Chancellor Hunt’s turn at the despatch box on 17 November was, in many ways, noteworthy for the taxes he didn’t change, rather than those he did.
But it’s important for businesses to understand that the absence of changes to headline tax rates hides changes to thresholds and allowances below the surface – and these will affect how much of your business’s earnings you keep.
Here’s what’s on the cards, in eight key points.
- VAT frozen – but it’s not what it seems
Currently, if your business turns over more than £85,000 per year, you need to register it to pay VAT.
Nothing is changing here – the threshold has been frozen until 2026. But it’s not as benign as it sounds.
If your business generates more turnover as a result of rising inflationary prices, you might find it’s pushed over the threshold, and must register for VAT where it didn’t have to before.
- Personal allowance: static but changing
By keeping the personal tax allowance at £12.570 per year until 2028, the Chancellor is ensuring that, as employees’ pay rises over time, more of them move into the taxable bracket.
- Additional income tax: more will pay more
The goalposts have also been moved on additional tax (the UK’s highest rate of income tax).
Although the tax rate will remain the same (45%), the threshold will be reduced from £150,000 to £125,140.
More earners will therefore now enter this tax band.
- Allowances allow less
The dividend allowance will be cut from £2,000 to £1,000 in 2023-24, then to £500 in 2024-2025. This means that if you run a limited company, you’ll probably end up paying more tax on the dividends you draw as earnings.
Likewise, you’ll keep less of the money generated by things like the sale of machinery and land, as the capital gains tax allowance will also be cut - from £12,300 to £6,000 in 2023-24, then to £3,000 in 2024-2025.
- Business rates: going up, but with support
The business rates your business pays are based on the value of the property it occupies, and from 1 April 2023 they’ll be updated to reflect changes in property values since the last valuation in 2017.
However, the Government will also sugar the pill with a targeted support package worth £13.6 billion over five years.
The details are complex, but you can learn more from the Government’s business rates factsheet.
- Energy relief: no changes to plan
For businesses, energy costs are one of the greatest worries, but there will be no change to the support measures already announced, or their time scales.
The Energy Bill Relief Scheme remains in place until 31 March 2023, at which point it will be reviewed, with a view to delivering targeted additional support for the most vulnerable businesses only.
- (Some) wages get a boost
If you have employees, their national living wage will increase to £10.42 per hour, and a "substantial boost" has been also promised (although not quantified) for the national minimum wage from April 2023.
You’ll need to make payroll changes for any employees affected in your business, and these will of course impact your bottom line.
- R&D relief cut
The Corporation Tax deduction rate for small business Research and Development relief will be reduced to 86%, and the credit rate will be reduced to 10%.
The separate research and development expenditure credit, however, will increase from 13% to 20%.
It’s unclear what the net outcome of these two changes will be for any specific small business. However, the “cocktail effect” of reduced R&D relief and increased Corporation Tax (from April 2023) is something businesses will need to plan carefully for.
For more information on how Bedfordshire Chamber of Commerce help local businesses make sense of a changing world, and plan more effectively for it, visit www.chamber-business.com, or call us on (01582) 522448.