2022 Budget Update

Treasury Chancellor Jeremy Hunt has announced his 2022 Budget. In a year of turmoil, the UK released a Mini budget in October 2022, which prompted an adverse reaction from the markets, which resulted in the majority of the changes being reversed shortly afterwards and replaced with some additional changes in the Autumn Statement in December 2022.

Here is the summary of the key changes in the Budget:

Income tax Personal Allowance

Personal Allowance will be frozen at £12,570 in fiscal year 2023/24.

The additional rate Threshold will decrease from £150,000 to £125,140. The personal allowance is reduced by £1 for every £2 earned over £100,000 and is fully withdrawn once an individual’s income reaches £125,140.

The 20% basic rate band to remain at £37,700.

The Higher rate Threshold will remain at £50,270.

The nil rate band for savings income will remain at £5,000.

Dividends

The tax free dividend allowance will reduce from £2,000 to £1,000 from 6 April 2023. It will reduce further to £500 in fiscal year 2024/25.

The dividend tax rates will increase from 7.5% to 8.25% for basic rate, from 32.5% to 33.75% for higher rate and from 38.1% to 39.35% for additional rate taxpayers.

National Insurance

The National Insurance threshold for employees will be frozen at £6,396 in 2023/24.

The employment allowance of £5,000 will remain in line with prior year.

The class 2 small profits threshold will remain at £6,725 in 2023/24.

Directors Loans

The Section 455 tax on Directors’ loans will remain at 32.5%.

Corporation tax rates and bands

From 1 April 2023 corporation tax will increase to 25% for businesses with profits over £250,000.

The rate will remain at 19% for small businesses with profits under £50,000 and a marginal rate of tax will apply to businesses operating between the two thresholds.

Annual Investment Allowance

The Annual Investment Allowance for companies will continue at £1,000,000 to 31 March 2023. The allowance will reduce to £200,00 thereafter.

Benefits in Kind

Electric vehicles will be subject to vehicles excise duty from 1 April 2025. The benefit in kind charge for electric vehicles will increase by 1% in 2025/26 with further increases proposed in subsequent years.

Research and Development

From 1 April 2023, R&D relief for small businesses will be reduced from 130% to 85%. The cash repayment credit under the SME scheme will also be reduced from 14.5% to 10%.

Capital Gains tax

The annual exemption for capital gains tax will reduce from £12,300 to £6,000 from 6 April 2023. It will reduce further to £3,000 from 6 April 2024.

The main rates of capital gains tax will continue at 10% basic rate and 20% for the higher rate with the exception of gains on residential property which are taxed at 18% and 28% respectively.

Capital gains on residential property to be declared and paid to HMRC within 30 days of completion.

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)

The annual lifetime allowance for Business Asset Disposal Relief remains at £1m.

VAT

The VAT registration threshold will remain at £85,000. The deregistration remains unchanged at £83,000.

National Minimum and Living Wage

The National Minimum Wage will increase from £9.50 in 2022 to £10.42 from April 2023.

The National Living Wage will increase from £9.50 in 2022 to £10.42 from April 2023.

Changes to IR35 and Intermediary Rules

Plans to scrap the IR35 rules for the private sector in the mini budget have been reversed. IR35 to remain in place.

Domestic Reverse Charge in the Construction Industry

Contractors in the construction industry are required to apply the domestic reverse charge for VAT. The change will impact VAT registered businesses in the construction industry. Contractors at the end of the chain will continue to bill VAT to their clients and will account for the VAT of their respective CIS subcontractors.

Pensions

The pensions lifetime allowance will remain at £1,073,100 in fiscal year 2021/22.

The annual pension allowance will remain at £40,000.

Individual Savings Accounts (ISA’s)

The ISA Allowance will remain at £20,000 which can be apportioned between cash and share ISA’s.

The annual subscription limit for junior ISAs will remain at £9,000 in 2021/22.

Savings allowance

The personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers will remain in line with prior year.

Inheritance Tax

The nil rate band fr Inheritance tax will remain at £325,000.

The residence nil rate band will remain at £175,000.

Stamp Duty

From September 2022, the nil-rate thresholds of Stamp Duty Land Tax (SDLT) increased from £125k to £250k.

The nil-rate threshold for first time buyers increased from £300k to £425k.

Business rates

Business rates will be based on updated property valuations from 1 April 2023. This will result in increased tax burden for certain companies depending on the type of premises occupied. Businesses are advised to plan for this now and confirm whether they are affected.

Summary

At a time of rising inflation, the freezing of tax thresholds in the Autumn Statement will give rise to stealth taxes as more people will be dragged into the higher tax threshold in 2023. The combination of rapidly rising prices, combined with an increase in taxation and interest rates will likely lead to a significant recession next year. 

The unexpected reversal of the plans to scrap IR35 will affect certain Contractors and may result in increased taxes and reduction in contract opportunities.

Belsize Accountancy are specialist accountants for contractors and small businesses.