The Autumn Statement
Kathryn Gigg Chartered Accountants, Hunstanton have produced this report for the readers of Town and Around.
On the face of it the Autumn Statement of 2022 was fairly simple and in clear contrast to the political mixed messages which had preceded it and indeed the masses of detailed supplementary documents which have recently accompanied similar budgetary events. This year almost everything was encompassed within a short press release running only to a couple of pages.
The policy for “filling the financial black hole” is simply to raise substantial amounts by “stealth taxes” - that is, failing to raise tax bands in line with inflation. This strategy is particularly effective when inflation is running at over 10%. Coupled with a reduction in the level at which tax is charged at 45%, the intention is not to introduce any new taxes or initiatives but simply to let inflation erode the value of existing reliefs – so more people will be brought into the tax net, and more of the people within the net will pay tax at 40% , 60% or 45% over the next few years. However, there are other aspects to this which have not been well publicised, and which are worth examining in more detail:
- The band of income where personal allowances are tapered away has largely escaped attention. Most taxpayers are totally surprised that with income between £100,000 and £125,140 they will pay a marginal rate of 60% before dropping back to 40% (45% after 5 April 2023).
- Both the reinstatement of the 25% Corporation Tax rate and the reduction in the dividend allowance from £2000 to £500 by 2024/25 will further reduce the advantages of the small, incorporated business. The latter change will also drag into the Self Assessment tax regime large numbers of small private investors who would not normally need to file a return. (I am not sure how HMRC will cope with this added workload, let alone the poor taxpayer!)
- Similarly, the freezing of the VAT registration limit at £85,000 means that as even quite modest businesses see their gross income (but not necessarily profit) rise with inflation, they will be required to either cut back their activities or register for VAT.
- Currently everyone has an annual allowance of £12,300 for Capital Gains Tax, with no tax being charged on gains below this level. This is to reduce to £3,000 over the next two years. This is probably unlikely to affect those with managed share portfolios whose brokers normally manage their gains to keep within the allowance but might catch those without an adviser who perhaps, for example, gift a property to their children or sell a small parcel of land or other chargeable asset. Moreover, even if gains are below the annual allowance, a tax return is still required where the GROSS proceeds exceed four times the annual allowance. So, unless the legislation changes to address this, by 2024/25 someone selling a capital asset for over £12,000 will need to file a Return even if the gain is less than £3,000. (Again, with HMRC staffing being under such pressure one wonders how they will cope with all these additional Returns!)
- For those in self-employment with trading years that are not aligned to the fiscal year, 2023/24 is already going to be complicated because it is the “transitional” year in which the business will need to align its profits to the fiscal year (meaning that multiple years will need to be taken into account for tax purposes, although the effect can be mitigated by “spreading relief). We can now see that the new 45% band will coincide with what might be a year of exceptionally and artificially high taxable profits. This underlines the need to at least consider changing the year end to 5 April 2023 and forgoing the benefit of spreading relief in favour of paying more tax now but at a lower rate
- For Inheritance Tax, the nil-rate band of £325,000 has now been unchanged since April 2009 during which time RPI has risen by almost 70%. The allowance will now be frozen until 2028, by which time it will probably have halved in value since it was last revised. The additional relief of £175,000 for a private residence which passes to descendants may also be at risk in some cases because it is only given where a total estate is less that £2m, another relief which is being frozen. Some commentators thought that a major reform of Inheritance Tax was in prospect – it now looks as if the tax take will be increased by simply letting the allowances be eroded by inflation.
All this is increasing the need for proactive tax planning. Some taxpayers may look to structure their income or capital gains to make best use of the existing reliefs before 5 April next year. Others may decide that now is the time to look at Inheritance Tax planning or simply to review their affairs in advance of the changes to ensure they do not inadvertently fall foul of the new rules, and limits, and trigger the fines and penalties which can result from even accidental non-compliance. If in doubt, take advice!
Please contact either myself or my partner Nicola Tarry FCA on 01485 534800 or email email@example.com if you require advice.
Mrs K H Gigg FCA N.B. Article written in November 2022
Caution: The information listed above is for general guidance only. You should neither act, nor refrain from action, on the basis of any such information. You should take appropriate professional advice on your particular circumstances because the application of laws and regulations will vary depending on particular circumstances and because laws and regulations undergo frequent change. Whilst I endeavour to ensure that the information contained herein is correct, neither I nor my firm shall be liable in damages (including, without limitation, damages for loss of business or loss of profits) arising in contract, tort or otherwise from any information contained in it, or from any action or decision taken as a result of using any such information.
© Kathryn Gigg 2022