Autumn statement 2022 – What does it mean for UK businesses?

/ Posted By - Bradleys Accountants / Categories - Advice for Small Businesses

The dramatic events in October 2022 that led to the resignation of Liz Truss – the shortest-serving Prime Minister in UK history, and the ascent of Rishi Sunak as the first Indian-origin Prime Minister of the country, raise the issue of how politics – more specifically, the resultant economic policy uncertainty – affects the UK economy.

Naturally, when the new UK Chancellor Jeremy Hunt delivered the much-anticipated Autumn Statement on 17 November 2022, it caused much upheaval across the government and country.

With inflation at its highest level in decades, a projected budget deficit expected to grow dramatically, and a Bank of England forecast stating the UK will experience a protracted recession, the Autumn Statement came indeed at a shaky time for the UK economy.

In the first part of our Autumn Statement analysis, let us understand how UK businesses are set to be affected:

1. Dividends

Tax-free allowances for dividend are due to be cut from 2023 and 2024. The dividend allowance will decrease from £2,000 to £1,000 in 2023-24 and then to £500 in 2024-205.

2. Capital Gains Tax (CGT)

Similarly, the annual exempt amount of CGT will decrease from £12,300 to £6,300 in 2023-24 and then to £3,000 in 2024-2025. This means that everyone will pay more tax when they sell an item that attracts capital gains tax and this will particularly impact businesses such as those run by landlords, where they will pay more tax on the profit they make when selling a buy-to-let property.

3. Banking surcharge

The government confirmed the banking surcharge rate will reduce from 8% to 3% from 1 April 2023, which will coincide with the increase in the corporation tax rate to 25%. Despite the reduction, however, banks will pay a corporation tax rate of 28%, 1% higher than the current rate levied on the banks.

4. Diverted Profits Tax

From April 2023, the rate of Diverted Profits Tax will increase from 25% to 31% to maintain the 6% differential above the corporation tax rate, which will increase from 19% to 25% from 1 April 2023.

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    5. Research and Development (R&D) tax credits

    The Chancellor has declared that the small business R&D tax credit will be reduced to prevent abuse and fraud. The credit rate will be dropped to 10% and the deduction rate will be lowered to 86%. The credit for independent R&D will rise 13% to 20%.

    The UK government has maintained its commitment to science and research, promising to spend £20 billion on it in 2024–25. This is the largest increase in R&D spends ever in a spending review period. The R&D tax expenditure credit rate for larger companies that undertake R&D will increase from 13% to 20%.

    However, the additional deduction for SMEs will decrease from 130% to 86%, and the credit rate will decrease from 14.5% to 10% from 1 April 2023. Reforms on R&D tax relief intended for reducing fraudulent practices were also announced in the budget.

    6. National minimum wage

    Any UK business that employs people should be aware that the government has increased the national living wage to £10.42. This 9.5% increase is triggered in April 2023 and over two million individuals will benefit from wage raises, according to the Treasury.

    The National Living Wage (for those aged 23 and over) and the National Minimum Wage (for those of at least school leaving age) current and new rates can be seen below:

     

    23 and over

    21 to 22

    18 to 20

    Under 18

    Apprentice

    April 2022 (current rate)

    £9.50

    £9.18

    £6.83

    £4.81

    £4.81

    April 2023 (new rate)

    £10.42

    £10.18

    £7.49

    £5.28

    £5.28

    7. Business rates

    The government will proceed with the revaluation of business properties from April 2023 for calculating new levels of property tax. However, nearly ⅔ properties in Britain will not see any increase next year. The uniform business rates multiplier will be frozen at current rates which will be a welcome relief for the hard pressed British high street.

    8. Employment taxes

    The additional rate of income tax currently is 45% and is paid on earnings above £150,000 annually. The triggering amount will be reduced to £125,140 in April 2023. As a result, more people will be required to pay extra rate taxes of 45% on income beyond £125,140. It is believed that after the adjustment, 250,000 more individuals will be subject to the increased rate. The additional rate modification must be factored into Pay-As-You-Earn employee taxes.

    9. VAT registration and deregistration

    From 1 April 2024 to 1 April 2026, the VAT registration and deregistration thresholds will remain unchanged. UK VAT registration threshold is currently £85,000. Despite the UK’s greater registration threshold than many other nations, inflation and price rises will increase the number of small enterprises that are caught in the VAT threshold.

    10. Energy support

    The support measures for energy bills will extend beyond April next year and gradually become less generous. The Energy Price Guarantee had initially capped the annual cost for a typical household consumption of gas and electricity at £2,500 a year, which will now become £3,000 a year.

    If you would like to consult us on the changes the Autumn Statement brings to your business, please do not hesitate to reach out to us by filling the contact form or call us on 020-8303-1287. Alternatively, check our blog on the impact of the autumn statement on individuals.

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