‘Steadying the Ship’
New Chancellor Jeremy Hunt has outlined his plans to rebuild our economy and tackle the cost-of-living crisis. This was always going to be a less radical affair than the ill-fated mini budget from prior Chancellor Kwasi Kwarteng; the negative reaction to which, led to his dismissal and was one of the catalysts for Liz Truss’ resignation. Mr Hunt’s goal is to bring stability and restore international confidence in the UK economy, and early signs indicate that he is heading in the right direction.
We have analysed the announcements and have highlighted below what we believe to be the most key and relevant points for our clients.
Personal Taxes
- There were no increases in income tax rates, which will remain at 20% for lower rate, 40% for higher rate, and 45% for the additional rate. The threshold for the additional rate of 45% has been reduced from £150,000 to £125,140 from April 2023.
- Personal tax thresholds – including the new lower threshold for additional rate – will now be frozen until April 2028. This includes the personal allowance (the amount of income a person earns before paying tax) which will remain at £12,570.
- National insurance rates have also been frozen, the decision to remove the 1.25% increase being upheld.
- The nil-rate thresholds for Inheritance Tax will also be frozen until April 2028.
- Pre-planned rises in the tax rates on dividend income will go ahead, with the rates increasing
- from 7.5% to 8.75% for lower rate, 32.5% to 33.75% for higher rate, and 38.1% to 39.35% for additional rate.
- The dividend allowance (the amount of dividends a person can earn before paying tax) will be reduced from £2,000 to £1,000 from April 2023, with a further reduction to £500 from April 2024.
- The annual exemption for Capital Gains Tax will be reduced from £12,300 to £6,000 from April 2023, with a further reduction to £3,000 from April 2024.
Corporation Tax
- The planned rises in Corporation Tax will go ahead, from April 2023.
- Those with profits under £50,000 will continue to pay the current rate of 19%.
- Those with profits above £250,000 will pay their corporation tax at a rate of 25%.
- Those with profits between £50,000 and £250,000 will pay at a ‘marginal rate’ between 19 and 25%. This is an area we will be monitoring closely with our affected clients.
- The Annual Investment Allowance (AIA) for capital allowances will be set at £1m permanently. This was previously set to return to £200k in March 2023.
- From April 2023, Research and Development tax relief (deductions and credits) for SME’s will decrease significantly, whilst credits to the ‘main scheme’ are set to rise. Those qualifying for both schemes will need to assess whether they are still using the most relevant scheme.
National Living Wage
To help tackle the cost-of-living crisis, Mr Hunt has increased the national living wage (NLW) by 9.7% to £10.42 an hour from April 2023, for those aged 23 and over.
Energy Bills
The Energy Price Guarantee will continue to cap energy prices beyond the original end date of 31st March 2023. Typical households will receive annual bills of around £3,000 from 1st April 2023, up from the current £2,500 cap. Estimated costs without the cap are at £3,740, so this is still welcome news.
Business Rates
The Chancellor confirmed the business rates multiplier will be frozen in 2023/24, while relief for 230,000
businesses in retail, hospitality and leisure sectors will be increased from 50% to 75% next year.
Electric Vehicles
Electric vehicles will no longer be exempt from ‘Vehicle Excise Duty’ (currently £165) from April 2025. This is on the assumption that 50% of all new vehicles will be electric by 2025. Company car tax rates for electric vehicles will continue to be kept lower than petrol or diesel fuelled vehicles going forward.
Director comment
When reading the news at the moment, it’s easy to think everything is doom and gloom. We should remember that headlines of ‘cost of living crisis’, ‘uncontrollable inflation’ and ‘hell budget’ are just as much about selling papers, as they are about depicting the situation.
Jeremy Hunt’s budget is a return to conventional methods: increase taxes and cut spending, to start tackling the financial issues we face.
The latest iteration of the budget has been made to feel more extreme due to the contrast with Kwasi Kwarteng’s mini budget of only eight weeks ago. Hunt’s decision to lower the rate at which people begin paying 45% income tax (from £150k to £125k), for example, seems far more aggressive when we bear in mind that Kwarteng scrapped the 45% rate altogether in late September.
No further rises to income tax, national insurance and corporation tax (from the last ‘reversal’); as well as no changes to the main ‘reliefs’ (business asset relief in particular), show us that the chancellor has not been as aggressive as the headlines may have you think. R&D changes will be significant. The much spoken about ‘stealth taxes’ (the government increasing tax by not increasing tax free allowances) seem a fair contribution for us all to make; given the support provided to so many over the last couple of years.
We do fear the administrative burden of slashing the tax free dividend allowance and halving the capital gains tax annual exemption, will outweigh the benefit of the tax collected. Although the amount of tax revenue this generates remains to be seen.
No chancellor will ever please everyone, especially at the moment. Kwarteng’s previous ‘tax cutter’ mini budget clearly did not inspire confidence, whilst there are now many calling Hunt’s approach overzealous. We feel that Hunt has done a decent job of finding the balance between increasing taxes to plug the holes, without being too extreme – and therefore settling the financial markets. We must remember, after all, funding the last couple of years has to come from somewhere.
Please reach out to one of the team to discuss how the budget will affect you and your business
specifically.
Billy Kent FCCA
Billykent@baverstocks.com
01376 519 044
