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Autumn Statement 2022 – 7 key points for busy practitioners

18 Nov 2022

1. Tax increases for those with the ‘broadest shoulders’

The Autumn Statement reduces the income tax additional rate threshold (ART) from £150,000 to £125,140 with effect from 6 April 2023, increasing taxes for those on high incomes.

The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The ART for savings and dividend income will apply UK-wide. The government will legislate in Autumn Finance Bill 2022.

It should be noted that the new £125,140 threshold aligns with the income level at which the £12,570 income tax personal allowance has been completely withdrawn.

2. The big freeze and stealth taxes

As pay and earnings start to increase to reflect rates of inflation, the thresholds that determine when individuals move into higher rates of income tax and NIC will not increase. A similar policy applies to inheritance tax and VAT.

As a summary:

Income tax – the £12,570 personal allowance and £50,270* higher rate threshold had been frozen until April 2026, but this will now continue until April 2028.

NICs – The following are also all frozen until April 2028:

Class I – Primary threshold £12,570, Upper Earnings Limit £50,270

Class I – Secondary threshold £9,100

Class II – Lower Profits threshold £12,570

Class IV – Lower Profits limit £12,570, Upper Profits limit £50,270

Inheritance tax – the £325,000 nil rate band and the £175,000 residence nil rate band (along with the £2m residence nil rate band taper) had been frozen until April 2026, but this will now continue until April 2028.

VAT – the £85,000 registration and deregistration thresholds will remain in place until April 2026.

Also confirmed during the Autumn Statement –

The government will fix the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) at 2022/23 levels in 2023/24. Namely. the LEL will remain at £6,396 per annum and the SPT will remain at £6,725 per annum.

The Upper Secondary Threshold, Apprentices Upper Secondary Threshold, and Veteran Upper Secondary Threshold will stay fixed at £50,270 per annum until April 2028, to remain aligned with the UEL and UPL.

The Freeport Upper Secondary Threshold will also be fixed at £25,000 per annum.

In terms of rates, the government will use the September consumer price index figure of 10.1% to uprate the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 and £17.45 per week respectively.

The government will legislate for the income and inheritance tax measures in Autumn Finance Bill 2022, and NICs changes in affirmative secondary legislation in early 2023.

3. Dividends will cost more

The government will reduce the Dividend Allowance, setting the amount of dividend income taxed at 0%, over the next two tax years as follows:

Current 2022/23 allowance£2,000

The government will legislate for this reduction in Autumn Finance Bill 2022.

Combined with the increases in corporation tax that we know are to come from 1 April 2023 for some companies, this may make incorporation less attractive for smaller businesses. Our Tax, Tips and Tools author is already re-working the ‘Should I incorporate 2023/24’ tool so watch this space!

Rates of income tax applied to dividends remain as previously specified:

Basic rate8.75%
Higher rate33.75%
Additional rate39.35%

4. A reduced Capital Gains Tax annual exemption

The Capital Gains Tax Annual Exempt Amount (AEA) will reduce as follows:

Current 2022/23 AEA£12,300

This will make planning around when capital gains are crystallised even more critical over the coming two years – it will be important to make use of these higher AEAs while we have them.

The government will legislate for this reduction in Autumn Finance Bill 2022.

5. Research and Development (R&D) Reliefs

As part of the ongoing review of the R&D reliefs, the government is reforming the reliefs to ensure taxpayers’ money is spent as effectively as possible by rebalancing rates. This is partly in response to significant error and fraud in the small and medium‑sized enterprises (SME) scheme, with the generosity of the relief making it a target for fraud.

As well as announcing plans to consult on a single scheme (merging the Research and Development Expenditure Credit (RDEC) scheme with the SME scheme), rate changes have been announced in anticipation of this. All will apply to expenditure incurred on or after 1 April 2023.

The RDEC rate will increase from 13% to 20%.

The SME additional deduction will decrease from 130% to 86%.

The SME credit rate for loss-making companies will decrease from 14.5% to 10%.

These rate changes will be legislated for in the Autumn Finance Bill 2022.

As previously announced at Autumn Budget 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, and targeting abuse and improving compliance. These changes will be legislated for in Spring Finance Bill 2023.

In other creative reliefs news, the government is seeking to build upon the success of the audio-visual subset of the creative industry tax reliefs, covering film, animation, high-end TV, children’s TV and video games. The government will consult on a series of proposals that will go further to incentivise the production of culturally British content and support the growth of the audio-visual sectors, ensuring these highly skilled industries continue to thrive in the UK.

6. Points to remember from earlier ‘fiscal events’

The AIA is fixed at £1m – To support businesses to invest and grow, the government is setting the Annual Investment Allowance (AIA) at its highest ever permanent level of £1 million from 1 April 2023. This amounts to full expensing for an estimated 99% of UK businesses, which means that those businesses can write off the cost of qualifying plant machinery investment in one go. A permanent increase provides businesses with stability and makes tax simpler for any business investing between £200,000 and £1 million.

Venture Capital Schemes – As previously announced, the government is increasing the generosity and availability of the Seed Enterprise Investment Scheme and Company Share Option Plan. The government remains supportive of the Enterprise Investment Scheme and Venture Capital Trusts and sees the value of extending them in the future. The government will also continue to champion institutional investment into innovation so that UK savers can benefit from the growth of high potential businesses.

7. Any more U turns? Of course…

SDLT – On 23 September 2022, the government increased the nil-rate threshold of Stamp Duty Land Tax (SDLT) from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. This will now be a temporary SDLT reduction but remain in place until 31 March 2025.

Investment Zones – The government will ‘refocus’ the Investment Zones programme. The government will use this programme to catalyse a limited number of the highest potential knowledge-intensive growth clusters, including through leveraging local research strengths. The Department for Levelling Up, Housing and Communities will work closely with mayors, devolved administrations, local authorities, businesses and other local partners to consider how best to identify and support these clusters, driving growth while maintaining high environmental standards, with the first clusters to be announced in the coming months. The existing expressions of interest will therefore not be taken forward. The government is grateful to local authorities for their work to develop proposals.

Rebecca Benneyworth will be explaining the above and more in her upcoming webinar ‘Autumn Statement & Fiscal Update’ on 21 November, with the recording available afterwards. For more information and to book, click here.