In the autumn budget announced yesterday, 17 November, chancellor Jeremy Hunt unveiled a number of measures to help deliver a “balanced path to stability”, including the largest ever increase to the national living wage and additional support for those who have left the workforce.
In his speech, the chancellor said: “In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future. So today we deliver a plan to tackle the cost of living crisis and rebuild our economy. Our priorities are stability, growth and public services.” He added that the announcement included some “difficult decisions”.
The following content is accurate as of 18.11.22.
Freezing Income Tax Bands
It had already been announced that the income tax personal allowance (£12,570) and higher (40%) rate threshold (£50,270*) would be frozen until 5 April 2026, instead of increasing each year in line with inflation. It is now confirmed that these freezes will continue until 5 April 2028.
As earnings increase, this will result in higher rate taxpayers and is often referred to as a ‘fiscal drag’ because it will raise more tax without actually increasing income tax rates.
45% Income Tax Threshold Lowered
The income level at which point the ‘additional’ 45% rate of income tax starts to apply will be reduced from £150,000 to £125,140* from 6 April 2023.
The new £125,140 threshold ties in with the £12,570 personal allowance being gradually withdrawn for those with income in excess of £100,000. For these individuals, once their income exceeds £125,140, they will no longer be entitled to a personal allowance and, from April 2023, will move straight into 45% income tax.
*It should be noted that, for Scottish taxpayers, income tax rates and thresholds are, for certain income types, separately set by the Scottish government.
NIC Bands Frozen
Fortunately for employers, there were no more changes to NIC rates and bandings announced, which means no payroll software updates, which will be welcome news to many.
NIC thresholds are now also frozen until 5 April 2028. This means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees and the self-employed will continue to pay 12% and 9% respectively on earnings/profits between £12,570 and £50,270 and 2% thereafter.
Dividend Income – Reduced 0% Band
For all individuals, the first £2,000 of dividend income is taxed at 0%.
The government have now decided that this ‘dividend allowance’ of £2,000 will be reduced to £1,000 in the 2023/24 tax year and then again to just £500 in the 2024/25 tax year.
It should be remembered that the income tax rates applied to dividend income outside of the allowance have only recently been increased to 8.75%, 33.75% and 39.35% (for dividend income falling into basic rate, higher rate and additional rate bands respectively).
VAT Registration Limits
The VAT registration threshold continues to be frozen at £85,000, instead of increasing each year in line with inflation. This will remain the case until March 2026.
Plans for Research & Development (R&D) Tax Reliefs
Alongside plans to merge two existing schemes in future, he announced that, from 1 April 2023:
- The Research and Development Expenditure Credit (RDEC) available to non-SME companies would be increased from 13% to 20%.
- For SME companies, the additional R&D tax relief deduction will be reduced from 130% to 86%.
- For loss-making SME companies, the payable credit will be reduced from 14.5% to 10%.
National Living Wage to Increase
The national living wage for workers over 23-years-old will grow by 9.7 per cent to £10.42 an hour from April 2023, affecting more than two million of the UK’s lowest-paid workers.
Additional Support For Those Who Left The Workforce
The Chancellor said the Department for Work and Pensions had a critical role in supporting people into work, and pledged to invest £280m into the department to help crack down on benefit fraud, as well as investing a further £11bn in benefits.
He continued by committing to undertake a thorough review of adults who have left the workforce and to improve their prospects of landing a job. People receiving universal credit will be advised to routinely meet work coaches.