Last week the Chancellor, Jeremy Hunt delivered his Autumn Statement in a landscape where current debt interest spending is expected to hit a record £120.4 billion this year. Mr. Hunt outlined a reasonably grim assessment of the country’s finances, echoing the independent Office for Budget Responsibility (OBR) calls that the country is in a recession, one that is expected to last for more than a year. Here we look at the impact of some of the changes for individuals and business.
For Individuals
The Chancellor’s first major statement was to essentially do the opposite of his predecessor Mr. Kwarteng and lower the rate at which individuals pay 45p in the pound on their income tax, from £150,000 to £125,140 - it is estimated that this will bring a further 250,000 people into the bracket. Remember that these income tax rates do not apply in Scotland as this is set by the Scottish Parliament, their budget is due on 15 December 2022.
From 6 April 2023, the tax-free allowance for dividend income will be halved from £2,000 to £1,000, it will then be halved once more from 6 April 2024 to £500 – the tax rate percentages applied to these dividends will freeze however.
Mr. Hunt also announced that he will half the Capital Gains Tax threshold from £12,300 to £6,000, it will then further be cut to £3,000 from April 2024.
How will this affect investors?
The Government will look to tax investors earlier for their dividends and capital gains, this means reinvestment may be more desirable or use of other investment tools such as ISA’s will become more essential as any dividends and gains on ISA investments are tax free. Smaller business owners who pay themselves through dividends in their company will clearly be affected by this change. The capital gains deduction will mean that they will need to focus on their exemptions each year or use losses to reduce a gain.
Regarding the income tax change, investors may try to reduce their tax liability by contributing more to their pensions as there was no change to the pension tax relief.
What about my energy bills?
Mr. Hunt although sympathetic to the public on energy prices, states that overall bills would likely increase by £900 next year. It is welcome news that the Government Energy Price Guarantee (EPG) has been extended by a year to April 2024, meaning the government will continue to help with energy bills but the cap of £2,500 for a typical household will not remain after April next year. This means by May 2024, your bills will begin to increase once more and the Chancellor did not mention any form of rebate to help with this, as has been provided this winter.
Business
As expected, energy companies are subject to a further increase in the Energy Profit Levy from 25% to 35% from January 2023 and older renewables shall also pay 40% tax on profits. Together these measures are expected to raise £14bn next year. The Government also announced an extension to the measures meaning the levy will remain in place till March 2028.
The government has announced £13.6bn of tax cuts on Business Rates to help combat the impending downfall in consumer spending. Business Rates are a tax to non-domestic properties and so impact almost all businesses. The Government stepping in to revalue Business Rates is expected to increase bills by less than 1%, compared with 20% were nothing to be done.
The Bank Corporation Tax increase is set to remain, this will see banks charged an additional 3% rate of their profits above £100 million. Furthermore, large multinational enterprises will likely be struck as well by an increase in the Diverted Profits Tax which is set to increase from 25% to 31% from April 2023. The increase of Corporation tax to 25% will also remain and will be effective from 1 April 2023 on profits above £250,000.
Additionally, for expenditure on or after 1 April 2023, Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, Small and Medium-sized Enterprises (SME) additional deduction will decrease from 130% to 86% and SME credit rate will decrease from 14.5% to 10%. The Chancellor stated these changes will increase competition as it levels the playing field between the two tax systems. There has been some criticism stating this effects early start ups, however it was reported by HMRC that much fraudulent funding occurred through the old tax scheme.
Funding for Scotland
Mr. Hunt also promised an extra £1.5bn for the Scottish Government, however Scotland’s first minister Nicola Sturgeon has already critiqued the Budget stating that it is "reintroducing austerity". We look forward to seeing what further measures Scotland will introduce on 15 December and will keep you updated.
How can we help?
Regardless of future spending cuts and these tax increases, the country is still likely heading into economic turmoil. In fact, the OBR forecasts that the average household disposal income will fall by 7% in real terms. The annual inflation rate in the UK jumped to 11.1% in October of 2022 and, whilst the standard of living is still increasing, unemployment is set to rise to 4.9% by 2024, consumer spending is likely to fall, energy prices remain unsettled and wage increases are being demanded, it is not surprising that individuals and businesses are bracing themselves for the months ahead.
It’s important to remain active and aware of options available to you or your business, and this is something Thorntons can assist with. Whether you are looking at buying or selling your business, advice on restructuring or options surrounding insolvency, Thorntons are on hand to assist with whatever needs you may have.
For more information contact a member of Thorntons Restructuring and Insolvency team on 03330 430350.
