In the Autumn Statement, Chancellor Jeremy Hunt announced a series of measures that aim to provide stability to the UK economy.
Following his reversals to the mini-Budget, the Chancellor’s announcements included:
- Increases to the National Living Wage and corporation tax
- Reduced dividend, capital gains tax (CGT), and research and development allowances
- Frozen employer’s National Insurance contribution (NIC) threshold
- Vehicle excise duty for electric vehicles.
In this article, we highlight the measures announced and explain how they are likely to affect your business.
Here’s what we cover:
Corporation tax rise
The Chancellor confirmed that the corporation tax rates announced in the March 2021 Budget – and briefly reversed in the September 2022 mini-Budget – will still apply.
This means the corporation tax main rate will increase from 19% to 25% from April 2023 for companies with taxable profits above £250,000.
The rate for companies with profits below £50,000 remains at 19%.
For those companies that have profits between £50,000 and £250,000, they’ll pay tax at the main rate reduced by a marginal relief – this will provide a gradual increase in the effective corporation tax rate.
Compared to the current flat rate of 19%, this new rate system will add significant cost and complexity to businesses.
VAT threshold frozen
The VAT registration threshold will remain at £85,000 until 31 March 2026.
Effectively, this means more businesses will find they need to register for VAT – resulting in more revenue for HMRC – due to high levels of inflation.
As small businesses reach the threshold, they’ll need to meet certain obligations – including registering for VAT, charging customers VAT on sales, submitting VAT returns using Making Tax Digital compliant software, and paying the difference between input and output VAT over to HMRC.
On the plus side, though, VAT registered businesses are able to reclaim input VAT.
Research and development tax relief cut
The Chancellor has reduced the research and development tax relief for small and medium-sized enterprises (SMEs) from 130% to 86%, and the SME credit rate from 14.5% to 10%.
Meanwhile, the Research and Development Expenditure Credit (RDEC) rate is going to increase from 13% to 20%.
Adrian Young, tax partner at accounting and business advisory firm Hurst, calls this an unwelcome intervention.
“It is difficult to understand the rationale behind this measure, especially when the Treasury should be encouraging SMEs to invest in technology and innovation,” he says.
“It may have been driven by recent bad publicity about tenuous or fraudulent claims for the relief. But that is a question of ensuring HMRC enforces existing rules, rather than punishing valid claims, which are the vast majority.”
With the R&D change coming into effect in April 2023, there’s little time for SMEs to advance activity and related spend to maximise the relief available, adds Adrian.
Wages and payroll
Income tax changes and freezes
In the mini-Budget, the 45% tax rate for taxable income over £150,000 was to be removed. It was later reinstated by the Chancellor.
In the Autumn Statement, it was announced that from April 2023, the additional rate threshold for the 45% tax rate will be reduced. It will move from £150,000 to £125,140.
Meanwhile, all other income tax thresholds will be frozen until April 2028 at their current rates.
As a result of high inflation, a freeze in rates and thresholds means the government will end up collecting more tax.
National Living Wage and National Minimum Wage increases
The top National Living Wage rate will increase by 9.7%, from £9.50 to £10.42 per hour. It’s aimed at those who are 23 and over, and this rise will come into play from April 2023.
The National Minimum Wage is also going up at the same time, as follows:
- 10.9% increase for 21-22 year olds: from £9.18 to £10.19 an hour
- 9.7% increase for 18-20 year olds: from £6.83 to £7.49 an hour
- 9.7% increase for 16-17 year olds and apprentices: from £4.81 to £5.28 an hour.
Bruce Cartwright is the chief executive of ICAS (The Institute of Chartered Accountants of Scotland). He welcomes this help for those on the lowest pay amid the cost of living crisis.
But he says the increase could affect ongoing viability for many businesses – particularly in sectors such as hospitality and tourism or where profit margins are already small – especially, as it comes alongside staff shortages, rising costs and supply chain issues.
“Business owners need to forecast the impact of all such factors at an early stage,” Bruce adds.
National insurance thresholds and rates
The NIC thresholds and class 1 rates will be frozen at the current levels until 2028.
Class 2 and 3 NIC rates for the self-employed will be uprated to £3.45 and £17.45 per week respectively from April 2023.
Employer’s national insurance contributions (NICs) threshold frozen
The Chancellor froze the employer’s NICs secondary threshold at its current rate of £9,100 a year until 2028.
This means, for eligible employers with employer NICs over £5,000 a year, employment costs will rise as salaries and wages increase between April 2023 and April 2028.
The employment allowance will remain at £5,000 for 2023/24.
This will continue to protect 40% of businesses from paying any NICs at all, said the Chancellor.
Dividend allowance cut
The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and to £500 from April 2024. This allowance was £5,000 when introduced in April 2016, but it reduced to £2,000 from April 2018.
Cutting the allowance will increase the tax burden on limited company owners who pay themselves using dividends. It comes on top of the 1.25% increase in the dividend tax rates introduced in April 2022.
Chris Campbell, head of tax (tax practice and owner-managed business taxes) at ICAS, says: “If the reduction in the dividend allowance means it cost more to extract profits from a limited company, it could impact the decisions some businesses make on their structure.
“Some – say those that extract high levels of profit – may be better structured as an unincorporated business.”
Capital gains tax exemption cut
The annual exempt amount (AEA) for capital gains tax (CGT) will be reduced from £12,300 to £6,000 from April 2023, then to £3,000 from April 2024.
