Millward, May & Co - Wokingham Accountants
Wokingham Accountants

Newsletter

Tax Updates

Autumn 2022 Statement

The Autumn 2022 budget had a few surprises in store for both businesses and individuals; below we summarise the key announcements that will be most relevant for our clients.

 

Impact on businesses:

  •  The planned increase in Corporation Tax rate from 19% to 25% for companies with over £250,000 in profits will come into effect in April 2023.

  • Those companies with profits under £50,000 will continue to pay corporation tax at 19%. Those with profits between these two figures will pay 19% on the first £50,000 of profits and then be subject to a tapered rate on profits above that. The calculation behind this is quite complex but effectively profits in this tapered region will be subject to a marginal tax rate of 26.5%. See our example below for more details.

  • The Employers NIC rate will reduce from 15.05% to 13.8% as previously planned. The NICs Secondary Threshold for employers will be maintained at £9,100 until April 2028.

  • The VAT threshold of £85,000 will remain for an additional two years from April 2024.

  • The Annual Investment Allowance of £1 million is set to be made permanent from 1 April 2023.

  • There are some significant changes for SMEs who claim Research and Development tax reliefs:

    • Currently, SMEs can obtain additional tax relief equal to 130% of the R&D expenditure. From 1 April 2023 this will decrease to 86%.

    • Additionally, loss making companies can surrender losses for a R&D tax credit. The rate is being reduced from 14.5% to 10% from 1 April 2023.

 

Impact on individuals:

  •  The Income Tax additional rate threshold at which tax is payable at 45% will decrease from £150,000 to £125,140 from 6 April 2023.

  • The increase in dividends tax by 1.25% will remain. From 6 April 2022, basic rate dividends will attract tax at 8.75%, higher rate will attract 33.75% and additional rate, 39.35%. See example below for more details.

  • Additionally, the dividends tax free allowance will reduce from £2,000 to £1,000 from April 2023. It will be further reduced to £500 from April 2024.

  • The personal allowance is set to remain at £12,570 and the higher rate threshold at £50,270.

  • The Capital Gains Tax Annual Exempt Amount is being reduced from £12,300 to £6,000 from April 2023 and then to £3,000 in April 2024.

  • The reversal of the 1.25% NIC increase means that NIC will be charged at 12% on earnings up to £50,270 and 2% over this level.

  • For the self-employed, Class 4 NIC will reduce from 10.25% and 3.25% to 9% and 2% from 6 April 2023. Class 2 NIC will increase to £3.45 per week.

  • Currently, there is a benefit in kind charge on electric vehicles at 2%. This will remain until April 2025 when it will increase to 3% and by 1% thereafter each year.

  • From April 2025, electric cars, vans and motorcycles will begin to pay road tax in the same way as petrol and diesel vehicles.

  • The following changes made to Stamp Duty in September 2022 will remain in place until 31 March 2025:

    • Nil-rate threshold increased from £125,000 to £250,000 on residential property purchases.

    • Nil-rate threshold for first time buyers increased from £300,000 to £425,000 with the maximum purchase price raised from £500,000 to £625,000.

Corporation tax changes with an example profit of £100,000:

Current:

Profit = £100,000

Corporation tax at 19% = £19,000 (£100,000 x 19%)

Total Corporation tax = £19,000 (effective rate = 19%)

From April 2023:

Profit = £100,000

Corporation tax at 19% = £9,500 (£50,000 x 19%)

Corporation tax at 26.5% = £13,250 (£50,000 x 26.5%)

Total Corporation tax = £22,750 (effective rate = 22.75%)

Additional corporation tax of £3,750

 

The Effective rate at different profit levels is shown as follows:

  • £50,000 – 19%

  • £75,000 – 21.5%

  • £100,000 – 22.75%

  • £150,000 – 24%

  • £200,000 – 24.63%

  • £250,000 – 25%

Dividend tax changes with an example of £1,000 pre-tax profit:

This example does not factor in the dividend allowance changes.

2021/22 (assuming basic rate taxpayer):

Pre-tax profit = £1,000

Corporation tax at 19% = £190 (£1,000 x 19%)

Dividend = £810 (£1,000 - £190)

Dividend tax at 7.5% = £61

Total tax = £251 (£190 + £61)

Effective rate = 25.1% (£251 / £1,000)

From April 2023 (2023/24) on profits at marginal rate:

Pre-tax profit = £1,000

Corporation tax at 26.5% = £265 (£1,000 x 26.5%)

Dividend = £735 (£1,000 - £265)

Dividend tax at 8.75% = £64

Total tax = £329 (£265 + £64)

Effective rate = 32.9% (£329 / £1,000)

Additional overall tax of £78

Millward, May & Co