A review of measures for UK businesses – Autumn Budget Statement 2022.
Business
Corporation tax rates
- From April 2023
- Profits of £50,000 or less remain unchanged at 19%
- Profits of £50,001 and £250,000 will pay tax at the main rate 25% reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Capital allowances
The Annual Investment Allowance (AIA)
- From April 2023 AIA will remain at £1 million for the foreseeable future
Research and Development
For small and medium sized enterprises (SME)
- From 1st April 2023 the R&D expenditure credit rate will decrease from 130% to 86%, and
- The SMR credit rate will decrease from 14.5% to 10%
A review of measures for UK individuals – Autumn Statement 2022.
Capital allowances
The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.
Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses.
Comment
Companies incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.
The government will also extend the 100% first year allowance for electric vehicle chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
Capital taxes
Capital gains tax
The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
Inheritance tax
The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.
Business
Corporation tax rates
It had been previously announced that the expected increase in the rate of corporation tax for many companies from April 2023 to 25% would not go ahead. However,
the government announced on 14 October 2022 that this increase will now proceed and this has been confirmed.
This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
In addition:
- Bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million and
- From April 2023 the rate of diverted profits tax will increase from 25% to 31%.
Dividends
The government has also confirmed that, from April 2023, the rates of taxation on dividend income will remain as follows:
- The dividend ordinary rate – 8.75%
- The dividend upper rate – 33.75%
- The dividend additional rate – 39.35%.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
In addition, the government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024.
Income tax
Income tax rates
The government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This was to be accelerated so that it took effect from April 2023. However, whilst the government aims to proceed with the cut in due course, this will only take place when economic conditions allow and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely.
At the Mini Budget on 23 September 2022 the government announced a plan to abolish the 45% additional rate of income tax from April 2023. It was announced on 3 October 2022 that the government would not proceed with this plan.
From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.
The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.
Income tax allowances
The income tax personal allowance and higher rate threshold were already fixed at their current levels until April 2026 and will now be maintained for an additional two years until April 2028. They will be £12,570 and £50,270 respectively.
The government will uprate the married couple’s allowance and blind person’s allowance by inflation for 2023/24.
These changes will apply to the whole of the UK.
Inheritance tax
The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.
National Insurance contributions
In September 2021 the government published its proposals for new investment in health and social care in England. The proposals were intended to lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government introduced a UK-wide 1.25% Health and Social Care Levy based on the National Insurance contributions (NICs) system but ringfenced for health and social care.
The Health and Social Care Levy Act provided for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates were intended to revert back to 2021/22 levels and be replaced by a new 1.25% Health and Social Care Levy.
However, the government has:
- Reversed the temporary increase in NICs and
- Cancelled the Health and Social Care Levy completely.
Comment
According to the government, not proceeding with the Levy will reduce tax for 920,000 businesses by nearly £10,000 on average next year.
For SMEs, the government predicts that the savings will be around £4,200 on average for small businesses and £21,700 for medium sized firms from 2023/24.
In addition, it will help almost 28 million people across the UK save £330 on average in 2023/24, with an additional saving of around £135 on average this year.
More detail for employees and employers
The changes took effect for payments of earnings made on or after 6 November 2022, so:
- Primary Class 1 NICs (employees) generally reduced from 13.25% to 12% and 3.25% to 2% and
- Secondary Class 1 NICs (employers) reduced from 15.05% to 13.8%.
The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.
Comment
The government hopes that most employees will receive the NICs reduction directly via the payroll in their November pay but acknowledges that some will have to wait until December or January, depending on the complexity of their employer’s payroll software.
Research and Development
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.
Comment
This government states that ‘this reform ensures that taxpayer support is as effective as possible, improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all’. The government will consult on the design of a single scheme and consider whether further support is necessary for R&D intensive SMEs. As previously announced at Autumn Budget 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, and targeting abuse and improving compliance.
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