Today, the latest chancellor, Jeremy Hunt, announced his financial plans for the country in an Autumn Statement. Just eight weeks on from the ill-fated ‘mini-budget’ where we were promised tax cuts, today’s plan is for tax increases.
The context of today’s announcements is that both the Bank of England and the Office for Budgetary Responsibility (OBR) are forecasting that the UK will be in recession for the next couple of years. The OBR is forecasting that living standards will have the largest ever fall next year, and will fall again the following year - the worst two years for household income since records began in 1956. In spite of global factors, UK growth is worse than that of any of the G7 group of nations. Inflation is at 11.1%, the highest level since 1981 and after today’s announcements the UK will have the highest tax burden in 70 years.
So where’s the good news?! For businesses and business owners, the good news is that many commentators were predicting that today’s announcements would be much worse than they actually were.
Let’s look at the main announcements affecting businesses and business owners.
For businesses, the biggest tax rise is the increase in Corporation Tax from April 2023, already announced. Corporation Tax will rise from 19% to 25%. Generally, where possible it is more tax efficient for a business to recognise profits before April 2023 than after.
Additionally, National Insurance Contribution thresholds will not rise with inflation and have been frozen until April 2028 - this is effectively a quite significant tax increase.
The big hit on businesses announced today was for those businesses who claim R&D tax credits. Basically, from April 2023, the R&D tax credit scheme will be much less generous, for example:
For profit-making businesses: for every £100 spent on R&D, you will receive between £16.34 and £21.50 in additional relief (currently: £24.70)
For loss-making businesses: for every £100 spent on R&D, the maximum tax credit will be £18.60 (currently: £33.35)
We’ve written up further guidance (in more detail) on what’s happening with R&D tax credits and what you can do here.
If your business currently makes R&D claims, there are a few things you can do proactively. Firstly, make any relevant expenditure you can before 1st April 2023, such as bonuses, employer pension contributions and payrises for those R&D staff members; and secondly, look to pay your R&D subcontractors before that date as R&D tax credits are calculated on a cash basis.
For individuals, especially business owners, the main announcements are on tax thresholds:
The threshold for the highest rate of tax is reduced from £150,000 to £125,140
The 0% dividend allowance will decrease from £2,000 to £1,000 next year and down to £500 the year after
The annual exempt allowance for Capital Gains Tax (CGT) is being reduced from £12,300 to £6,000 next year and £3,000 the year after - but importantly the actual rate of CGT doesn’t change
All other personal tax thresholds will not rise with inflation and will be frozen until April 2028, again acting as a real terms tax increase (due to the increase in cost of living), affecting most taxpayers
For many individuals, especially business owners who receive income via dividends, you’ll be paying more tax from April 2023. Whilst this comes at a time when the price of everything is going up, for those individuals now paying the highest rate of tax, the increase isn’t huge.
Coupled with the increase in CGT, moving investments into pensions and ISAs, and/or swapping income for pension contributions will become more attractive after April 2023.
From April 2025, owners of Electric vehicles will have to pay Road Tax.
The National Living Wage will be increased from £9.50 an hour for over-23s to £10.42 from April next year.
Stamp Duty cuts announced in the ‘mini-budget’ will now be time-limited, ending on 31 March 2025
Help for energy bills will be extended, but it will be less generous.
For the complete statement, here is a link to the Treasury’s document and here is the BBC News summary of all announcements.
The Wow View We’re in the midst of a cost of living crisis and facing an impending recession. The chancellor talked about the UK becoming the next Silicon Valley, but having scoured the statement and supporting documentation, we can find little substance to back this up.
As business owners, we’ve developed a certain level of resilience over the past few years and we’ll deal with what’s thrown at us to make the best of the situation we’re in. Focussing on the controllables, looking after our teams and our clients/customers is what we should all be doing.
How Wow can help If you have any questions on how today’s announcements are going to affect you and your business, please do get in touch. We’re here for you.
Over the coming weeks and months we’ll be sharing more advice, guidance and resources to help you navigate these bumpy times and find the opportunities that may be there.
If there’s anything specific you’d like to see from us, please let us know.