Autumn Statement - What it means for SMEs
Chancellor Jeremy Hunt has unveiled the contents of his Autumn Statement in the House of Commons. He has revealed tax rises and spending cuts worth billions of pounds and has frozen and reduced thresholds, meaning that many tax rises may not be immediately apparent.
This summary provides a brief overview of what it means for SMEs and their owners.
Business Taxes
Business Rates
From 1 April 2023, rateable values of non-domestic properties in England will be updated to reflect the property market as at 1 April 2021. A set of reliefs, including the freezing of business rates multipliers and percentage caps on annual increases in business rates will be introduced. This will mitigate the effect of the new valuations on ratepayers subject to substantial increases in bills.
The percentage increase in business rates bills as a result of the revaluation will also be subject to annual caps until 2025/2026 based on the rateable value.
It will be welcome news that transitional relief will be changed alongside next year’s revaluation and with an inflationary freeze – avoiding the threat of a significant increase in bills. The positive effect will be for those whose valuations go down, who, as a result of the change, will be paying a lower level of rates from year one. Alongside the significant expansion of relief for small firms in retail, hospitality and leisure, this is a positive change.
R&D Tax Credits
In response to concerns about abuse of the SME R&D program, and to increase the international competitiveness of UK businesses, the Government is rebalancing the rate of R&D relief for SME and Large Companies (under the R&D Expenditure Credit Regime).
For expenditure on or after 1 April 2023:
Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
Small and Medium-sized Enterprises (SME) additional deduction will decrease from 130% to 86%
SME credit rate will decrease from 14.5% to 10%.
The Government will also consult on the design of a single R&D tax relief scheme and mechanisms to further support R&D intensive SMEs without increasing overall the £20bn allocated to supporting R&D in the UK.
In addition, as previously announced in the Autumn Budget 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, targeting abuse and improving compliance.
VAT Threshold
The Government announced the VAT registration and deregistration thresholds will be frozen at £85,000 and £83,000, respectively, until April 2026.
This gives businesses certainty over when they will need to register for VAT for the next three years but will inevitably mean that more smaller businesses will have to register as inflation pushes up turnover. This will be of concern to small businesses that supply directly to consumers and can’t add the VAT on top of the prices they charge. Therefore, registering for VAT represents an absolute cost to the business.
Employment Taxes
Employer National Insurance
The Autumn Statement maintains the NICs Secondary Threshold for employers at £9,100 until April 2028.
At a time of such high inflation and alongside the understandable rise in the Living Wage, this Budget will increase the costs of employment without offsetting that with measures to reduce other business costs.
Employment Allowance
It was confirmed that the Employment Allowance be retained at its current level.
Company Car Tax
With the decline in the number of non-electric vehicles (EVs) being reported as company cars and a considerable increase in the number of EVs being chosen as replacements, it is perhaps unsurprising that the Chancellor has decided to revisit the tax generated from EV company cars. However, the Government still wishes to encourage the choice of an electric vehicle rather than traditionally fuelled cars to support 2026 emissions targets.
An EV is currently taxed as a benefit in kind (BIK) when made available for private use by an employer for an employee with a cash equivalent of 2% of the list price, and the Government has committed to retaining this rate until April 2025. Nevertheless, in the Autumn Statement, it was announced that the BIK rate will increase to 3% for the 2025-26 tax year, 4% for 2026-27 and 5% for 2027-28. Similarly, all non-EVs will also see the same 1% increase per annum over the same timescale.
This change has been anticipated by the Fleet industry, and they, along with employers, will be pleased that we have certainty for the next 4 years. Despite the increases announced, EVs are still a very attractive proposition for both employees and employers alike - especially when provided via salary sacrifice.
National Minimum Wage and National Living Wage
The National Living Wage (NLW) will rise to £10.42 from 1 April 2023, an increase of 92 pence or 9.7 per cent.
Alongside the NLW, there were also significant increases announced in the National Minimum Wage (NMW) rates for younger workers. The 21-22 Year Old Rate will increase to £10.18, narrowing the gap with the NLW and leaving this age group on course to receive the full NLW by 2024. NMW rates for 18-20 and 16-17 year olds and apprentices will increase in line with the NLW increase of 9.7% in recognition of the tight labour market and strong demand for labour in youth-friendly sectors.
Personal Taxes
Personal Tax Allowance
The Chancellor has extended the freeze on UK income tax allowances and thresholds until 2027/28. Income tax thresholds will remain as they are until 2027/28. Income tax thresholds were already frozen until 2026.
Doing this will pull more people into the income tax system for the first time, or into higher tax bands over the years, as wages increase under record inflationary pressures.
The Chancellor has also reduced the threshold for the additional rate of tax from April 2023. The rate at which people pay the additional rate of income tax, charged at 45 per cent, will change from £150,000 to those earning over £125,140. Currently, anyone earning between £50,271 and £150,000 pays 40 per cent in tax, and earners above this pay 45 per cent.
The changes mean that anyone earning between £125,140 and £150,000 will pay 5 percentage points more tax on their income.
National Insurance Contributions
The main NIC thresholds for employees, employers and self-employed individuals will remain frozen until April 2028. The net effect of this will be to increase the amount of NIC that low earners pay over time, but freezing the Upper Earnings Limit at £50,270 will benefit those whose income is above this level or increases beyond it before 2028: the NIC rate drops from 12% to 2% over the Upper Earnings Limit.
Dividend Tax
The dividend allowance will be reduced from £2,000 to £1,000 in April next year, and then reduced again to £500 from April 2024.
The reduction of dividend taxation allowances will be a blow to many owners of small limited companies who were excluded from direct support during the pandemic.
Other Measures
Energy Support
The Government will publish a review of the Energy Bill Relief Scheme (EBRS) for businesses and other organisations by 31 December 2022. But it has been made clear that any support offered beyond March 2023 will be much lower.
Tax Avoidance
The Chancellor announced a package of measures to tackle tax avoidance, evasion and wider non-compliance. The package includes a £79 million fund for additional staff to tackle more cases of serious tax fraud and wealthy taxpayers’ non-compliance. This investment is estimated to raise £725m and is in addition to the £292m of additional funding announced in the 2021 Spending Statement.
HMRC challenges taxpayers’ liabilities through a series of campaigns and ‘nudge letters’. These focus on areas identified as being particularly at risk of fraud and error, and, therefore, most likely to generate significant additional revenues for the Exchequer.
As their name suggests, nudge letters are designed to prompt taxpayers to reconsider whether they need to pay more tax to HMRC. Usually, HMRC issues them when it has information that suggests tax returns are incomplete. This could be data from overseas tax authorities about people’s non-UK bank interest, or discrepancies between Companies House data and tax returns. Recent nudge letters include:
Letters to offshore corporates owning UK property whom HMRC considered failed to pay tax on property sales and other transactions
Letters to people who drive for online platforms such as Uber or Lyft, explaining that HMRC has information suggesting they did not disclose all their earnings from this work
Letters to landlords who HMRC considers failed to tell HMRC about all their rental income in 2020/21
Letters to companies claiming R&D tax relief encouraging them to review their claims
HMRC is also devoting resources to tackling fraudulent and erroneous R&D tax claims, undertaking detailed checks before paying out the claims, or investigating cases in which refunds were made where the claims appear excessive. These compliance checks are undertaken by HMRC’s Fraud Investigations Service and its new R&D Anti-Abuse Unit, amongst others.
Any taxpayers who receive these nudge letters or face an R&D investigation should seek specialist advice on how best to respond. How many years’ tax HMRC can collect or reclaim depends on why mistakes occurred. This also affects the levels of any tax-geared penalties.
