On Thursday 17th November, the Chancellor Jeremy Hunt addressed the nation at the House of Commons and outlined the Autumn Budget and the Medium Term Fiscal statement. With harsh tax rises predicted, many were anxious as to what the Chancellor would announce. A reported £55bn blackhole of government debt has led to huge concerns.
With the Chancellor prioritising stability, growth and public services, reducing inflation was a key theme throughout his lengthy speech. The Chancellor began by admitting that the UK was in recession, a sentence which is likely to worry many. He also added that forecasts from the Office for Budget Responsibility show the economy will grow by 4.2% this year.
We recap the key announcements from Mr Hunt, including an extension to the Energy Price Guarantee, changes to the rate of income tax for higher earners, and an increase to windfall tax for energy companies…
Tax Rates & Thresholds
The major headline from the Autumn Budget was of course to do with personal tax. The top 45% additional rate of income tax will be now paid on earnings over £125,140. This is instead of the previous threshold of £150,000. Even more startlingly, the dividend allowance will be cut from £2,000 to £1,000 next year. It will then be even further reduced to £500 in April 2024.
As well as this, Income tax personal allowance and higher rate thresholds are frozen until April 2028.
Furthermore, the main National Insurance and inheritance tax thresholds are also frozen until April 2028.
Hunt announced, “The UK still has the most generous set of tax-free allowances of any G7 country.”
Capital Gains Tax
With Capital Gains Tax a major talking point pre-Autumn Budget, it was widely expected the Chancellor would announce some changes to the scheme. The tax-free allowance for capital gains will reduce in 2023–24 from £12,300 to £6,000. In 2024-25, it will then reduce even further to £3,000. This is widely expected to hit tens of thousands of people in the UK, including business owners, retirees, and second homeowners.
EV Road Tax
As the rate of Electric Vehicle users increases, the Chancellor has decided that EVs will no longer be exempt from Vehicle Excise Duty. One of the main selling points of EVs in terms of financial benefits was the fact that they required no road tax to be paid. This will likely deter many people from purchasing an EV, that will have a direct impact on the EV market.
Windfall Tax & Energy Bills
With energy giants BP and Shell announcing huge record profits most recently, the call for an increase in windfall tax has snowballed. Mr Hunt announced that the UK windfall tax on oil and gas companies will rise from 25% to 35%.
As well as this, there will also be a new 45% levy imposed on electricity generators. This is predicted to raise £14bn for the government. This news will be welcomed by many and was almost a certain announcement expected.
What’s more, the Chancellor also announced an extension to the Energy Price Guarantee to April 2024. However, he also admitted that the average household will pay £3,000 for their annual energy bills. This is £500 annual increase since the October price cap announcement.
With businesses across the UK evidently struggling to pay bills and even staff, the government announced a substantial package to ‘soften the blow’. A £13.6bn amount of tax cuts was announced which is expected to help out over 700,000 businesses across the land. A re-evaluation of the rates will occur in April 2023.
However, rather surprisingly, was the fact that no changes to VAT for hospitality and catering was announced. This will plunge thousands of businesses in the sector into financial turmoil, who were harbouring hope of a temporary reduction in VAT.
The UK government have long prioritised R&D to promote the UK on a global scale. In an effort to reduce abuse and fraud, the Chancellor announced the deduction rate for the SME scheme to 86% and the credit rate to 10%. There will however be an increase in the rate of the separate R&D expenditure credit from 13% to 20%.
He also announced that the government is protecting £20bn in R&D investment in 2024-25. Tax reliefs were already previously announced to be reformed, with more details expected in the coming weeks and months.
Another huge headline moment during the budget was the announcement of the ‘biggest ever cash increase in the state pension’. By stating that he would be fulfilling the retainment of the pension triple lock, in April 2023 the state pension will increase in line with inflation. This means a 10.1% increase which is equivalent to £870.
This will go down extremely well with pensioners who have long complained that the government haven’t prioritised them enough.
National Living Wage
Hunt revealed he would be raising the national living wage from £9.50 per hour to £10.42 per hour, providing a nearly 10% increase. This will represent an annual pay rise worth over £1,600 for a full-time worker. This is expected to benefit over 2 million low paid workers in the employment sector.
We hope this has outlined the main announcements from the Chancellor during the 2022 Autumn Budget. We will be providing a more in-depth analysis document over the coming days, outlining all the key details of the announcements. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query