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It is expected that this year’s Autumn Statement on Thursday 17th November will see Chancellor Jeremy Hunt trying to raise around £50bn in order to fill the gap in the UK’s public finances as well as trying to keep inflation under control.
Whilst the previous Chancellor had focused on tax cuts, both the Prime Minister and Chancellor have suggested that tax rises will be necessary given the current economic climate.
This is the third set of tax announcements in recent months, and we have summarised below some of the key tax announcements which could be made.
What to expect for Businesses
Corporation Tax Rates
After scrapping the increase in corporation tax rates in the September mini budget, it has since been confirmed that the planned rise in corporation tax to 25% will be going ahead from 1 April 2023. Given the recent U-turn on this, we do not expect any further changes to the corporation tax rate. We expect the 25% main rate to be confirmed with a small profits rate of 19% and marginal relief which provides a gradual increase in the corporation tax rate between the small profits rate and the main rate.
Capital allowances
The 130% ‘super-deduction’ is due to end on 31 March 2023, for companies purchasing plant and machinery. The previous Chancellor announced that the limit for annual investment allowance (a 100% allowance for expenditure on plant and machinery) will remain at £1m. This had been due to fall to £200,000 from 1 April 2023. In May 2022, the government announced a consultation on the UK’s capital allowance regime to seek to foster a new culture of enterprise and growth in the UK. The Chancellor could set out some of the key areas of change in his statement.
What to expect for VAT
It’s generally considered unlikely there will be any big changes to be made to VAT rules, but a rate raise is of course the most obvious and straightforward way to bring in some extra revenue. A raise of 1% taking the UK rate to 21%, in line with the average rate across Europe, would net a significant extra funds into the public purse.
What to expect for Individuals
Income Tax
It is expected that the personal allowance will be frozen at the current level along with the thresholds for basic and higher rate tax. These has been frozen until April 2026, but rumours are that this freeze will be extended to April 2028. There have been suggestions in the press that the additional rate threshold rather than being frozen, will be reduced from the current level of £150,000 to £125,000.
The Scottish Parliament has the power to vary the rates and bands that apply to Scottish taxpayers’ non-savings, non-dividend income so it is possible these changes will not be applied by the Scottish Parliament and further changes could be announced in the Scottish Budget which is expected to be on 15 December 2022.
Pension Allowance
A continued freeze is likely for the pension lifetime allowance, currently frozen at £1,073,100 until 2025 which is expected to be extended for two years to 2027.
Pension Tax Relief
There has been much speculation in previous budgets regarding restricting the rate at which tax relief for pension contributions is given to the basic rate of tax. Costing around £40bn every year, it is an area where savings could quite easily be made. However previous Chancellors have always shied away from making this change.
Capital Gains
There has been speculation of changes to capital gains tax for the last few years with many different theories of how this might happen from aligning the rates with income tax rates, increase the top rate of tax (currently 20% and 28% for residential property) or reducing the annual exemption (currently £12,300). As capital gains tax only makes up a small percentage of the overall tax take, this would not make a significant change to the overall tax take but could have a large impact on the position for individuals.
It is considered unlikely the Chancellor will tamper with the Business Asset Disposal Relief rate of tax, currently 10% on individual lifetime gains up to £1m, as this could discourage entrepreneurism. Also, this relief became less valuable in March 2020 when the lifetime limit was reduced from £5m to £1m of gains.
There has been speculation that the rebasing of assets for CGT on death could be scrapped. This relief is a significant one where there are also inheritance tax reliefs and if scrapped, it could encourage more assets to be passed on in lifetime increasing the CGT take as wealth is passed down the generations.
Dividend Tax
Dividend tax rates have already been increased for the 2022/23 tax year to 8.75% for basic rate taxpayers, 33.75% for higher rate and additional rate taxpayers will pay 39.75%. The Chancellor may seek to increase these rates further as well as a potential reduction in the annual dividend income allowance of £2,000. This would be a major blow to owners of small businesses, many of whom seek to pay themselves a small salary topped up with a dividend to take advantage of the basic rate dividend band and dividend income allowance. With increasing corporate tax rates, it may be worth the owner-manager reviewing their dividend/salary extraction from the business.
Inheritance Tax
In March 2021, then Chancellor Rishi Sunak announced that the nil rate band (currently £325,000) and the residential nil rate band (currently £175,000) would be frozen at these levels until at least 2026. It is expected that Jeremy Hunt will extend this freeze until April 2028. With the current levels of inflation, this is expected to significantly increase the amount of inheritance tax paid and make inheritance tax planning more important.
Non-domiciled Taxpayers
Although a politically sensitive issue, treasury officials are looking at potential changes to the UK’s rules on non-domiciled tax status as part of the Autumn Statement. Currently, non-domiciled individuals, who are resident in the UK can claim the remittance basis. This means they are taxable in the UK on their UK income and only foreign income remitted to the UK rather than all foreign income. Once an individual has been in the UK for 7 of the last 9 years, they must pay £30,000 or for 12 of the last 14, £60,000 to remain on this basis or pay tax on the full amount of their foreign income. This is a large tax saving for those with significant foreign income. If changes are made, it could either be a reduction in the length of time before the charge is due or an increase to the charge payable to remain on the remittance basis.
Payroll Taxes – National Insurance Contributions
The initial temporary increase to the NIC rate, prior to the introduction of the Health and Social Care levy, which is no longer going ahead, was reversed in Kwasi Kwarteng’s mini budget (from 6 November). Additionally, the primary threshold for Class 1 NIC and lower profits limit for Class 4 NIC has been aligned with the personal allowance of £12,570 from 6 July 2022. The Chancellor could reintroduce the increased NIC rates that were in situ between April and November 2022.
Off-Payroll Working
The mini budget in September contained a surprising announcement that the IR35 reforms, aimed at preventing tax avoidance through the use of intermediaries between clients and workers, would be repealed from April 2023. Mr Hunt U-turned on this in his recent statement, so the IR35 rules will continue to apply to large/medium businesses who engage contractors through an intermediary (usually a personal service company). The current rules are complex, and the onus is on the business receiving the service to carry out an assessment to determine whether the contractor/worker is an employee. The HMRC ‘Check of Self Employment Tool’ is used to make this check and the results can sometimes be conflicting. The Chancellor may use his Autumn Statement to simplify these rules.
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Kimberley Thomson
Dawn MacDougall
