Now the dust has settled on the Autumn Statement, the maths has revealed some interesting hidden (and other less hidden) sucker punches. It hasn’t been amended which has been helpful this time around though! Our Autumn Statement write up can be found on this link: Autumn Statement 2022.
Two key points:
- There’s lots of modelling for us to do to capture the key changes and keep your income as tax efficient as possible; and
- There’s lots of planning for you to do before the end of the current 22/23 tax year to use those allowances before the key changes come in (hopefully with your IFA if you have one).
On the personal tax side, the personal allowance, basic rate and higher income tax threshold freezes until 2028 take a hard swipe at income growth. Croner Accountancy Daily reported this week that “The government’s deep freeze on income tax thresholds will see some workers’ tax bills rise by the equivalent of a 3.5% hike in the headline rate of tax”.
An average £33,000 earner will see an equivalent 2% increase to a base rate of 22%.
Croner Accountancy Daily report that someone with an income of £50,000 will pay just under £59,000 in income tax over the six years of the threshold freeze, being £9,000 higher than it would have been if tax thresholds had been uprated with inflation during that time. This is the equivalent of raising the basic rate of income tax to 23.5%.
Meanwhile, a higher earner with £75,000 of earnings will be hit by the equivalent of both the basic rate and higher rates of tax increasing by three percentage points each, to 23% and 43% respectively.
Other tax changes we must factor into our calculations include the lowering of the additional rate threshold from £150,000 to £125,140, the Capital Gains Annual exemption reduction from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024, and finally, the personal tax dividend allowance reducing from £2,000 to £1,000 from April 2023, and to £500 from April 2024.
Lastly, not forgetting the Chancellor’s confirmation that the main rate of corporation tax for companies with profits in excess of £50,000 will be 25% (for the financial year 2023). Whilst companies with profits below £50,000 will still be taxed at 19%, there will be marginal tapered relief for those companies with profits between £50,000- £250,000 resulting in an effective tax rate of 26.5% for profits in that band. This does not include all the other amendments that may be relevant scattered across Mr Hunt’s new tax landscape.
So, in conclusion, lots for us to do, and lots of planning for you.
