Autumn Statement 2022: Increasing the tax take by keeping most things the same

We began our Mini Budget commentary by saying ‘Nothing about this was business as usual’ - the same could also be said about this Autumn Statement but for completely different reasons.

This was a bold statement delivered by new Chancellor Jeremy Hunt during the first few weeks of new Prime Minister and represents another handbrake turn in economic policy. There were several surprising new policies alongside those pre-announced. This is where the similarities end.

An increase in the overall tax take and spending cuts were the order of the day to deal with the £54bn budget deficit. The theory is this will stabilise the markets to restore faith and reduce the cost of borrowing. However, the Chancellor was keen to avoid ‘tax rises’.

Personal tax announcements

The biggest fiscal announcements were in personal tax: with reductions to thresholds and freezing limits for the long term.

As previously announced, the additional rate of income tax of 45% that was scrapped in the Mini Budget is to remain in place, but the threshold will be reduced in April 2023 from £150,000 to £125,140. This also means that alongside the reduction in personal allowance that is already in place for those earning six figures, the higher rate of 40p effectively ends at £100,000.

A number of other thresholds have been reduced, broadly these will be halved in 2023/24 and halved again in 2024/25. These include:

The capital gains tax annual exemption, going from £12,300 to £6,000 and then £3,000.
The dividend tax free allowance, going from £2,000 to £1,000 and then £500.

The income tax personal allowance, basic rate tax threshold, national insurance thresholds and inheritance tax nil rate bands have been frozen until 2028. Whilst not increases, these will increase both the number of people paying tax and the proportion of peoples’ income that is paid in tax as their income and gains rise with inflation. The technical term for this is fiscal drag but the tabloid headlines will proclaim stealth taxes.

Stamp Duty Land Tax (SDLT) nil rate band thresholds extensions announced in the Growth Plan will now cease in March 2025.

Business tax announcements

In line with personal tax announcements, the VAT registration threshold will be frozen until March 2026 and the employer’s national insurance threshold will also be frozen until 2028.

For innovative SME businesses claiming R&D corporation tax relief, this has been reduced from 130% to 86% and the repayable tax credit will reduce from 14.5% to 10%, although when taken into account with the increase in corporation tax rates, this is not as dramatic as it first appears. The Research and Development Expenditure Credit (RDEC) which is primarily for large businesses will increase from 13% to 20%. These changes will take effect on 1 April 2023. The Government has signalled its intention to merge the schemes into a single RDEC style scheme in the near future.

A much-anticipated windfall tax increase and extension for energy companies was announced, and will remain in place until March 2028.

The Government has decided not to proceed with the Online Sales Tax, but there will be various business rates relief packages available for bricks and mortar businesses, including freezing the multiplier, in 2023/24, a 75% discount for retail hospitality and leisure businesses (capped at £110,000 cash benefit) and a three year support package mainly for small and rural businesses. However, the improvement relief will be delayed until April 2024.

Electric cars and other vehicles

The tax benefits of electric vehicles are coming to an end. The exemption from vehicle excise duty, aka road tax will cease from 2025, alongside a reduction in the discounts applied to electric company cars benefits in kind.

However, the 100% capital allowances on electric vehicle charging points will remain until 2025.

The general company car and van benefit charges will uprate with inflation.

Find out more

In summary, this was another blockbuster statement with announcements covering all taxes. Only time will tell whether these policies will have the desired effect. 

Join us for a panel discussion webinar on Monday 21 November at 10am, where our tax experts will unpick what the Autumn Statement means for you and your business.