4% in 2023, before rising by 1.3% in 2024.

As expected, the Chancellor set out billions of pounds in tax increases and spending cuts to continue the restoration of market stability after the mini-budget in September. 

Income Tax 

The Chancellor has announced that the Income Tax additional rate threshold will be reduced from £150,000 to £125,140 with effect from 6 April 2023. This move will see an estimated 250,000 further taxpayers pay the additional rate of Income Tax of 45% from next April.

It had been previously announced that there would be no increase in the Income Tax Personal Allowance and higher rate threshold until April 2026. The Chancellor has now confirmed that the thresholds will be maintained at their current levels for a further two years until April 2028. Higher rate threshold will remain frozen at £37,700 and the personal tax allowance will remain at £12,570 through to April 2028.

Income Tax and dividend income

The current £2,000 dividend tax-free allowance is to be reduced to £1,000 from April 2023 and to £500 from April 2024.

The 1.25% increase in the tax rates payable on dividend income, which took effect in April 2022 remains in place.

The rates that apply in all regions of the UK from 6 April 2023 are as follows:

•    Dividends that form part of the basic rate band – 8.75% 
•    Dividends that form part of the higher rate band – 33.75% 
•    Dividends that form part of the additional rate band – 39.35% 

Inheritance Tax

No changes to present rates and allowances were announced. These rates and allowances will remain frozen at current levels until April 2028.

The nil-rate band will continue to be £325,000 and the residence nil-rate band at £175,000, for this period.

National Insurance

The Chancellor also confirmed that the National Insurance Contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) that were already fixed at their current levels until April 2026 will now be maintained for an additional two years until April 2028.

The 1.25% rise in National Insurance contributions (NICs) that came into effect at the start of the 2022-23 tax year on 6 April 2022 was reversed on 6 November 2022. There have been no further changes announced and the cancellation of the ring-fenced Health and Social Care Levy of 1.25% due to be introduced from April 2023 remains in place and will not go ahead as originally planned.

The alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570 that came into effect on 6 July 2022 will stay at this level until April 2028.

The government will fix the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) at 2022-23 levels in 2023-24. The LEL will remain at £6,396 per annum (£123 per week) and the SPT will remain at £6,725 per annum. The Upper Secondary Threshold will stay fixed at £50,270 per annum until April 2028, to remain aligned with the UEL and UPL.

The government will use the September CPI figure of 10.1% to uprate the Class 2 and Class 3 NICs rates for 2023-24. The Class 2 rate will be £3.45 per week, and the Class 3 rate will be £17.45 per week.

Capital Gains Tax

The Chancellor announced a significant reduction in the annual exempt amount applicable to Capital Gains Tax (CGT). This rate had previously been fixed at £12,300 from April 2021 to April 2026 for individuals, personal representatives, and some types of trusts for disabled people.

The exempt amount will now be reduced to £6,000 from April 2023 before being further reduced to £3,000 from April 2024.

Corporation Tax

The Chancellor had previously announced on 17 October 2022 that the planned increases in Corporation Tax (CT) rates from April 2023 would be going ahead.

From 1 April 2023, there will be two rates of CT:

•   Taxable profits up to £50,000 will continue to be taxed at 19%
•   Taxable profits more than £250,000 will be taxed at the main rate of 25%
•   Profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods. 

Corporation Tax – R&D Relief

The Research and Development Expenditure Credit (RDEC) rate will increase to 20% (from 13%) with effect from 1 April 2023. From the same date, the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.

R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. This will effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and target abuse and improve compliance. These changes will be legislated for in the Spring Finance Bill 2023.

Vehicle Excise Duty (VED)

VED will become applicable on electric cars, vans and motorcycles from April 2025 in the same way as it currently applies to petrol and diesel vehicles. This change will apply to new and existing zero emission cars.

Company Car Tax 

The rates of company car tax that apply until April 2028 have been announced in order to provide long term certainty for taxpayers and industry.

The rates will continue to incentivise the take up of electric vehicles:

•    The appropriate percentages for electric and ultra-low emission 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 appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars. 
•    The rates for all other vehicles bands will be increased by 1% for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28. 

First Year allowances for electric charging points

Businesses can currently benefit from First Year allowances on qualifying electric charging points for cars and vans. To qualify for the relief the company must use the charging point in their own business. This relief was set to expire in 2023 but has now been extended for a further two years, to 31 March 2025 for Corporation Tax purposes and to 5 April 2025 for Income Tax purposes.

VAT

There will be no changes to the 20% rate. The £85,000 registration limit and the £83,000 deregistration limit will now remain at these levels until 31 March 2026.
        
To discuss how these changes may affect your business or tax affairs in the coming months, please contact us.