This was the third fiscal statement this year and the third different chancellor to deliver it. We have had four Chancellors in the UK this year, but Chancellor three of the year, Nadeem Zahawi, didn’t get the opportunity to deliver a fiscal statement at all.
Jeremy Hunt’s statement abandoned virtually all the announcements made by his predecessor, Kwasi Kwarteng back in September but went further still.
The UK economic position and government finances are not in great shape – Inflation currently running at over 11%, energy prices rising and predictions of a year long recession throughout 2023.
The Chancellor conceded that the UK is already in recession but did announce that he expects 2022 inflation to be 9.1% by the end of the year and to sharply decrease in mid 2023 and end next year at 7.4%.
The new Prime Minister and Chancellor are clearly keen to make it clear that they are being responsible with the public finances (unlike their predecessors). Approximately half of the measures raised were tax increases and the other half by spending squeezes.
This newsletter is designed to give you the key points that arose from the statement. If you have any specific questions or comments, please do contact us.
The full government statement can be found here:
Our detailed guide to the changes can be downloaded by clicking below.
Below is a quick summary of the key changes:
National Insurance
The bands and rates have been frozen at that announced in September 2022 through to March 2028. This is a real term rise because usually these bands are uprated by at least inflation every year.
Income Tax
The biggest changes were to Income tax. The headline change being the reduction at the point where additional rate tax (45%) starts to £125,140, from £150,000.
Rather like National Insurance the bands are frozen so effectively a tax rise as incomes rise with earnings and inflation.
The relevant bands from 6 April 2023 for a UK resident (NB Scottish residents have different bands) will be:
| Band (£) | Rate on band | ||
| Earned Income | Property Income | Dividend Income | |
| 0 - 12,570 | 0% | 0% | 0% |
| 12,571 - 50,270 | 20% | 20% | 8.75% |
| 50,270 – 100,000 | 40% | 40% | 33.75% |
| 100,000 - 125,140 | 60% | 60% | 50.625% |
| 125,140 and above | 45% | 45% | 39.35% |
Please note that for income, between £100,000 and £125,140 you lose £1 of your tax free personal allowance for every £2 of income in this range thus creating a punitive tax rate in this income band.
For clients that receive dividends the first £2,000 are not taxed – this band is reducing to £1,000 from 6 April 2023 and £500 from 6 April 2024.
Capital Gains Tax
The Capital Gains Tax Annual Exempt Amount will reduce from the current £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024. Clients with assets they are considering selling, or those with investment portfolios may want to consider accelerating sales to take advantage of the higher allowance.
Corporation Tax
Not announced by the Chancellor yesterday but just to remind our clients that there are changes to the Corporation Tax regime from 1 April 2023.
In the current tax year, the rate is 19% on all profits. From 1 April 2023 only the first £50,000 of profits will have a rate of 19% - between £50,000 and £250,000 the rate will be an effective rate of 26.5% and above £250,000 the rate is 25%. Clients that operate in groups should be aware that these bands are apportioned to each company in the group. Therefore, those clients operating with group structures should review their business structure prior to 31 March 2023 to ensure it is not causing a tax detriment.
Inheritance Tax
The Nil rate band is staying at £325,000 (£500,000 if you Estate includes a domestic residence) until April 2028. Only Estates worth more than that will have IHT to pay.
VAT
There were no changes to VAT rates. The Chancellor confirmed that the registration limit will remain at £85,000 until March 2026. As prices rise due to inflationary pressures this will bring more businesses in to the VAT system, do contact us if you are close to the registration threshold.
National Minimum Wage
The chancellor announced an inflationary increase to the National Minimum Wage from 1 April 2023
These changes take the rates to :
| Age Band | Rate per hour (£) |
| aged 23 and over | 10.42 |
| 21-22 year olds | £10.18 |
| 18-20 year olds | £7.49 |
| 16-17 year olds | £5.28 |
| Apprentice rate | £5.28 |
Given these rises employers should ensure that are paying atleast these rates effective 1 April 2023.
Research and Development tax relief
There are two schemes for claiming relief, depending on the size of the company or organisation:
- The Small or Medium-sized Enterprise (SME) Scheme.
- The R&D Expenditure Credit (RDEC).
The Chancellor announced the following changes to the available rates for both schemes from 1 April 2023:
- The SME Scheme will have the additional deduction reduced from 130% to 86%.
- The SME credit rate will reduce from 14.5% to 10%.
- The RDEC rate will increase from 13% to 20%.
This rebalancing of the relief between the two schemes will be legislated for in the Autumn Finance Bill 2022. The objective is to achieve a simplified single scheme for all investors that is similar to the RDEC. The design of the scheme will be the subject of a future consultation.
All of the proposed changes are part of a wider initiative of R&D Tax Relief reform, aimed at:
- Refocusing support towards UK innovation.
- Target abuse.
- Improve compliance
Energy price support
For households, from April 2023 the Energy Price Guarantee for an average user will rise to £3,000 (previously £2,500).
To protect the most vulnerable, in 2023-24 an additional Cost of Living Payment of £900 will be provided to households on means-tested benefits, of £300 to pensioner households, and of £150 to individuals on disability benefits.
The Chancellor was silent on any energy support extensions for business beyond the scheme already in place until April 2023.
State Pension and benefits
The government are raising benefits, including working age benefits and the State Pension, in line with inflation from April 2023.
Please do get in touch with us if any of the measures above impact you or you would like further explanation on how they may impact you. If you are struggling with the current economic situation and the impact on personal or business cash flow please do get in touch – we will be able to help make a plan to get through these tough times.
Best wishes
James and Brian