Jeremy Hunt’s long-awaited Autumn Statement, delayed from 31st October, looked to close a sizeable “black hole” in the country’s finances based around 3 priorities, stability, growth and public services. With lots of rumours circulating ahead of the budget, there were few surprises to come out of his recent announcement, however, we’ve pulled together the biggest statements along with commentary from our in-house expert.
As expected, the dividend tax free allowance threshold will be reduced from £2,000 to £1,000 from April 2023, however in a further step, this will be reduced further in 2024-25 to £500.
Also rumoured before the budget, the threshold for Capital Gains Tax will be reduced from £12,300 to £6,000 from April 2023. Similarly to the dividend allowance, a further reduction will be seen in 2024-25 to £3,000.
From April 2023, the threshold for the additional rate of income tax will be reduced from £150,000 to £125,140. Anyone earning above £125,140 will be taxed at the 45% from the next financial year.
No changes to the personal tax thresholds, which are to be maintained at the current level until April 2028. This also includes the National Insurance Contribution and inheritance tax thresholds.
Jeremy Hunt confirmed today that the Annual Investment Allowance will be permanently set at £1m to help promote growth.
Designed to help smaller companies with employment costs, today the Employment Allowance was confirmed to stay at £5,000 meaning that eligible employers can continue to benefit from a reduction in their Employer National Insurance bill.
As we already knew from Hunt back in October, Corporation Tax is due to increase to 25% in April 2023 if a company’s profits exceed £250,000. Companies whose profits are between £50,001 and £250,000 will be subject to a tapered relief. Companies whose profits fall below £50,000 will remain at 19%.
Following the latest budget, Joanne Thorne, Technical Compliance Manager at SJD, said: “Spending cuts and tax hikes are a simple way for the Chancellor to start to plug the gap in the UK’s finances, but it will be the self-employed who feel the pinch of these most acutely.
“The cutting of the Capital Gains Tax threshold, which is the tax paid on any profit gained when selling an investment asset, such as a property or shares, offers a quick fix to raise money for government coffers.
“Halving the tax-free allowance from £12,300 to around £6,000 in 2023 and to £3,000 by 2024 could impact individuals across the board. However, this move is another blow to Limited Company Directors who may have built this tax efficiency into their company exit strategies. Many may now be forced to reconsider any exit strategy they had previously put in place.
“With confirmation that the Chancellor is also cutting the £2,000 tax-free dividend allowance to £1,000 by next year and halving it again to £500 by April 2024, alongside existing increases to both the dividend tax rates (by 1.25 per cent), and Corporation Tax from next year make today’s statement a triple whammy for Limited Company contractors.
“It’s disappointing that the contracting community continues to battle for financial security after a difficult few years, and government policies seem to overlook the valuable role they play in the UK economy.
“The Chancellor described this as a 'balanced plan for stability' but what we have seen today with these policy changes is a combination of squeezing and freezing. There is no doubt that tax planning in the years ahead for every self-employed individual will be absolutely essential.”
Are you confused by the budget? Speak to one of our accountants to understand how these updates could affect you.
Update - 17th October 2022
After the turmoil in the market, the chancellor - Jeremy Hunt - has ripped up most of Liz Truss and Kwasi Kwarteng’s ‘mini-budget’, abandoning nearly all tax cuts and making a significant change to the Government’s ‘energy cap guarantee’.
Ahead of the official budget on 31st October, we quickly run through what you need to know about the chancellor's statement.
The previous Conservative chancellor, Kwasi Kwarteng, announced that IR35 reforms for the public and private sectors in 2017 and 2021 (respectively), would be repealed in April 2023. However, the new chancellor, Jeremy Hunt, has announced this repeal will not go ahead. Meaning that the reforms to IR35 made in 2017 and 2021, will remain in place
Still confused? In a nutshell, there are no further changes to IR35 on top of the 2017 and 2021 reforms. If you need any more information, please see our guide to IR35.
Kwarteng announced in his mini-budget that corporation tax was due to remain at the current rate of 19%, rather than increase to 25% in April 2023. However, the new chancellor confirmed this morning that this increase will go ahead in April 2023.
It was announced in the ‘mini-budget’ that the basic rate of Income Tax would reduce to 19% from 20%, a year earlier than expected. However, it will remain at 20% indefinitely, with no expected reduction for the foreseeable future.
The additional 45% rate of income tax will also remain in place; a U-turn that was announced by the Government last week.
The dividend tax cut has also been reversed. For basic, higher, and additional rate taxpayers, dividend tax will remain at 8.75%, 33.75%, and 39.35%, respectively.
