The autumn statement.
Almost one week on, the words in our title ring in the ears of millions of brits leaving them feeling a bit like this:
Spoken by the conservative Chancellor of the Exchequer, Jeremy Hunt, many people wondered what on earth was to follow and how much help would be given to those most in need.
Whilst the statement contained everything from tax to education (with a few jibes at the opposition inbetween), we have broken down what we feel is most helpful for you here. Bookmark this, hold on to it for when it's needed the most, because no doubt, the statement will have or will affect you in some way.
KEY POINTS TO KEEP AN EYE ON
WHAT WAS ANNOUNCED: Income Tax and National Insurance contributions thresholds will be fixed at their current rates until April 2028.
WHO & HOW IT IMPACTS: Everyone, whether a sole trader or director of a limited company. It essentially means that tax free personal allowance and NI threshold for individuals will remain at £12,570 for the next 6 years.
WHAT WAS ANNOUNCED: the Income Tax additional rate threshold will be lowered from £150,000 to £125,140 from 6 April 2023.
WHO & HOW IT IMPACTS: If you earn over £125,140 you will now pay 45% tax on any income over this threshold, rather than the 40% it was previously. This means that higher earners will pay an extra £1243 a year in tax between the new threshold and the old one.
WHAT WAS ANNOUNCED: the National Insurance contributions secondary threshold will be fixed at £9,100 from April 2023 until April 2028. The Employment Allowance will mean the smallest employers will not be affected
WHO & HOW IT IMPACTS: Potentially all businesses whose gross wages are high every month. Fortunately, you may not feel the impact of this because you could be entitled to the£ 5000 employment allowance (de minimis state aid) given to you each tax year to cover your employers national insurance contributions. If you are unsure if you do, talk to us today.
WHAT WAS ANNOUNCED: the Dividend Allowance will be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024
WHO & HOW IT IMPACTS: Unfortunately, all limited company directors. This will mean that from April 23, making sure your salary and dividend combo is tax efficient will mean some new sums. As a director, currently you can take a salary combo of up to £14,570 tax free. From April 23 that will reduce. You will lose £1000 of tax-free dividends equating to £87.50 in the year. The following year, it will be reduced to £500, meaning you lose £131.25. We’ll publish more on this in March 23.
WHAT WAS ANNOUNCED: the Capital Gains Tax Annual Exempt Amount will reduce from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
WHO & HOW IT IMPACTS: Whilst not everyone is impacted here, if you close your limited company from next year and take out remaining capital, sell a property that’s not your main home and make a profit, sell business assets, have any shares that aren’t in an ISA, then you could be stung by this. The allowance being cut by £6300 is a chunk especially if you are higher rate taxpayer meaning you could end up paying anywhere between £1260 & £1764 in the year depending on what you sold.
WHAT WAS ANNOUNCED: the VAT registration and deregistration thresholds will be maintained at the current levels of £85,000 for an additional two years from 1 April 2024
WHO & HOW IT IMPACTS: For those on the cusp of VAT registration or looking to deregister, nothing is changing for the next 4 years. Whilst this is not bad news, because the government haven’t chosen to do a raid on VAT registered businesses by decreasing the threshold or upping the tax rate, it does mean they also aren’t making any changes to increase the threshold or lower VAT.
A note about fixed thresholds.
Doesn't sound bad does it?
No. But considering that tax free allowances or thresholds are staying the same whilst wages are having to increase to match cost of living, or your prices are needing to increase to do the same, this means you could be walking away with less money per month.
Let's take VAT to start with.
The threshold for registration is sticking at £85,000. Based on your pricing last year, your turnover was £75,000 p/a. That meant you didn't need to worry about VAT because you are £10,000 under the threshold.
But this year, suppliers have increased their prices and if you stick at your current pricing rate, you will lose a large chunk of your profit margin. So to offset this, you explain to your customers that you will be raising your prices by a reasonable 14%.
This would mean your annual turnover would increase from £75,000 to £85,500, tipping you over the VAT threshold, requiring you to pay an additional 20% (rate subject to change based on services) tax to HMRC.
Whilst there are benefits to being VAT registered, if you are unprepared and unable to increase your income by the additional 20%, it's worth doing the sums to see what is viable for you.
Essentially, the government are counting on the above scenario to help them recoup some of the money they lost through covid due the schemes put in place there.
Strangely, the scenario with income tax is not much different. The tax free allowance remaining at £12,570 but wages steadily increasing to match cost of living, means people who have never paid tax before could start paying tax and actually walk away with less money.
So there you have it. Heard the term stealth raid? This is how they work. Thresholds freeze but income increases, meaning people pay more tax to HMRC.
What's the deal with pensions?
Despite speculation, the government decided to stick with the pensions triple lock. This is good news. But what is the triple lock exactly?
The pensions triple lock was designed to make sure that the state pension amount was never overtaken by the increase in cost of living or the working populations income.
It was introduced by the conservative / liberal democrat coalition back in 2010.
The reason it's given the name "triple lock" is because the state pension will increase each year in line with whichever of the following three measures is highest:
The average increase in UK wages
Or inflation, as measured by the Consumer Prices Index (CPI) in September of the previous year.
Essentially one of three measures would ensure that the state pension amount was locked in at a rate that was livable and fair for pensioners.
So then, what is the state pension rate?
In the Autumn Statement, Mr Hunt confirmed that the state pension (amongst some other benefits) will go up by 10.1% - that is in line with September's Consumer Prices Index (CPI) measure of inflation.
From April 2023 payments will be:
£203.85 a week (currently £185.15) for the full, new flat-rate state pension (for those who reached state pension age after April 2016)
£156.20 a week (currently £141.85) for the full, old basic state pension (for those who reached state pension age before April 2016)
As a word to the wise, in order to qualify for state pension you need to have at least 10 years of qualifying National Insurance contributions on your record.
You can check in with National Insurance to see if you have any gaps in your National Insurance record and what you would need to pay to fill them.
This is also useful if you are self-employed and need to claim state benefits to tide you over whilst sick, pregnant etc - if there are gaps in the record, you may not be entitled to them.
There you have it.