Today (Thursday 17 November 2022), Jeremy Hunt took to the floor in the House of Commons to deliver the Government's Budget. This was the fourth budgetary statement of 2022, in an unprecedented year where we have seen three Prime Ministers and four Chancellors of the Exchequer.
The Chancellor faces huge challenges from outside influences and the legacy of the recent mini-Budget delivered by his own predecessor, Kwasi Kwartang. The promise of tax cuts made in September 2022 was short lived as the UK continues to struggle to recover from the cost and impact of the Covid -19 pandemic, Brexit, and the effect on our economy of the war in Ukraine. The direct result is a continuing cost of living crises and high inflation.
With three main objectives in mind, “stability, growth and protecting Public Services” the Chancellor announced some changes to taxation and confirmed other previous announcements.
How does today’s the budget effect contractors and small businesses?
Those who earn more will be expected to pay more tax. The threshold at which the Additional Income Tax rate of 45% will apply is to be reduced from £150,000 to £125,140 per annum from April 2023.
All other personal tax and NI thresholds are being frozen until April 2028.
Up to £12,570
£12,571 to £50,270
£50,271 to £125,140
In July 2022, the threshold at which workers start paying National Insurance contributions (NICs) was raised from £9,880 to £12,570. The Lower Earnings Limit was set at £6,396 per annum (£123 per week. These measures are in place until April 2026.
The Health & Social Care Levy remains cancelled.
Currently the first £2,000 of dividend income in any tax year is tax free. This allowance is to be reduced to £1,000 from April 2023 and to £500 from April 2024,meanng more dividend income is taxable.
No further changes to the Corporation tax rates were announced. With effect from April 2023 the main rate of Corporation tax rises to 25% where profits are more than £250,000. The lower rate of 19% will continue to apply for any companies with profits under £50,000 and marginal rate relief is available for profits between the two thresholds.
Employers will start to pay Class 1 Secondary NICs for their employees (the Secondary Threshold) at £9,100 from April 2023 until April 2028. However, they will still have the advantage of the £5,000 Employers allowance.
For the self-employed Class 2 NI rates will be £3.45 and Class 4 will be payable at 9.73% on profits between £11,909 and £50,270. A rate of 2.73% applies to profits over £50,270.
The VAT registration threshold remains unchanged at £85,000 until March 2026. Deregistration limits also remain unchanged.
The Annual Investment Allowance limit for capital purchases remains at £1 million until April 2023.
For those businesses looking to make Research & Development claims, the rules are changing. For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, 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%.
The government is setting rates for Company Car Tax until April 2028. Rates will continue to incentivise the take up of electric vehicles:
appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point 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
rates for all other vehicles bands will be increased by 1 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28 5.36
From 6 April 2023, Car and Van Fuel Benefit Charges and van benefit charge will increase in line with the Consumer Price Index (CPI).
Capital Gains Tax
The annual tax-free allowance for Capital Gains tax us currently £12,300 but this is being reduced to £6,000 from April 2023 and to £3,000 from April 2024. This will have a direct impact on contractors and business owners looking to close their company in the coming months and they should seek advice from their accountant to ensure that tax efficiencies can be maximised.
To boost the housing market, the previously announced Stamp Duty changes are to stay in place until April 2025. The threshold above which Stamp Duty is paid is £250,000 and the rate at which first time buyers start to pay Stamp Duty has increased to £425,000. The maximum value of a property on which a first time-buyer can claim relief is now £625,000.
The nil rate band will remain at £325,000 and the residence nil rate and at £175,000 until April 2028.
All other Inheritance Tax allowances remain unchanged.
The published commentary on the Budget statement confirms that the IR35 reform as introduced in 2017 and 2021 remains. There is no reference to any further review of the rules.
The Government continues to be focused on ensuring the correct amount of taxes are paid and have announced a further investment of £79 million over the next 5 years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers.
The freezing of allowances, the reduction in thresholds and the increase in rates means that all business owners will face an increase in their personal and business tax liabilities. There will, however, always be strategies to be tax efficient and ways where the impact can be minimised. Here at Orange Genie the accountancy team will be looking at the measures in detail over the coming weeks to make sure you are ready for the new tax year.