One of the only policies to survive the mini-budget was the reverse of the 1.25% National Insurance increase introduced in April this year. This reverse will be effective from 6th November 2022. This also means that the Health and Social Care Levy, due to be introduced in April 2023, has also been scrapped.
Joanne Thorne, Technical Compliance Manager at SJD, said: “The new Chancellor no doubt believes that today’s announcement will draw a line under the uncertainty of the past few weeks. The Government U-turn on corporation tax was the tip of the iceberg, with Jeremy Hunt going on to reverse nearly all pledges laid out in Kwasi Kwarteng’s Mini Budget.
“Despite the welcome news that the energy price cap guarantee will not be scrapped entirely, contractors are, again, being left out in the cold, with a further period of economic certainty awaiting them. Limited company contractors will be hit hardest, with a triple whammy from higher dividend rates, the IR35 reform staying in place and the U-turn on Corporation Tax. All of this is set to make financial planning for the self-employed challenging in the coming weeks and months.
“It’s disappointing to see another Chancellor failing to acknowledge the important role of the self-employed within our economy. Time and time again, the self-employed are being asked to shoulder the economic burden, and it seems highly unlikely the new Chancellor will do anything to make this job easier.”
Update - 14th October 2022
Following the unexpected sacking of Kwasi Kwarteng, the Prime Minister went back on one of the mini-budget announcements, and one of her leadership campaign promises, to keep Corporation Tax at 19%. As outlined by the previous government, from April 2023, this will now be increased to 25% for businesses with profits of more than £250,000. Businesses with profits of £50,000 or less, will continue to be taxed at 19% and a tapered rate will also be introduced for profits between £50,000 and £250,000.
This U-turn follows an earlier repeal on the removal of the additional rate of income tax. This is now set to remain at 45%.
23rd September 2022
In this new Conservative government’s inaugural budget, dubbed the “mini-budget”, was Kwasi Kwarteng and Prime Minister Liz Truss’ statement into where this new government’s focus will be. Although referred to as a mini-budget, there was certainly nothing “mini” about it, with major announcements regarding taxation, business support and unexpectedly, IR35.
Kwarteng stated that in practice, reforms to off-payroll working had added unnecessary complexity and cost for many businesses and that the rules needed simplifying. In an unexpected announcement, and one that will be welcomed by many self-employed individuals, the chancellor announced that the IR35 reforms introduced in the public and private sectors in 2017 and 2021 respectively, would be repealed in April 2023.
This will mean that in April 2023, the determination of IR35 status and responsibility for paying the correct amount of tax and National Insurance contributions will revert back to the contractor as was originally the case pre-April 2017. Find out more about what this means for you here.
Corporation Tax was due to rise to 25% in April 2023 under the previous chancellor however, this has been scrapped meaning Corporation Tax will remain at 19%. To further support UK businesses to invest and grow, the Annual Investment Allowance (AIA) will remain at £1 million permanently.
Already announced a day earlier, but confirmed in the budget, there will be a reverse on the 1.25% National Insurance increase introduced in April earlier this year. This will be effective from 6th November. This also means that the Health and Social Care Levy, due to be introduced in April 2023, has also been scrapped.
One of the considerable announcements in this mini-budget was around changes to Income Tax which will take effect from April 2023. Firstly, the basic rate of income tax will reduce to 19%, a whole year earlier than proposed by Kwarteng’s predecessor as well as the additional rate of income tax will be abolished and instead, a single higher rate of income tax at 40% will be introduced.
As well as the National Insurance reversal, the dividend tax increase has also been reversed however, this will only become effective in April 2023. This is also when the additional rate of dividend tax will be abolished (in line with the additional rate of income tax).
Tax band * | Current Rates for 2022-23 | 2023-24 rates |
Basic rate | 8.75% | 7.5% |
Higher rate | 33.75% | 32.5% |
The Energy Bill Relief Scheme (EBRS) has been introduced following the announcement by the Prime Minister providing a discount on wholesale energy prices for businesses for 6 months from 1st October 2022. A cap of £211 will be applied to electricity prices, and a cap of £75 will be applied to gas prices. According to Department for Business, Energy & Industrial Strategy (BEIS), suppliers must automatically apply the reduction to all eligible non-domestic customers, with the government compensating them.
The majority of the announcements from this budget will mean more money back into the pockets of contractors. Reductions in personal and company tax, including dividend tax, plus the corporation tax rate freeze will likely increase earnings potential for all contractors; especially with the repeal of the IR35 reforms meaning that contractors will regain more control and flexibility on how they work.
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