Autumn Statement 2022: what it means for Small Businesses

The new chancellor, Jeremy Hunt, gave his long-awaited full fiscal statement on 17 November. What does the Autumn Statement 2022 mean for small businesses?

The Chancellor said that he wants “low taxes and sound money – but sound money has to come first.”

In practice, this means the government won’t change headline tax rates, but they will tinker with thresholds and allowances. Over the next few years you will notice that you’re keeping less of your small business earnings.

Autumn Statement 2022 for small businesses: key points at a glance

1. A freeze in the VAT registration threshold

Jeremy Hunt has frozen the VAT threshold at £85,000 until 2026, which is the turnover at which businesses need to register to pay the tax.

This is essentially a ‘stealth tax’. Rather than increasing the VAT rate itself, the threshold won’t increase in line with inflation. So if small businesses earn more as a result of rising prices, they’ll then have to register to pay VAT.

2. Personal allowance freeze extended until 2028

When he was chancellor, Rishi Sunak froze the income tax personal allowance at £12,570 until 2026. This was called a ‘stealth tax’. That’s because when people earn more over the years, their personal allowance won’t also increase, and they’ll move into higher tax brackets. This means they keep less of their money.

The current government has extended this freeze until 2028.

3. Reduction in the additional income tax rate threshold

The chancellor will reduce the additional income tax threshold from £150,000 to £125,140.

This means that more self-employed people could potentially become additional rate taxpayers, paying 45 per cent on earnings above £125,140.

The Independent estimates that 250,000 more people will be brought into the additional rate following the change.

4. The government is making other allowances less generous

If you run a limited company, you may pay yourself in dividends.

And business owners may need to pay capital gains tax when they sell business assets like land and machinery.

You get an annual allowance for both of these taxes, which is the amount you can make without paying the tax.

In the Autumn Statement, Jeremy Hunt slashed these allowances. By 2024-2025, they will be significantly less:

• the dividend allowance will be cut from £2,000 to £1,000 in 2023-24, then to £500 in 2024-2025
• the capital gains tax allowance will be cut from £12,300 to £6,000 in 2023-24, then to £3,000 in 2024-2025

5. What did the government announce for business rates?

From 1 April 2023, business rate bills will be updated to reflect changes in property values since the last revaluation in 2017.

To support this transition, the government has announced a targeted support package worth £13.6 billion over five years.

Here are the announcements on business rates:

• multipliers will be frozen from 2023-24 which the Treasury says will be a “tax cut worth £9.3 billion over the next five years”
• a transitional relief scheme will cap bill increases caused by changes in rateable values at the 2023 revaluation (bill increases for the smallest properties will be capped at five per cent, while increases for medium-sized and larger properties will be capped at 15 per cent and 30 per cent respectively)
• retail, hospitality, and leisure business rates relief will be increased from 50 per cent to 75 per cent (up to £110,000 per business) in 2023-24
• if businesses lose their eligibility for small business rates relief as a result of revaluation, bill increases will be capped at £600 per year from April 2023

Read the government’s business rates factsheet for more information.

6. What’s happening with energy bills?

The government will introduce more targeted support on energy bills for both consumers and businesses. The idea is to protect those who are struggling the most.

For your energy bills as a consumer, the changes are:

• the typical household’s energy bills will be ‘capped’ at £3,000 from April 2023 (it’s currently £2,500 – bear in mind that as the unit price of energy is capped, not the total bill, if you use more you pay more)
• there will be additional cost of living payments for the most vulnerable, meaning an extra £900 for households on means-tested benefits, £300 for pensioners, and £150 for people on disability benefit

For businesses, the Energy Bill Relief Scheme will remain in place until 31 March 2023. But the government will review the scheme, with the expectation that from April 2023 there will be targeted support for the most vulnerable businesses.

The government says that “the overall scale of support the government can offer will be significantly lower, and targeted at those most affected to ensure fiscal sustainability and value for money for the taxpayer.”

7. The national living wage will increase

If you have employees, the government has announced that the national living wage will increase to £10.42. The Treasury says this will give over two million people a pay rise.

There will also be a “substantial boost” to the national minimum wage from April 2023. The aim is to make “significant progress on ending low hourly pay by 2024-25.”

8. Reduction in research and development tax relief

Jeremy Hunt has announced that research and development tax relief for small businesses will be reduced to curb abuse and fraud.

So, the deduction rate for small business research and development rate will be reduced to 86 per cent and the credit rate will be reduced to 10 per cent.

The rate of the separate research and development expenditure credit will increase from 13 per cent to 20 per cent.

Read more:

• How does the current Bank of England base rate affect businesses?
• How to budget: a calculator and guide for the self-employed
• What is business insurance?

Here’s the government’s complete Autumn Statement 2022 document if you’d like to read all the details.

Article taken from Simply Business

A simple guide to Spring Statement 2022

This is a basic guide, prepared by ACCA’s Technical Advisory team, for members and their colleagues or clients. It’s an introduction only and should not be used as a definitive guide since individual circumstances may vary. Specific advice should be obtained, where necessary.

The headline message from the Chancellor was future tax cuts to support families with the cost of living.

You can read the individual measures below.

Rates and allowances

The government will reduce the basic rate of income tax to 19% for England and Wales from April 2024.

With inflation at 6.2% and predicted to go higher, the personal allowance and tax thresholds remain frozen. A consequence is that more individuals and businesses are likely to need assistance in navigating the complex tax system.

