Nimesh Shah, CEO
Reducing the 45% Income Tax threshold to £125,140 means that someone earning £160,000 will be £79 worse-off next year compared to 2022/23. This is because there is still a benefit from the 1.25% NIC reversal.
The reduction to the capital gains annual exemption to £3,000 from April 2024 will cost up to £2,604 in Capital Gains Tax.
The cut to the dividend tax allowance to £1,000 will cost a basic rate taxpayer £87.50; a higher rate taxpayer £337.50 and an additional rate taxpayer £393.50.
The cut to the dividend allowance to £500 from April 2024 means it is now only one tenth of the £5,000 allowance when it was introduced in 2016.
The additional rate tax threshold has been frozen at £150,000 since its introduction in 2010; had it increased in line with inflation, it should be worth over £206,000 – today’s reduction to that threshold to £125,000 means it is short by £81,000.
Personal tax measures announced by Jeremy Hunt are not as severe as they could have been – expectations of the public were clearly managed with the various leaks over the last few weeks. No increase to headline tax rates, including dividends and capital gains.
All of Jeremy Hunt’s personal tax announcements were leaked over the last few weeks, so no major surprises (or rabbits as promised). Business owners will be relieved that Capital Gains Tax rates remain the same.
Nothing from Jeremy Hunt today on: increases to dividend tax rates, aligning capital gains tax to income tax, non-doms – I expect there will be more to come from Jeremy Hunt and Rishi Sunak.
Genevieve Morris, Head of Corporate Tax
It’s a Budget that boils the frog. The continued freezing of tax thresholds means most people won’t notice it directly as the temperature increases, and so won’t leap out of the water. They’ll simply discover years down the line that they boiled.
Commissioning of Sizewell C represents an opportunity for French energy companies and Chinese investors. Again.
Social rents capped, but no help for the poorest people living in private rented accommodation where the market is completely unregulated and increases in interest rates etc. will simply be passed on to tenants. Yet when they can’t afford to pay and lose the roof over their head there simply won’t be any social housing to accommodate them.
A shame that the Chancellor tars all the SME community claiming R&D tax credits with the same brush – apparently they are all fraudsters, so the R&D reliefs will be cut – not a measure to help support innovation and development.
£100k of qualifying R&D expenditure will now be worth a repayable credit of £18,600 – before the changes this would have been worth a far more generous £33,350.
Interestingly far more companies are likely to be tempted to carry forward their losses instead (providing cash flow allows for it) as using the losses against 19% or 25% Corporation Tax rate will be worth between £35,340 and £46,500 in future tax savings once the business starts to make a profit.
Not only does the reduction in tax relief mean less for the companies doing the R&D, it will also impact on R&D ambulance chasers that charge a contingent fee based on the success of the claim. Typically a 25% success fee is not unusual. So not only a crackdown on the fraudsters, but a crackdown on the unregulated agents assisting them. Just a shame the genuine R&D SME’s are caught in the crossfire.
It’s a Budget of tax simplification – simply reduce and ultimately phase out every tax allowance – dividends allowance, Capital Gains Tax allowances, savings allowances …
A popular increase in the windfall tax on energy firms, from 25% to 35%. Popular for all apart from the energy companies of course!
Capital Gains Tax
The reduction in the Capital Gains Tax (CGT) annual exemption is being received negatively, but let’s face it, it’s still only a tax that’s paid when you sell an item and make a profit. For the vast majority of the population, CGT is something they will never have the privilege to pay.
Adam Wildbore, Audit Director
How is this budget not supporting the SME business?
Innovation incentives have been stifled due to a reduction to R&D relief. There are lower tax thresholds for the successful entrepreneur, tax thresholds have been frozen for hardworking staff against a backdrop of rising costs, inflation, and a quite buoyant employment market, where retaining talent is already a challenge.
Simon Rothenberg, Audit Director
I have just received this from an anonymous client in the hospitality sector
“I’m not going to say anything about today other than there is virtually no incentive (and soon will be no incentive) now to take the (massive) risk to go out and set something up. Unless you’ve done it, been through COVID with virtually zero support you cannot understand how demotivating this is. Ugh.”
Windfall tax on electric generators was a clear open goal and makes sense, as the way energy is priced in this country is crazy and outdated so green electricity generation price is based on gas prices.
If this Budget actually has no U-turns and measures stick for more than 12 months (or for even 12 hours) then business can start planning again for the future rather than reacting to fiscal changes
It does seem that Mr Hunt is trying to plan for the future, but how long will he and the current Government be given?
