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Steven Hillman BSc (Hons) ACA
Chartered Accountant
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Chancellor steps into the fiscal storm and pulls more people into the top income tax band
On Thursday 17 November, the Chancellor presented the government’s Autumn Statement in which he told the House of Commons his plans to tackle the cost-of-living crisis, "rebuild our economy" and significantly reduce borrowing over the coming years.
The Chancellor
said that global factors are the primary cause of current inflation and that
most countries are still dealing with the fallout from the pandemic. He stated
that the measures taken to combat Covid-19 in the UK must be paid for. He also
acknowledged that the UK is in recession and that things will have to get worse
before they get better.
His measures on
taxes mean that tax as a percentage of national income will increase by 1% over
the next 5 years and this is now amongst the highest proportion of income going
to HMRC for at least 70 years.
The key
taxation points made by the Chancellor include:
●
The
highest rates of income tax (45% or, in the case of dividend income, 39.25%) will
apply to those with incomes of more than £125,140 from April 2023. The
threshold is currently £150,000.
●
Other
income tax thresholds are being frozen until 2028, effectively meaning higher
tax each year on earnings that increase with inflation.
●
NIC
bands and rates remain as they are, following the reversal of the 1.25% percentage
point increase on 6 November 2022. Like income tax, the NIC bands/thresholds
will also be frozen until 2028.
●
The
dividend allowance, which determines the amount of dividend income subject to
0% income tax each year, will reduce from its current level of £2,000 to £1,000
in the 2023/24 tax year and to just £500 in 2024/25.
●
The
current £12,300 annual tax-free capital gains tax (CGT) allowance will be
reduced to just £6,000 in 2023/24 and to only £3,000 in 2024/25.
●
The
VAT registration threshold will remain at £85,000 until April 2026.
●
Electric
vehicles will no longer be exempt from vehicle excise duty from April 2025 and,
for employer provided company cars, benefit in-kind rates will start to
increase.
●
Tax
reliefs for Research and Development (R&D) are being ‘re-balanced’ meaning
increased rates for some (usually larger companies) and reduced rates for
others (usually small or medium sized enterprises).
●
The
increased Stamp Duty Land Tax starting thresholds that were brought in from 23
September 2022 will now be treated as a temporary change, with the thresholds
reverting to their original levels from 1 April 2025.
Some of the key
spending statements made include:
●
Government
departments will be subject to tighter controls to tackle waste and
inefficiency, except for the department for Health.
●
The
NHS budget will be increased in each of the next two years by £3.3bn.
●
Education
will have an additional £2.3bn for schools.
●
Additional
funding will be available for the devolved administrations for the NHS and
schools.
●
Overseas
aid spending remains at 0.5% for the forecast period.
●
A
commitment to the climate pact agreed upon at COP26, including a 68% reduction
of emissions by 2030.
●
Northern
Powerhouse rail, the HS2 and the East West Rail will go ahead as planned.
