2022 Budget – Tax rates set in the Autumn Statement

The 2022 Autumn Statement is one where a lot of our tax rates have remained unchanged, and yet we will likely end up paying more tax.

It is not only Income Tax where the rate has remained the same. We have not seen any changes to the rates of National Insurance, VAT or Corporation Tax either.

So, how will we end up paying more tax? This will happen because some of the key tax thresholds have not changed and yet due to inflation and increases to National Minimum Wage, our income is expected to increase. The result of this is that more of our income will be taxed than it was before.

One of the main headlines from this budget was that the rate threshold where people start paying Additional Rate tax on their personal income is reducing, to £125,140. Anyone earning over this threshold will start paying tax at 45% on their income.

Reductions to other thresholds have been announced too. From April 2023, any capital gains over £6,000 will be subject to capital gains tax. At the moment, the tax-free threshold is £12,300. For shareholders, the tax free dividend allowance is set to reduce from £2,000 to £1,000. With both, further reductions are expected in the following year as well.

I have mentioned the increase to National Minimum Wages. The government has also accepted the Low Pay Commission’s recommendations for the other national minimum rates to apply from the first pay period starting on or after 1 April 2023, as follows:

  • increasing the rate for 21-22 year olds to £10.18 an hour (10.9%);
  • increasing the rate for 18-20 year olds to £7.49 an hour (9.7%)
  • increasing the rate for 16-17 year olds to £5.28 an hour (9.7%);
  • increasing the apprentice rate to £5.28 an hour (9.7%); and
  • increasing the accommodation offset rate to £9.10 an hour (4.6%).

Planning Ahead
Planning opportunities exist for individuals who are planning capital disposals in the near future, as well as for anyone earning more than £100k of personal income.

There is also a planning opportunity if your company is involved in research and development work. The current rate of tax credits for small businesses of 130% is set to be reduced to 85% from April 2023 and so there is something to be said for revisiting your budgeted expenditure for the coming years.


 Income Tax

The rates of income tax are remaining the same, which in England are 20%, 40% and 45%. National Insurance contributions will also remain the same.

The threshold where you start paying 20% tax and 40% tax are not changing, they are currently £12,570 and £37,700. The threshold at which you start paying 45% tax will reduce from £150,000 to £125,140.

National Living Wage
Separate to the budget, the National Living Wage is due to increase from £9.50 to £10.42 in April 2023.

Corporation Tax and VAT
No changes were announced to the rates of Corporation Tax or VAT. However, the rate of Corporation Tax was already due to increase to 25% from April 2023. This remains the case.

There is a reduced rate of 19% for businesses with profits under £50,000. Companies earning between £50,000 and £250,000 of profit will pay tax at a rate of between 19% and 25%, this will be calculated with reference to how much profit they have earned.

Business Rates Relief – Hospitality
Good news for businesses in retail, hospitality and leisure, that business rates relief is being increased from 50% to 75%, up to £110,000 per business.

Tax Free Dividends
The tax free dividend allowance will reduce from £2,000 to £1,000 from April 2023. This is set to reduce further in April 2024, to £500.

Tax Free Capital Gains
The tax free capital gains threshold is set to reduce from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.

Reduced Tax Credits
Research and Development tax credits for small businesses will also be reduced, from 130% to 86%. This change is expected from 1 April 2023.

Other changes
This article refers to the government’s Autumn Statement on 17 November 2022, which can be read in full on their website. This is not an exhaustive list, rather it highlights some of the key announcements that are likely to have a short-term impact on our businesses. 

Other Insights

VAT on hospitality and setting your prices

The reduced VAT rate of 5% for the hospitality industry is due to end on 30 September 2021. It’s time for businesses to consider how this will impact their trade.

To prepare, we recommend that our clients: review their prices; prepare till systems for the change; save for their VAT bill; constantly monitor their business’ performance.

Read More »

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