Following months of financial announcements and changes, the Chancellor, Jeremy Hunt, delivered his Autumn budget on 17th November 2022, impacting employees and employers, as well as self-employed sole traders, directors, and limited companies.
Some of the changes will come into effect from April 2023 at the start of the new tax year, while others are being put in place to roll-out at a later date.
New property valuations will see business rates change from April 2023, so the government announced a £13.6 billion support package to help rate payers. The ins-and-outs of it are quite lengthy, so the government’s business rates factsheet is a good place to start, or ask your accountant for help interpreting anything you’re unsure of.
Capital Gains Tax threshold
Capital Gains Tax (CGT) normally only applies to individuals, but it can also apply to businesses which aren’t legally distinct from the owner, such as a sole trader or partnership business. It’s worth noting that it’s a bit different for limited companies, because they pay Corporation Tax on any gains they make.
The Capital Gains Tax allowance reduces in April 2023, and again in April 2024.
If the total amount of gains you make in a year is more than the tax-free allowance, you’ll start paying Capital Gains Tax. Also known as the Annual Exempt Amount, the tax-free allowance for 2022/23 is £12,300.
The allowance reduces to £6,000 for the 2023/24 tax year
It reduces again to £3,000 for the 2024/25 tax year
Changes to Corporation Tax
An increase to the rate of Corporation Tax has already been announced, and this will continue to go ahead.
From 1st April 2023 Corporation Tax increase to 25% for companies reporting profits over £250,000
Companies with profits up to £50,000 will continue to pay Corporation Tax at 19%, with marginal relief offering a gradual increase for those falling between the two.
The Chancellor’s statement confirmed several changes to income tax rates and thresholds, including a reduction to the additional rate threshold, and an update to the basic rate.
The additional rate of income tax
The ‘additional rate’ is the highest rate of income tax, currently charged at 45% on earnings above £150,000.
The Chancellor’s Autumn Statement reduces the additional rate tax threshold to £125,140.
As of April 2023 this means that those earning more will start paying the additional rate of income tax on their earnings sooner.
Basic rate tax
The planned reduction to the basic rate of income tax from 20% to 19% would have taken effect from April 2023, but this will not be going ahead for the foreseeable future.
The current basic rate of 20% will stay in place indefinitely until economic conditions become stable enough for this to be reviewed.
What does freezing the personal tax allowance and tax thresholds mean?
Although increasing tax rates are rarely welcome because you’ll end up paying a higher rate of tax, it’s usually a good thing if the tax threshold goes up.
Income tax thresholds have been frozen until 2028.
A tax threshold is the point at which you start paying tax at a particular rate. The thresholds usually increase as wages rise with inflation, but when they’re frozen the tax bands stay the same even as your wages go up.
Unfortunately, this means you’ll end up paying tax on a larger proportion of your earnings as time goes on. Income tax thresholds had already been frozen until 2026, but this has been extended.
What the tax band thresholds look like following the Autumn Statement
The personal tax allowance is the amount of income you can earn before starting to pay tax, and then there are subsequent thresholds if you earn more.
Tax Band Thresholds from April 2023
Personal allowance: This is how much you can earn in a tax year before you start to pay income tax on it. Earnings under the £12,570 threshold are tax free.
£0 – £12,570
Basic rate income tax: 20% tax on the proportion of income which falls into this tax bracket.
£12,571 – £50,270
Higher rate income tax: The part of your income which falls into this tax band is taxed at 40%.
This year the threshold starts at £50,271 and the band includes earnings up to £150,000, but this will change from April 2023
£50,271 – £125,140
Additional rate income tax: This is the highest rate. The income you earn above this threshold is subject to tax at 45%.
In the 2022/23 tax year the threshold was £150,000, but this is changing from April 2023, so you’ll start paying the additional rate sooner.
An increase to National Living Wage and National Minimum Wage
The National Living Wage is the minimum amount employers must pay to someone who is 23 or older, and not in the first year of an apprenticeship. The Chancellor’s statement announced the NLW would increase on 1st April 2023, equivalent to an annual increase of around £1,600 for a full-time employee.
National Living Wage will increase from £9.50 to
£10.42 starting from 1st April 2023.
Though they sound similar, the National Living Wage and minimum wage are different. The National Minimum Wage (NMW) sets the minimum hourly rate which employers must pay younger employees, and these rates will also increase from 1st April 2023.
The point at which you start paying SDLT on the purchase of a residential property increased as of 23rd September 2022:
From £125,000 to £250,000
From £300,000 to £425,000 for first-time buyers (up to a maximum property value of £625,000)
Stamp Duty Land Tax only applies in England and Northern Ireland: In Wales this has been replaced by the Land Transaction Tax, and in Scotland it’s the Land and Buildings Transaction Tax. The devolved Welsh and Scottish governments will announce funding allocation for this separately.
VAT registration threshold frozen until March 2026
Like income tax and National Insurance, the VAT registration threshold has been frozen at £85,000 until March 2026.
Even though VAT rates aren’t changing, prices are continuing to rise and VAT is charged on taxable sales, so with the VAT registration threshold frozen, it’s likely that more businesses will end up registering for VAT which wouldn’t normally need to.