“Exceptional times” is a phrase that seems to have been used a lot in recent years, but reflecting on the Autumn Statement, in the context of the last year, it does feel like it applies to the tax world like never before.
Since the last full Budget in October 2021 we have, of course, changed Prime Minister twice, and Chancellor of the Exchequer three times, leaving Kwasi Kwarteng and Nadhim Zahawi as the second and third shortest serving Chancellors of all time. To be fair to Iain MacLeod, the only shorter serving Chancellor, he may have stayed in post well past the others if he hadn’t died suddenly of a heart attack a month after taking office.
In that time, we have also had the Spring Statement, which partially reversed the effects of the 1.25% Health & Social Care levy that the October 2021 Budget added to National Insurance from April this year, and by significantly raising the starting threshold for NIC taking effect in July.
We then, of course, had the Growth Plan 2022, announced on 23 September by Kwasi Kwarteng, as Liz Truss’s Chancellor. Aside from the politically “brave” abolition of the top rate of Income Tax, it saw the reversal of the entire Health & Social Care levy from November (but keeping those raised thresholds), the cancelling of the Corporation Tax rise to 25%, the abolition from April 2023 of part of the off-payroll working rules, and a reduction in the Basic Rate of tax to 19% from next year.
Few of these measures survived even until the Autumn Statement, with Jeremy Hunt reversing all of them, except for the removal of the Health & Social Care levy, in his first statement as Chancellor on 17 October. Perhaps it is no wonder that we didn’t see Liz Truss in the Chamber for the Autumn Statement on 17 November.
Whilst we might quite like a lot of the Autumn Statement to get reversed as quickly as Liz Truss’s Growth Plan, I suspect we have to expect this one to stick, as let’s be honest, we are really being told that we are economically in what Blackadder might describe as “the stickiest situation since Sticky the stick insect got stuck on a sticky bun”, as the tax burden rises to its highest level as a proportion of GDP since the end of the Second World War, and we are told that we are now in recession.
Probably the biggest tax story out of the Autumn Statement was “the big freeze” in allowances, which will now continue until April 2028, and for the first time, will include employer’s NIC. With current levels of wage inflation soaring, this will bring more taxpayers into higher rates of tax over the next 5 or 6 years.
Meanwhile, the starting threshold for the top rate of tax falls to £125,140 (the point at which the current Personal Allowance is fully tapered away), while the dividend exemption falls from its current level of £2,000 , to £1,000 from April 2023 and £500 from April 2024. The CGT annual exemption is also set to reduce from £12,300 currently, to £6,000 from April 2023, and £3,000 from April 2024. With the Corporation Tax rate increase to 25% now confirmed, and the extra 1.25% from the Health and Social Care Levy now staying on dividends, owner managed businesses will need to look carefully at circumstances to decide whether additional profits should be extracted as salary or dividends.
Companies will find new restrictions on R&D tax credits, and our R&D Tax Manager, Sasha Talbot, explores this over in her article.
Having finally taken the plunge to buy an electric car, I was disappointed to see the benefit in kind rising from 2025, together with the imposition of Vehicle Excise Duty. However, I think the numbers will still stack up, so we probably got away lightly.
Overall, there will be plenty that businesses and individuals need to plan for, and with a general election now only two years away, planning also needs to think about what further changes might come on a change of government.