Summary of the new changes :
The Chancellor has announced a number of steps to finance the support for energy costs and also to pay for the support already given for the COVID response, energy costs, the war in Ukraine and to cover the impact of the inflation rates on benefits, pensions and the cost of public services.
The rates of Income Tax, National Insurance and Value Added Tax have remained unchanged, however, the personal allowances and Income Tax bands have generally been frozen until 2028 and this means that as incomes increase millions more individuals will have to pay tax at higher rates. In addition, the point at which the Additional Rate of Tax applies has been reduced from £150,000 to £125,140 from 6 April 2023. This means that the marginal rates of income tax will be:
From To Marginal Tax Rate £- £12,570 0% £12,571 £50,270 20% £50,271 £100,000 40% £100,001 £125,140 60% £125,141 45%
An individual earning £150,000 will therefore see their annual tax bill increase by just over £1,243.
This reduction in the threshold for the Additional Rate Tax band arises in the same tax year that the transitional rules apply to sole traders and partnerships on changing the periods on which they are taxed. As a result many of these entrepreneurs will be paying tax on more than 12 months profit when the Additional Rate of Tax will be starting nearly £25,000 lower.
The dividend allowance, which currently allows for the first £2,000 of dividends to be tax free is to reduce to £1,000 from 6 April 2023 and £500 from 6 April 2024 increasing the tax burden on entrepreneurs and investors. A higher rate taxpayer will see their taxation costs on £2,000 of dividends increase by £337.50 from April 2023 and £506.25 from April 2024. A current higher rate taxpayer earning £140,000 will see the additional tax on £2,000 of dividends increase by £393.50 and £590.25 from April 2023 and 2024 respectively.
The reduction of the tax free allowance on dividends and the fact that the 1.25% increase in dividends was not reversed, unlike that on National Insurance Contributions, means that shareholders have been targeted by the Government.
Capital Gains Tax
The annual exemption for capital gains tax is to be reduced from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2023.
This means that many more disposals will be caught by Capital Gains Tax at 20% or 28% and will need to be reported to HMRC.
Stamp Duty Land Tax
The changes announced in September 2022 to increase the point at which SDLT is payable on residential property to £250,000 and the point at which first time buyers support increased from £300,000 to £425,000 has been made temporary and will only run until 31 March 2025.
The Chancellor has cited increased abusive and fraudulent R&D claims for SMEs and has announced that the deduction rate under the SME regime is to be reduced from 130% to 86% and the repayable tax credit has been reduced to 10%, which will impact many innovative SMEs that the Chancellor is keen to encourage. He has however increased the R&D Expenditure Credit for larger businesses from 13% to 20%, which will encourage larger businesses to continue undertaking R&D. These changes are to be effective from 1 April 2023.
The threshold for Employers National Insurance Contributions has been frozen which will increase the burden on employers, although the £5,000 Employment Allowance will continue to protect many smaller employers.
The National Minimum Wage is to be increased from £9.50 to £10.42 and will increase staff costs for employers.
The Annual Investment Allowance will be set at a permanent level of £1,000,000 from 1 April 2023 meaning that the majority of capital expenditure on plant and machinery can be fully relieved in the year of acquisition.
VAT registration threshold is frozen for two years which is likely to lead to many smaller businesses needing to register for VAT as prices increase due to inflation.
The Energy Profits Levy on energy providers has been increased from 25% to 35% from 1 January 2023 and will remain in place until March 2028 and a new temporary levy on the generators of energy at 45% will also apply for these dates.
Electric cars will be subject to Road Tax from April 2025 and the taxation of electric cars and ultra-low emission cars will increase by 1% per annum from 2025/26 to reach 5% for electric cars and 21% for ultra-low emission cars by 2027/2028.
100% First year allowances for electric vehicle charge points will be extended to 2025.
The Bank of England has predicted that inflation should return to the target level of around 2% by the end of 2024 and that their base rate should be around 3% from the end of 2025. The approach taken by the Bank of England is designed to provide some certainty for businesses to develop their investment strategies. The Chancellor’s budget will hopefully provide some certainty on future tax allowances and rates until his Spring budget.