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The Autumn Budget Review

Following the recent budget, we have reviewed the main points and we’ve provided some thoughts what these changes may mean.

Personal Taxes
The personal tax allowance will be frozen at £12,570 for three years. This is unusual as personal allowances have usually been increased year on year. However, with expected wage rises, this means that individuals will see an increase in their personal taxes.

There will be no change to the tax band thresholds. Again, historically these thresholds have increased over time, but they will be frozen until 2025/26. This means those receiving even modest wage increases will pay more tax. There has been no move on the actual tax rates however, being left at 20, 40 and 45% (note – different rules apply to Welsh and Scottish taxpayers).

Dividend Tax
Although this is not strictly part of the budget as it had already been announced, new rates for tax on dividends from April 2022 are as follows:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate tax payers
  • 38.1% for additional rate taxpayers

This tax has been increased to fund the planned investment into health and social care, and should be ring fenced for that purpose. It should be noted that if you hold shares in an ISA or pension, these dividends are not subject to dividend tax, making both forms of investment even more attractive.

Green Savings
The government had already announced that they would be launching a “green” savings bond. These bonds have now been launched offering a 0.65% fixed three year rate on monies invested in green projects. These bonds don’t look particularly attractive as there are other products on the market with green credentials but offering higher rates of interest. It will be interesting to see what the take up of these bonds is.

Universal Credit Taper Tate
As the additional payments to those on Universal Credit have been removed, the quid pro quo has been that the government has reduced the taper relief so that those claiming can earn an extra 8p per £1 of net income (down from 63% to 55%). This obviously benefits only those in work.

The access to pensions has taken a hit. The age when those with private pensions could have access to their pensions (and of course to the 25% tax free amount) will go up from 55 to 57 from April 2028. The 48 year olds who where planning perhaps to pay off a mortgage or buy themselves a classic car need to take note here.

The Big One
As with dividend tax, a rise of 1.5% on NIC was announced in September 2021, again to fund health and social care – it’s called the Health and Social Care Levy. Technically, it’s part of NIC until April 2023, when it becomes a tax in its own right. This Levy (from April 2023) will also apply to those in work who are above the State Pension age. Employers will also have to pay. This is therefore one of the biggest increases in taxation across the board.

Some good news for employees: For those over 23, the National Living Wage will increase to £9.50. There are also similar rates of increase for those on the National Minimum wage, although apprentices benefit the most.

Tax on Businesses
This is all about aligning taxable earnings. From April 2024, earnings by sole traders or partnerships will have to align with the tax year to which they relate. This means that if a business has a different year end to the tax year it will need to apportion the profit accordingly. It might be worth changing your year end to align with the tax year to avoid complications further down the line. HMRC is currently thinking about whether it should change the tax year to 31st December or 31st March, rather than the rather arcane 5th April. Watch this space for a report on their deliberations.

Anyone already reporting their accounts digitally will be well on the way to embracing this new regime – although the government has extended the deadline when this will be mandatory to 6th April 2024 for sole trader businesses and 6 April 2025 for LLPs and other types of partnership.

Corporation Tax Rates
The future rise in CT rates was actually announced in the Spring 2021 budget, so it shouldn’t be a shock to most readers, but it’s worth reiterating the proposed new rates.

CT will rise from 19% to 25% in April 2023 for companies with profits exceeding £250,000. The 19% will remain for those showing profits of less than £50,000. Those companies that fall between the two will pay the higher rate reduced by a marginal relief.

Investment in Capital Expenditure
As many pundits had predicted, the 100% tax relief on qualifying capital expenditure has effectively been rolled over until the end of March 2023. In certain cases (up to March 2023) this relief could be as much as 130% and so companies (it only applies to incorporated businesses) looking to invest in plant and machinery need to carefully consider when to purchase it to qualify for the “super deductions” available.

Some Social Changes
Theatres and galleries will benefit from a cultural tax relief on new exhibitions and productions until March 2024. There will also be a business rates relief for qualifying businesses in the leisure, hospitality and retail sectors, which is estimated to mean 50% off the rates bill for over 90% of those businesses.

And finally a small glass of something….
Rishi Sunak has promised an overhaul of the current alcohol system to one based on the alcohol content of each drink. Many distillers have complained that this system would punish the artisan producers of spirits as their gins and vodkas are typically stronger than supermarket offerings. They point out that most alcoholics don’t buy the more expensive brands.

There will be relief on beer in kegs of over 40 litres too – but again Sunak has been met with anger by the craft beer producers who point out that the majority of them produce kegs of no more than 20 litres.

As with every budget, there is good news and bad news, and how this will work in real terms is still yet to be seen. But at BLB Advisory we will always endeavour to keep you updated with the latest developments as we find them.