U-turns and more!

Of course, this pattern of frequent tax changes is subject to governmental ‘U-turns’. There have been several significant reversals of tax policy announced during 2022.

For example, the government announced that various tax measures originally announced in Mini-Budget 2022 would not be taken forward, including:

• Income tax – Cutting the basic rate of income tax to 19% and removing the additional rate of 45% from April 2023.
• Corporation tax – Cancelling the planned increase in the main rate of corporation tax from 19% to 25% from 1 April 2023.
• Dividend tax – Cutting dividend rates tax by 1.25% from April 2023.

In fact, not only did the government reverse the above cuts, but the income tax and dividend tax regimes were subsequently tweaked to yield more tax (see ‘Tax highlights’).  

Forward planning

Back in the day, Chancellors would deliver their Budget just prior to the start of the next tax year, and generally announce tax rates, allowances etc. for that year. However, a noticeable feature of recent Budgets (and other tax announcements, including Spring and Autumn Statements) has been that tax measures are announced well in advance of their proposed introduction, and that tax thresholds and allowances are often set for several tax years to come.

For example, the government announced that it would be setting rates for company car tax until April 2028, “…to provide long term certainty for taxpayers and industry”. In addition, it was announced in the Chancellor’s Autumn Statement 2022 that income tax, National Insurance contributions and inheritance tax (IHT) thresholds will be maintained at their current levels for a further two years, to April 2028.

Announcing tax rates, thresholds and other measures so far in advance is no doubt a necessity for budgeting and planning purposes. This is reflected in the table of costings for the government’s Autumn Statement 2022 policy decisions.

However, much of the government’s forward planning has involved ‘freezing’ tax rates and thresholds. For example, the main IHT ‘nil-rate band’ has been frozen at £325,000 since 2009/10 and is now set to remain at that level until at least 2027/28. This does not represent a tax increase as such, but nevertheless it has drawn an increasing number of individuals’ estates into exposure to IHT.

Tax highlights

 

Key tax features of the Chancellor’s Autumn Statement on 17 November 2022 include those listed below.

Personal tax

• Income tax allowances - The personal allowance (currently £12,570) will be frozen until 2028. The married couple’s allowance (MCA) and blind person’s allowance (BPA) will be uprated by the September CPI figure (10.1%) for 2023/24. The MCA will be valued at between £4,010 and £10,375, and BPA will be valued at £2,870.
• Additional rate – The additional rate (45%) threshold will be reduced from £150,000 to £125,140 from 6 April 2023.
• Dividend allowance – The dividend allowance will be reduced from £2,000 to £1,000 in 2023/24, and to £500 in 2024/25.
• Benefits-in-kind - The company car tax appropriate percentages for electric and ultra-low emission cars emitting less than 75g/km of CO2 will increase by 1 percentage point in 2025/26, a further 1% in 2026/27 and a further 1% in 2027/28, up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars. The rates for all other vehicles bands will be increased by 1 percentage point for 2025/26 up to a maximum of 37% and will then be fixed in 2026/27 and 2027/28.

Business taxes

• R&D tax reliefs - the research and development (R&D) expenditure credit rate will increase from 13% to 20%, the SME additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. These changes will apply with effect for expenditure on or after 1‌‌‌ ‌‌April 2023.
• Diverted profits tax - Following the government’s confirmation of the increase in the main rate of corporation tax to 25% from April 2023, consequential changes to diverted profits tax will be made to ensure that the same 6% differential in rates apply (i.e., the rate of diverted profits tax will increase from 25% to 31% from April 2023).

National insurance contributions

• Class 1 NICs - Lower earnings limit (LEL) and small profits threshold (SPT) will be fixed at 2022/23 levels in 2023/24 (i.e., LEL at £6,396 per annum and the SPT at £6,725 per annum. The secondary threshold will be fixed at £9,100 from April 2023 until April 2028. The upper secondary threshold will stay fixed at £50,270 per annum until April 2028.
• Class 2 NICs - £3.45 per week for 2023/24.
• Class 3 NICs - £17.45 per week for 2023/24.
• Class 4 NICs - The NICs thresholds that apply to self-employed individuals will also remain frozen until April 2028.

Capital taxes

• Capital gains tax – The capital gains tax (CGT) annual exempt amount reduces from £12,300 to £6,000 in 2023/24, and to £3,000 in 2024/25.
• Inheritance tax - The IHT nil-rate bands (which are already set at current levels until April 2026) will remain as such until April 2028 (i.e., nil-rate band will continue at £325,000, residence nil-rate band at £175,000, and residence nil-rate band taper will continue to start at £2 million).

Miscellaneous

• Stamp duty land tax - The nil-rate thresholds of stamp duty land tax (SDLT) were increased from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold for first time buyers from £300,000 to £425,000 with effect from 23 September 2022. These SDLT threshold increases will remain in place until 31‌‌‌ ‌‌March 2025.
• VAT - registration and deregistration thresholds will remain at £85,000 for an additional two years from 1 April 2024.
• Anti-avoidance - Shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK for the purposes of income tax (i.e., dividends/distributions from the non-UK company and CGT (i.e., for capital gains on disposal of the non-UK shares) where an individual has a material interest in both the UK and the non-UK company and where the share exchange takes place from 17‌‌‌ ‌‌November 2022.
• Annual tax on enveloped dwellings (ATED) - The annual chargeable amounts for the ATED will be uplifted by the September CPI figure of 10.1% for the 2023/24 chargeable amounts for ATED.

The Autumn Statement 2022 is available at www.gov.uk/government/publications/autumn-statement-2022-documents, and HMRC’s tax-related documents are available at  www.gov.uk/government/collections/autumn-statement-2022-tax-related-documents.

Mark McLaughlin CTA (Fellow) ATT (Fellow) TEP is Editor and a co-author of Tax Planning (Bloomsbury Professional).

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