Autumn Statement 2022

With so much uncertainty around politics over the last few months, the Autumn statement that was delivered by Jeremy Hunt on 17 November was perhaps less dramatic than we had all thought it would be, but in reality, what does it mean for your average owner managed business operating through a limited company?

Firstly, with income tax allowances frozen until April 2026, more and more people may find themselves drifting into the higher rates of tax. With prices rising and mortgage rates increasing there may be the need to draw more income from your company to meet day to day living costs. Depending on your personal circumstances and with careful planning it may be possible to get more out of your company and stay within the basic rate of tax.

Although just a small reduction, the Dividend Allowance is being reduced from £2,000 to £1,000 from April 2023 and to just £500 from April 2024. Whilst this sounds painful, for a basic rate taxpayer, the reduction to £500 will cost £131.25 in additional tax a year.

Careful planning is going to be needed to maximise income and keep the tax burden down.

The biggest change coming is the introduction of the 25% corporation tax rate which comes in on 1 April 2023. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the 25% rate reduced by a marginal relief adjustment. My colleague Kelly produced an article on the impact of the new rate in our last newsletter and this can be viewed on our website Corporation Tax Increase in 2023 | Albert Goodman

Given the increased rate, consideration should be given to factors within your control to reduce taxable profits. Things to consider are:

• Investment – the Annual Investment Allowance (AIA) is being kept at £1m. This means that any spend on qualifying plant and machinery will reduce taxable profits. Whilst it’s not sensible to spend just to save tax, considering the timing of planned investment in plant and machinery is important to ensure you maximise tax relief.
• For a business owner, look at expenditure being paid for personally out of taxed income. Could the company pay for this and obtain tax relief? Things like pension contributions and life assurance are two possible areas to look at. Going one step further, if you were considering buying an electric car personally, it may be more tax efficient to do this through your limited company. However, it should be noted that from April 2025 electric vehicles will start to pay Vehicle Excise Duty.

Looking at VAT, for businesses that aren’t VAT registered, the threshold at which you must register is being frozen at £85,000. Given the current inflation rates, this may bring more and more business into charge. If your turnover is close to this limit, you need to monitor this and make sure you register if necessary.

Further increases are set for the national living and minimum wage from 1 April 2023. For some small businesses, these rates are becoming unsustainable. Not only do the lower paid staff have to be paid more, but the next tier up also demand a rise. As wage rises generally result in increased employer national insurance payable and pension contributions, consideration should be given to other benefits that could be given to those in this next tier up, rather than outright pay increases. Paying higher rates of pensions contributions or offering company life assurance could be an attractive benefit to some. There are also still some useful salary sacrifice schemes that could be considered.

If you would like to discuss any of the above points please contact me or your usual Albert Goodman point of contact.