At last, someone in charge stating that “taxing private schools” will be a net negative for Government funds as c 90,000 pupils would migrate to the state sector. The tax income of £1.7bn would be dwarfed by lack of school space.
Heather Powell, Head of Property & Construction
The Chancellor confirmed the Government’s commitment to major infrastructure projects this morning, which will be a relief to many construction companies. Companies whose pipelines of work include contracts relating to these projects can now plan with confidence, investing in training up the next generation to their workforce as well as the plant they need, to deliver against these projects.
Paul Heywood-Schiefer, Private Client Senior Manager
The cut in the dividend and Capital Gains Tax threshold will just bring more people into self-assessment. Will this really raise sufficient funds to justify the additional administrative burden it creates?
Roger Holman, Private Client Partner
Capital Gains Tax allowances drop means many more will be having to report gains in tax returns, which means even more work for HMRC.
Stefanie Tremain, Private Client Partner
And admin pushed onto taxpayers. The tax system is complex so how many of the “pounds in taxpayers pockets” will be lost by people filing returns and not understanding how what reliefs they can claim, or on accountancy fees.
Married Couples’ Allowance and Blind Persons Allowance – The Government will up-rate the Married Couple’s Allowance and Blind Person’s Allowance by the September CPI figure of 10.1% for the 2023-24 tax year. The Married Couple’s Allowance will be valued at between £4,010 and £10,375 and the Blind Person’s Allowance will be valued at £2,870. The Government will implement these changes in the usual way through a Treasury Order.
Simon Sutcliffe, Customs Partner
Reduction in tariffs on certain raw materials is a bit of a non-point. Manufacturers already have relief regimes and Rules of Origin that can zero their raw materials.
There are over 6000 tariff codes in existence so 100 is a drop in the ocean. Many raw materials for manufactured goods originate in China which are subject to additional measures such as quotas, safeguarding and anti-dumping measures. These limit how much an importer can bring into the country of these products – hence limited impact. Items from countries where we have FTAs are already fee (EU, South Korea, Vietnam etc.). Most raw food products are free of customs duty already. Not sure what he is hoping to achieve with that announcement.
Robert Salter, Global Mobility Director
The fact that the 45% threshold will now start at approximately £125,140 does nothing to ‘clean up’ the tax system and the various inequities within it. For example, people with a marginal income in the range of £100,000 – £125,140 per annum will still face a marginal Income Tax rate of 60% on their income in this earnings range, compared to the marginal rate of 45% for those who earn above this limit – not exactly the sign of an equitable tax system.
It is also equally disappointing that the Government has not addressed the inequity associated with the Higher Income Child Benefit Charge – also known as the Child Benefit Clawback. This still ‘hits in’ when one partner earns at least £50,000 per annum and can mean that families with one partner earning between £50,000 – £60,000 per annum can often face an effective marginal tax rate of 65% – 70%, depending upon the precise number of children for whom child benefit is received.
The Government’s failure to address this inequity will simply result in ever greater numbers of families becoming liable to this charge and, as people in this position will need to file a tax return annually. The Government’s failure simply increases the number of tax returns which are required and increases the pressure on HMRC – an organisation which is really struggling with resourcing and significant delays.
Capital Gains Tax
The planned reduction of the Capital Gains Tax allowance – presently £12,300 per annum to £3,000 over the next two UK tax years – is very unwelcome. It punishes, for example, the smallest shareholders (those who literally buy and sell very small shareholdings each year) and will also increase the pressure on HMRC, in that more people will now be required to complete a tax return annually.
Universal Credit Change
The plan for the Government to encourage 600,000 individuals presently in receipt of Universal Credit to have ‘work interviews’ with trained coaches is welcome. It may, for example, genuinely help employers struggling with staff shortages get additional hours from existing staff and/or access a new pool of employees.
However, the reality is that the Universal Credit system is fundamentally flawed with an effective tax clawback of at least 55% on UC recipients, who work additional hours (or receive higher pay, for example, by taking on additional responsibilities). If the Government seriously believes the highest paid individuals should only pay a top rate of tax of 45% – so as to not discourage ‘hard work’ – it appears strange that the Government hasn’t recognised this core inequity in our tax and benefit system. Realistically the Government will struggle to get more work from UC recipients unless and until, they remove the punitive clawback faced by people caught in this ‘benefits trap’.
It is disappointing that the Government hasn’t focused on various problems and challenges with the NIC system. For example, by retaining the ‘pay period’ basis for assessing NICs, the Government continues to ensure that many people involved purely in seasonal work (e.g., students working over the summer) or those on zero hours contracts will continue to be liable to NICs, even when their annualised earnings fall well below the annual NIC threshold of £12,570 per annum.
