No one will dispute that we are in the midst of a significant economic challenge for the UK and global economy. Putin’s illegal war in Ukraine has contributed to a surge in global energy prices, which despite the UK’s very low reliance on Russian energy, has nonetheless driven high inflation across the world. The Bank of England is raising interest rates to attempt to get inflation under control, which has pushed up the cost of borrowing for families, businesses and also the government. Globally, economic growth is slowing and the International Monetary Fund (IMF) expects a third of the global economy to fall into recession this year or next.
The Chancellor of the Exchequer presented his much anticipated Autumn Statement to Parliament on Thursday 17 November 2022. And you could say that for the new Chancellor, Jeremy Hunt, the stakes for the Autumn Statement were pretty high.
To achieve their stated aim of stability, growth and public services, the government has reversed pretty much all of the measures in the Growth Plan 2022, to the immediate relief of the financial markets.
You may recall that the Growth Plan 2022 was the disastrous statement announced by then Chancellor Kwasi Kwatang, supported by the former PM Liz Truss, which caused the financial markets to spit the dummy and wiped out tens of billions of GDP from the UK economy in a matter of days. It was so calamitous that even heads of blue chip corporations were calling for the PM to pull the handbrake to stop the economy hemorrhaging cash. She stood firm, later apologized and well… the rest is a rather embarrassing, if not short, chapter in history.
This Autumn Statement then, had quite a lot of heavy lifting to do in order to repair the fiscal damage that had been inflicted by the last one. Whilst the markets are now more stable, whether the long term impact of this statement will overall benefit the wealth of the nation remains to be seen.
We’ve taken some time to read through the Autumn Statement and pulled out five key points that we feel are important to small business owners, like our clients, and clarified what the effect is going to be.
Income tax bands, NI and inheritance thresholds frozen until April 2028
What does this mean?
This means that the amount that you can earn tax free (your personal allowance) will stay the same and the thresholds for tax rates will also stay the same.
How does this affect me?
As your income increases you will be more likely to fall into a higher tax bracket and so pay a higher rate of tax.
Top rate of tax threshold reduced from £150k to £125k
What does this mean?
Earnings over £125k will be taxed at 45p
How does this affect me?
If you earn more than £125k you will start paying 45p tax
National living wage increased to £10.42ph for over 23’s from April 2023
What does this mean?
Employees over the age of 23 must be paid a minimum of £10.42 per hour
How does this affect me?
If you are an employer, you will have to review the hourly rates you pay your employees
Pension & benefits will rise in line with inflation
What does this mean?
The full state pension will rise to £10,600 from April 2023.
How does this affect me?
This will be paid to you automatically. Remember if you receive other taxable income this may push your total income into a higher tax bracket.
Capital gains tax tax exempt amount reducing
What does this mean?
The threshold you will have to pay capital gains tax will reduce from £12,300 to £6,000 in April 2024 and to £3,000 in April 2024.
How does this affect me?
If you make a capital gain eg, from a sale of assets such as a rental property, you will pay capital gains tax on a greater proportion of the profit you make from the sale.
Dividends allowance to be reduced
What does this mean?
You can currently receive £2k dividends tax free. From April 2023 this will be cut to £1k and from April 2024 it will be reduced again to £500.
How does this affect me?
You will pay dividend tax on more of your dividends at rates 8.75% basic and 33.75% higher rates
Corporation Tax main rate increasing to 25%
What does this mean?
From April 2023 main rate Corporation tax will increase from 19% to 25% for companies with profits over £250,000.
How does this affect me?
If your company profit is £50,000 or less you will continue to pay Small Profit Rate 19% Corporation Tax.
If your company profit is more than £250,000 will pay main rate 25% Corporation Tax.
If you company profit is somewhere between £50,000 and £250,000 you will pay the main rate of 25% reduced by a marginal relief providing a sliding scale of Corporation Tax as your profit increases.
A couple of illustrations
A company with profits of £60,000 should expect to pay an additional £750 from April 2023.
A company with profits of £100,000 should expect to pay an additional £3,750 from April 2023.
Is it still worth being a Limited Company?
For most people being a limited company will continue to be tax advantageous compared to a sole trader. However, those benefits are being eroded with the increases in both Corporation Tax and Dividend tax that you will have to pay. There is a lot to consider when deciding on your company structure, tax being just one of those factors and it is best to seek professional advice taking into account your personal circumstances when deciding this
We’ve written a pretty comprehensive blog on the question of whether becoming a limited company is right for you, which we think you will find helpful.
You can visit the government website to read the chancellor's Autumn Statement in full.
Need some help to understand how this affects your business? Give us a call.
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