Autumn Statement 2022
Updated: Nov 30, 2022
The new Chancellor, Jeremy Hunt, delivered The Autumn Statement on Thursday. He set out the government’s plan to put public spending on a sustainable footing and reduce the Nation Debt.
UK Inflation is at a 41-year high and the Bank of England is reporting that the UK economy is expected to be in a recession for a prolonged period.
Given the hype beforehand, we were expecting increases in the rates of taxes. The Chancellor was quick to point out that there will be no increases to the main rates of tax. However, most of the tax that the Chancellor hopes to generate over the next few years, will actually be through freezing tax bands and allowances and in some cases reducing allowances.
The announcements couldn’t be any more different to September’s tax-cutting mini-Budget.
There were no increases in the rates of Income Tax, National Insurance, VAT or Corporation Tax. Instead, Jeremy Hunt, will use a tactic known by economists as ‘fiscal drag’ to collect more tax.
Fiscal drag is where tax thresholds do not increase. However, will general inflation, and as wages and salaries rise, individuals pay tax on a larger proportion of their income. In addition, more people move into higher tax brackets. Similarly, businesses pay more tax on higher profits, though in real terms prices and profits have only increases to keep pace with inflation.
In real terms, a 10% increase in salary or business profits is only keeping pace with inflation, though more tax will be paid on the same real income.
The Government hopes by fixing tax allowances for several years ahead, with no inflationary increases, that this should generate around an extra £24bn in tax. Government spending cuts should deliver around another £30bn in savings.
Key tax measures
The income tax personal allowance of £12,570 will be frozen until April 2028. Basic rate income tax, of 20%, is paid by individuals with income, earnings, profits over £12,570 and up to £50,270 a year.
The higher rate of income tax of 40%, is paid on individual earnings and profits between £50,271 and £150,000 a year.
The threshold where higher earners start to pay the 45% top rate of income tax will fall, from £150,000 to £125,140 from April 2023. Reducing these thresholds will cost £1,243 for an additional rate taxpayer. The threshold is set at £125,140, rather than £125,000. This is because the personal allowance, of £12,570, is reduced by £1 for every £2 when a person's total taxable income exceeds £100,000. At £125,140 (£100,000 plus £12,570 x two) the whole £12,570 allowance is lost.
Just like the personal allowance, the transferable marriage allowance is frozen at £1,260 until 5 April 2028.
Employees and the self-employed do not pay National Insurance on the first £12,570 of earnings a year. They pay 12% National Insurance on income between £12,570 and £50,270, and 2% on any surplus above £50,270.
The National Insurance secondary threshold, when employers start to pay National Insurance on employee’s wages and salaries. will be frozen at £9,100 until April 2028
The main National Insurance thresholds, for employee and employers will also remain frozen until April 2028. The Lower Earnings Limit will remain at £6,396 pa for 2023/24.
The Employment Allowance will stay at £5,000, mean the smallest employers will not be affected. This allows employers to pay no employer’s National Insurance on their first £5,000 of employer’ National Insurance contributions. This means that 40% of all businesses will pay no employer’s National Insurance at all.
The rate of Class 2 National Insurance, paid by the (non-company) self-employed, will increase from £3.15 pw to £3.45 pw, and Class 3 National Insurance from £15.85 pw to £17.45 pw.
Company profits up to £50,000 will continue to be taxed at 19%. From 1 April 2023, profits between £50,000 and £250, 000 will be taxed at 26.5%. As already confirmed in October 2022, from April 2023, the main rate of Corporation Tax, on profits over £250,000 will increase to 25%.
The dividend allowance will be cut from £2,000 to £1,000 from April 2023. People who run their business through a limited company, and wish to extract profits from the company, will generally pay themselves through dividends. A basic rate taxpayer, paying 8.75% tax on their dividends, 7.5% up to 5 April 2022, will pay an extra £87.50 from April 2023. From 6 April 2024 the tax-free dividend allowance falls to £500. These measures are expected to raise more than £1.2bn a year from April 2025.
The VAT registration threshold will stay the same, at £85,000, and the VAT deregistration threshold at £83,000, until March 2026. It was last increased on 1 April 2017. The UK VAT threshold is already more than twice as high as the EU average.
Capital gains tax
The capital gains annual tax exemption will half, from its current £12,300 tax-free allowance each year, to £6,000. From 6 April 2024, the exemption falls further to just £3,000. The rates of capital gains tax remain at 10% and 20% for most assets, but 18% and 28% for residential properties.
With respect to reporting of capital gains, there has been a slight change in the criteria. Individuals are not required to report gains on their Tax Returns where any of the following apply:
the capital gains in a tax year do not exceed the annual exemption
the aggregate proceeds for all capital disposals in a tax year does not exceed four times the annual exemption, and the aggregate gains are less than the annual exemption,
the gain relates to a sale of a private residence which is wholly covered by the principal private residence relief.
From 2023-24 and subsequent tax years, the condition of 'four times the annual exemption' is instead replaced with an amount of £50,000.
The Inheritance Tax nil rate band stays at £325,000, and the additional residence nil-rate band at £175,000 (for homes), for a further 2 years, until 2027-28. The two bands together allow a parent, or grandparent for example, to leave their assets and home to a child or grandchild and avoid Inheritance Tax on the first £500,000 of their estate. The Inheritance Tax nil rate band was last increased to £325,000 on 6 April 2009. The residence nil-rate band, was introduced in 2017/18 at £100,000, but gradually increased to the current £175,000. The latter can only be claimed where the deceased’s main home is left to a direct descendant, step-child or adopted child
Research & Development
Reforms for Research & Development tax reliefs will be cut for expenditure incurred on or after 1 April 2023. Currently, the Small and Medium Enterprise scheme allows businesses to claim an additional tax deduction of 130% of their R&D expenditure. The uplift will decrease from 130% to 86%. In addition, the SME credit rate, where a business surrenders their tax losses for a tax credit, will decrease from 14.5% to 10%.
The recent Stamp Duty Land Tax threshold increases will remain only until March 2025. The £125,000 threshold increased to £250,000 and the minimum threshold for first-time buyers was increased from £300,000 to £450,000.
National Minimum and Living Wage
The National Living Wage, or over-23s, will increase from £9.50 per hour to £10.42 from 1 April 2023. The other National Minimum Wage rates that will apply from April 2023, will be as follows:
21-22 year olds - £10.18 an hour
18-20 year olds - £7.49 an hour
16-17 year olds - £5.28 an hour
apprentices - £5.28 an hour
The State pension and means-tested disability benefits will increase by 10.1%, in line with inflation, thereby honouring the ‘triple lock’ i.e. the greater of:
annual UK earning increase, or
cost of living consumer price index (CPI), or
The full basic state pension will increase from £141.85 pw to £156.20 pw (£8,122 pa). The new state pension will increase from £185.15 pm to £203.85 pw (£10,600 pa).
Local councils in England will be able to increase Council Tax by up to 5% pa without a local vote, rather than 3% now.
The government confirmed that High Speed 2 (HS2) to Manchester will continue.