Following our last quarterly article, we now bring you updates from the eagerly awaited U.K. autumn statement 2022. The new Chancellor Jeremy Hunt, who was appointed under Prime Minister Rishi Sunak, confirmed the publication date of the U.K. fiscal statement. The autumn statement was delayed by two and a half weeks, as it was originally scheduled for 31 October 2022, by the former Chancellor Kwasi Kwarteng. The new chancellor determined this delay was critical for the U.K. economy to gather accurate data and set out realistic conclusions. Sunak was adamant that the budget's decisions would have "fairness and compassion at their heart."
In addition, Hunt said he was “willing to make choices that are politically embarrassing if they’re the right thing to do for the country.” He continued: “We have a new Prime Minister, the prospect of much longer-term stability for the economy and the country. In that context, a short two-and-a-half-week delay is the best way we will make sure that it is the right decisions we take.”
Key Announcements, Analysis
Hunt presented his autumn statement to Parliament on 17 November 2022. Hunt explained the key priorities were stability, growth, and public services, with an autumn statement driven more by threshold freezes than major tax increases.
Let’s take a closer look at the main fiscal rules outlined from the statement:
Personal Tax
The main fiscal rules for personal tax include the following:
- Income tax—From 6 April 2023, the 45% additional rate threshold will be reduced from £150,000 to £125,140. Hunt said, ‘‘I have tried to be fair by following two broad principles: firstly, we ask those with more to contribute more; and secondly, we avoid the tax rises that most damage growth.’’
- Dividend allowance—Will be cut from £2,000 to £1,000 from 6 April 2023 and then halved to £500 from 6 April 2024
- Capital gains tax—The annual exempt amount will be cut from £12,300 to £6,000 from 6 April 2023 and drop to £3,000 from 6 April 2024
- Company cars—The benefit in kind (BIK) rate for electric and ultra-low emission cars will increase by 1% annually from 2025-2026 to 2027-2028, at which point the rate will be a maximum of 5% for electric cars and 21% for ultra-low emission cars. The rates for all other vehicles will be increased by 1% for 2025-2026 and fixed until April 2028.
- Stamp duty land tax—The threshold for England and Northern Ireland, which was announced on 23 September 2022, in the mini-budget, remains in place until 31 March 2025. The nil rate threshold is £250,000 for all purchasers and £425,000 for first-time buyers.
- The income tax personal allowance, higher rate threshold, most National Insurance (NI) thresholds, and the inheritance tax thresholds are all to be maintained at their current levels until 5 April 2028
- Electric vehicles will no longer be exempt from vehicle excise duty (road tax) from April 2025
Business Taxes
The main fiscal rules for business tax include the following:
- National living wage (NLW)—This will increase by 9.7%, meaning the hourly rate will be £10.42 from April 2023
- Value added tax (VAT)—Rates maintained until March 2026
- Pensions—The triple lock will be protected and state pension will rise by 10% in April 2023
- Windfall tax—From 1 January 2023 until March 2028, the energy profits levy will increase from 25% to 35%. A new electricity generator levy of 45% will extend the scope of windfall taxes to include excessive revenue received by electricity generators from January 2023.
- Research and development tax relief (R&D) for small or medium-sized enterprises (SMEs)—The deduction rate has been cut to 86%, and the credit rate to 10%, but the rate of the separate R&D expenditure credit will increase from 13% to 20%. According to the Office for Budget Responsibility (OBR), the U.K.’s official independent economic and fiscal forecaster, the measures drawn by the chancellor will have no “detrimental effect” on R&D investment in the economy.
- The new OBR forecast says inflation will be 9.1% in 2022, 7.4% in 2023, and 0.6% in 2024. Hunt said, ‘‘this is a balanced path to stability: tackling the inflation to reduce the cost of living and protect pensioner savings whilst supporting the economy on a path to sustainable growth … but it means taking difficult decisions.’’
- The employer NI contributions (NICs) threshold is frozen until April 2028. The employment allowance will remain at of £5,000. “This means 40% of businesses will pay no NICS at all,” Hunt said.
So, what exactly do the announcements mean for payroll? Payroll professionals may be relieved about the freezing of tax thresholds for the next five years, following a year packed with twists, turns, and changes. Could this be the calm before the storm, or could it be too soon to understand the full effect of these announcements?
Preparing for the Year Ahead
As payroll professionals, it’s embedded in us from the beginning of our careers that nothing is permanent, except change. As we approach 2023-2024, the new tax year updates are also due to be administered. Employers, businesses, and individuals have already started to prepare for the scheduled legislative uplifts. The transition to the new tax year is no easy task, and organisations will need to factor in the knock-on effects updates have, from systems through to staff.
Final Thoughts About Tax Year 2022-2023
In a nutshell, 2022 was a whirlwind of legislative changes. This series of changes came at a fast and unanticipated pace, keeping payroll professionals on their toes. However, there are still a few boxes to tick off the payroll checklist before wrapping up this tax year. We can all agree that we’re ready to say goodbye to the tumultuous tax year of 2022-2023, and welcome 2023-2024 with open arms.