National Insurance

From April 2022 the rate of National Insurance contributions across all classes (except Class 2 and 3) will change for one year. The amount of the contribution will increase by 1.25% which will be spent on the NHS and social care across the UK. This will be replaced by the new Health and Social Care Levy which will take effect from 6 April 2023.

The Chancellor announced that the Primary Threshold and Lower Profits Limit will both increase from £9,880 to £12,570. This aligns the thresholds with the personal allowance.

This increase in National Insurance contributions will apply to:

• Class 1 (paid by employees)
• Class 4 (paid by self-employed)
• Secondary Class 1, 1A and 1B (paid by employers).

Employers will only pay on earnings above the secondary threshold.

The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. July is the earliest date that will allow payroll software developers and employers to update systems and implement changes. From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay Class 2 NICs. Over the year as a whole, the Lower Profits Limit, the threshold below which self-employed people do not pay National Insurance, is equivalent to an annualised threshold of £9,880 between April to June, and £12,570 from July 2022.

Employment Allowance

ACCA in representations had suggested an increase in the Employment Allowance. This allowance increases by £1,000 from £4,000 to £5,000. This increase applies from April 2022.The allowance continues to be limited to employers with an employer NIC bill below £100,000 in the previous tax year.

Pensions

With effect from 6 April 2028 the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge will increase from 55 to 57.

Capital gains tax annual exempt amount (after personal allowance)

These are frozen at £12,300 for individuals and £6,150 for trusts.

Dividend allowance

The tax-free dividend allowance is unchanged at £2,000. The dividend tax rates are increased by 1.25% for each category of taxpayers for 2022/23.

S.455 tax rate on director’s overdrawn loan accounts will also increase from April 2022, from 32.5% to 33.75%.

Corporation tax

The corporation tax rate will remain at 19% but from April 2023 the applicable corporation tax rates will be 19% and 25%. Businesses with profits of £50,000 or below will still only have to pay 19% under the small profits rate.

Enhanced capital allowances: super deduction

Super-deduction allows increased reliefs for expenditure on qualifying plant and machinery incurred from 1 April 2021 up to and including 31 March 2023. Companies can claim in the period of investment:

• a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main-rate writing-down allowances
• a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances

Annual Investment Allowance (AIA)

Annual Investment Allowance is available until 31 March 2023. Businesses will therefore have until March 2023 to consider bringing forward capital investments of between £200,000 and £1m, accessing upfront support by claiming tax relief on such costs in the year of investment.

Recovery Loan Scheme

The Recovery Loan Scheme is extended six months until 30 June 2022 for small and medium sized enterprises and from 1 January 2022 capped at a finance level of £2m per business with the government guarantee reducing to 70%.

Making Tax Digital (MTD)

MTD for ITSA will be introduced from 6 April 2024. This impacts sole traders and landlords, with income over £10,000. General partnerships will not be required to join MTD for ITSA until 6 April 2025.

VAT

All VAT-registered businesses must register for MTD.

In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital (MTD) from April 2022, regardless of turnover.

HMRC urges VAT-registered businesses to sign up for Making Tax Digital for VAT before 1 April 2022. 

The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.

From 1 April 2022 the VAT rate on energy-saving materials in residential accommodation is reduced to 0% (currently 5%). This measure is introduced until 31 March 2027.

Given the increased costs and inflation we will see many small businesses having to register.

The reduced rate of VAT of 12.5% ends on 31 March 2022 for the hospitality sector returning to the standard rate of VAT of 20% from 1 April 2022.

All VAT-registered businesses must file digitally through Making Tax Digital (MTD) from April 2022, regardless of turnover. HMRC urges VAT-registered businesses to sign up for Making Tax Digital for VAT before 1 April 2022.

Losses

Trading losses will have more flexibility to carry them back over three years. This applies only for losses incurred by companies for accounting periods ending between 1 April 2020 and 31 March 2022, and for individual for trade losses of tax years 2020/21 and 2021/22.

Business assets disposal relief (previously known as Entrepreneurs’ relief)

The lifetime limit on gains eligible for business assets disposal relief is £1m for qualifying disposals.

R&D

SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability.

Rates

The business rates multiplier will be frozen in 2022/23. Eligible retail, hospitality, and leisure businesses will also benefit from a new temporary 50% Business Rates Relief.

Inheritance tax (IHT)

The nil-rate band remains at £325,000, frozen until 2026. The residence nil-rate band for deaths in the following tax years are:

• £100,000 in 2017/18
• £125,000 in 2018/19
• £150,000 in 2019/20
• £175,000 in 2020/21
• £175,000 in 2021/22 and subsequent tax years to 2026.

Time to pay

Individual taxpayers can set up a payment plan online via GOV.UK by 31 March 2022 to avoid any late-payment penalties.

Pensions

The pension lifetime allowance will remain at its current level of £1,073,100 until April 2026.

Annual Tax on Enveloped Dwellings (ATED)

The ATED charge increases automatically each year in line with inflation (based on the previous September’s Consumer Prices Index).

March 2022

ACCA LEGAL NOTICE

This is a basic guide prepared by ACCA UK‘s Technical Advisory Service for members and their clients. It should not be used as a definitive guide since individual circumstances may vary. Specific advice should be obtained, where necessary.

ACCA-Guide-to-Spring-Statement-2022