The AEA reduction will increase the tax payable on sale of businesses, potentially reducing the UK’s attractiveness as a place to invest or start a business.
Some share schemes incentivise employees via crystallisation of a capital gain on exit rather than an income tax charge. These will also become less attractive, potentially making it harder for some firms to recruit and retain talent.
The government also missed an opportunity to simplify CGT by replacing the multiple CGT rates with a single rate.
Vehicle excise duty on electric vehicles
The government will extend the vehicle excise duty to electric vehicles from April 2025.
This will add to costs for employers who provide electric vehicle fleets to employees.
From April 2023, the Energy Price Guarantee will continue for a further 12 months at a higher level of £3,000 a year for the average household.
However, the Energy Bill Relief Scheme, which provides relief for non-domestic customers, is to be reviewed.
The Chancellor said any further energy bill support for businesses will be significantly lower and more targeted towards those most affected beyond March 2023.
This uncertainty is likely to significantly impact SMEs.
Business rates package
The Chancellor introduced a £13.6bn package of measures to provide relief around business rates in England, with many rates significantly reduced from April 2023.
Jackie Mulligan, expert on the government’s High Streets Task Force and founder of local shopping platform Shopappy, says: “One silver lining for small businesses is the support for business rates payers in England.
“I’m pleased relief will increase for 230,000 businesses in the retail, hospitality and leisure sectors and there will be caps on businesses losing rural rate and small business relief.
“Rates need total reform, but relief packages will help. We will all be taxed significantly more, and the squeeze will be felt.
“But targeting help for small businesses is a step in the right direction. They could be the key to recovery.”
The Stamp Duty Land Tax (SDLT) cuts introduced in the mini-Budget will become temporary and last until 31 March 2025.
Justin Moy, founder at Chelmsford-based EHF Mortgages, says: “It looks like the Chancellor hasn’t meddled in mortgages and property markets too much, which is excellent.
“Stamp duty allowances will continue at their current tariff for a couple of years at least.
“However, the reduction in capital gains allowance may be enough for smaller landlords to consider their position.”
Investment zones change focus
The recent mini-Budget announced plans to drive growth and unlock housing by developing new investment zones across the UK.
However, the Chancellor said the government will now change the focus of investment zones towards leveraging research strengths and building clusters for new growth industries.
Levelling Up Secretary Michael Gove will work with mayors, devolved administrations and local partners to achieve this with the first decisions to be announced ahead of the Spring Budget in 2023.
Online sales tax idea scrapped
The government announced it won’t introduce an online sales tax (OST), following a consultation. The idea of an OST was to rebalance business rates bills paid by in-store retailers in comparison to their online counterparts.
However, the government was concerned about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models.
Stakeholders also expected it would lead to higher prices for consumers.
Annual investment allowance made permanent
The 130% relief for capital expenditure – the so-called super deduction – ends in March 2023.
However, the Chancellor confirmed that the temporary AIA limit of £1m announced in the mini-Budget will be made permanent. This allows all businesses to write off their first £1m of capital expenditure against their tax bill.
The allowance had been due to revert to its original level of £200,000 from 2023.
AIA is particularly useful for smaller businesses as this limit covers all eligible capital expenditure in a year for nearly all of them.
Chris Campbell at ICAS says: “Since its introduction in 2008, AIA has provided businesses with an upfront incentive to invest in qualifying plant and machinery.
“Retaining the £1m limit may also help companies that have used the super-deduction regime or would have liked to claim a super-deduction but could not bring forward substantial expenditure.”
No reprieve for the Office of Tax Simplification
The Chancellor decided not to reverse the government’s previous decision to abolish the Office of Tax Simplification (OTS).
Susan Cattell, ICAS head of tax technical policy, says: “Complexity in tax law is reflected in tax administration systems that are difficult to use and do not help taxpayers meet their obligations.
“Trust in HMRC and the tax system is undermined because many small businesses cannot understand their basic tax obligations, which deters business investment.”
She says promoting simplification will now fall to HMRC, which is already heavily burdened. So there is unlikely to be much progress on simplification.
Views on the Autumn Statement
David Whiscombe, owner of Chiltern & Cambridge Consultants, says the extra cost and tax burden from changes in the Autumn Statement could have significant impacts.
He says: “Freezing the employer’s NIC threshold and reducing the CGT annual allowance could particularly affect SMEs.
“Reducing the dividend allowance also adds a small cost to SMEs trading as a company.
“But the previously announced increase in corporation tax rates is likely to affect trading companies much more than anything else in the Autumn Statement.
“Small groups, in which corporation tax thresholds divide up between subsidiaries, will be particularly affected.”
Bruce Cartwright of ICAS says: “A stable and consistent tax system that allows corporates and individuals to plan with certainty is key to ensuring the UK is a competitive and attractive place to invest.
“We welcome confirmation that the corporation tax rates announced in March 2021 will still apply. Corporation tax stability influences investment decisions and the health of the UK economy.”
Final thoughts on the Autumn Statement
The Chancellor had little wiggle room given the rising budget deficit and headwinds facing the UK economy. He was also understandably determined to use his statement to make a clean break from the recent past.
So overall, the Autumn Statement didn’t contain any huge surprises the UK’s SME sector.
But it did include a lot of changes you need to plan for.
The measures set out a medium-term path that should enable you to plan with certainty, even if many of the changes are not attractive.
Most measures will start in 2023 but have varying end dates, so you should review the timing of your planned activity carefully to ensure it’s still the most efficient.