It is also disappointing that in a Budget which is designed to be ‘fair’, the Government hasn’t recognised that the NIC system is – compared to the Income Tax system – often unfair. For example, NICs are not due on letting income, dividend income or bank interest. As such, those who are living off investment income – particular letting income – are better off than those in regular employment or self-employment.
The move to start subjecting electric cars to vehicle exercise duty is, in many respects, as expected. However, the reality is that the UK remains a ‘relative backwater’ when it comes to the purchase of electric cars and experience from other countries – e.g., Norway – shows that ongoing Government support in this area can pro-actively encourage the uptake of environmentally friendly vehicles.
The increase in the minimum wage by 9.7% – so increasing the hourly rate to £10.42 – is welcome. However, questions will arise as to how many employers facing a recession will be able to truly bear this cost given the pressures that they are already facing in this regard.
The increase in the pension will be welcome by many pensioners. However, the increase in the pension, while in accordance with election manifestos, the reality is that by increasing the state pension in this way, the Government has provided ‘cake’ – at least in some regards – for pensioners – whilst expecting the wider working population to pay for it.
Pensions Tax Relief
The failure to change the pensions tax relief rules – and things like the lifetime pensions allowance – represents a missed opportunity by Jeremy Hunt. The reality is that the lifetime pensions allowance and the effective 55% tax rate which applies for those exceeding this limit have clearly created significant staffing problems in certain areas – e.g. by encouraging GPs and surgeons to retire early. It is disappointing that the Government hasn’t recognised this problem and pro-actively tried to resolve the issue.
Personal Service Companies
The fact that the Government has not addressed any of the issues raised by IR35 – and in effect actually taxes many personal service companies at an effective rate of over 50% once one takes into account Income Tax, dividend tax and Corporation Taxes – just reinforces the message that this Government does not have time for the self-employed or freelance economy.
Given that economists have generally agreed that the flexible, freelance economy has been a major success factor behind the whole British economy over the past 30 years, this deliberate targeting of freelancers and entrepreneurs is a retrograde step which undermines the UK economy.
NHS Spending & Budget
While Jeremy Hunt’s Budget increases for the NHS – £3.3bn for each of the next two years – should be welcomed, it is also clear that these increases will not fully address the inflationary pressure faced by the Health Service.
For example, with the NHS budget in England & Wales presently costing ca. £136bn per annum, an increase of £3.3bn represents a rise of less than 3% in the NHS’s budget at a time when inflation is running at approximately 10%. As such, one can only assume the pressure on NHS resourcing and the ongoing issues that the NHS has from a staffing perspective will continue – and probably get worse – over the coming years.
VAT Threshold remains at £85,000
The fact that the VAT threshold – i.e., the threshold before businesses need to register for VAT and charge VAT to their clients – remains at £85,000 will simply discourage many businesses which could have looked to expand.
Businesses with a client base of private individuals often chose to keep their turnover below the VAT threshold, as charging VAT simply increases the core cost for private individuals. As such, businesses in this situation will have to choose between raising their fees significantly – and hence potentially becoming uncompetitive or potentially just reducing the amount of work they take on, so that they can remain below the £85,000 threshold.
With many small businesses – e.g., builders – actually operated by people who are relatively advanced in their career, it would be no surprise if many such individuals simply decided to take on less work and, for example, only work on four days per week. This could cause problems for those looking for support with building projects for example.
Neil Insull, Corporate Tax Partner
The R&D tax credit will be worth only 18.6p for every £1 of R&D spend compared to the current 33.3p. So effectively giving relief at slightly less than the lower rate of 19% rate of Corporation Tax from April 2023.
Andrew Sanford, Audit Partner
The success of today’s Budget will ultimately be determined by how the markets react. Any deviation in fixed rate mortgages could outweigh for house owners any of the announced tax changes today.
Joe Neal, Private Client Tax Manager
If the ‘triple lock’ is kept the max state pension will exceed the personal allowance by April 2026. Dragging pensioners into the tax system. More admin for HMRC.
Would you like to know more?
If you have any questions about the Government’s Autumn Budget and how it may impact you, please get in touch with your usual Blick Rothenberg contact or Nimesh or Genevieve using the details on this page. For any media enquiries, contact David Barzilay.
You can also visit our Budget Hub, where you can find our commentary and a range of insights to help you better understand how the Budget may affect you.