Taking Stock Amidst Turbulent Times in the Tax World
The word ‘unprecedented’ can be overused in the modern world, but when it comes to looking at events of the past few months associated with changes in UK economic and tax policy, it seems particularly appropriate. In the Autumn of 2022, major tax changes were announced (and, in many cases, withdrawn) at a pace never seen before.
While financial markets appear to have settled somewhat since the Autumn Statement delivered on 17 November, there might easily be some confusion as to what the current position is with respect to those matters which were subject of discussion.
Therefore, it is worth taking stock of where some of those key matters now stand. What follows is a brief summary of some of the main points, setting out what the current position is.
1. Capital Gains Tax (“CGT”)
The headline announcement was that the Annual Exempt Amount (“AEA”) will be reduced from £12,300 to £6,000 in April 2023, before being further reduced in April 2024 to £3,000. Key reliefs remain available (e.g. Business Asset Disposal Relief and Investor Relief.) There are no indications whether the rates will increase in the short to medium term but for now they remain unchanged and are still relatively low:
| Band | Rate | |
| Basic Rate Band | Residential Property Gains | 18% |
| All other gains | 10% | |
| Higher Rate Band | Residential Property Gains | 28% |
| All other gains | 20% |
The current capital gains rates are still attractive compared to the much higher income tax rates. There may also be merit in maximising the AEA by timing smaller disposals to happen before the reductions begin in April 2023.
2. National Insurance Contributions (“NIC”)
Perhaps the source of the greatest confusion has been the increase in national insurance rates and the introduction of the Health and Social Care Levy (“HSCL”) in April 2022, followed by their withdrawal from 6th November 2022.
The amount at which an individual employee starts to pay NIC was aligned with the Income Tax Personal Tax Allowance from 6th July 2022 (£12,570). The rate at which employers start to pay NICs is £9,100.
Details of the rates and bands applicable throughout the year are set out in the Appendix at the end of this article.
There is also a hybrid rate for Class 1A NIC for the full tax year ended 5th April 2023 in relation to expenses and benefits, and Class 1B NIC in relation to PAYE settlement agreements – this rate is 14.53%. This is also the rate for directors cumulative NIC calculations for 2022/23.
Dividend rates increased from 6th April 2022 in tandem with the NIC rates, by 1.25% each. However, unlike the NIC rates, these were not reduced in the Autumn Statement. Rates remain 8.75% for basic rate band dividend income, 33.75% for higher rate band dividend income and 39.35% for additional rate dividend income. The dividend allowance is to be reduced from £2,000 to £1,000 from 6 April 2023 and then to £500 from 6 April 2024.
3. Off Payroll Working (“OPW”) Rule
Most businesses would have breathed a sigh of relief when the “Mini-Budget” announced the reversal of the extension to the OPW rules (by abolishing the new rules brought in from April 2017 and April 2021), returning the responsibility for operating PAYE/ NICs to the Personal Service Company (“PSC”) itself.
Their relief was to be short-lived though, as, soon after taking office as Chancellor, Jeremy Hunt announced that these new rules were not to be abolished.
Under the Off-Payroll Working Rules it is the company to which the worker or director provides their services (i.e. the client) that has responsibility for making the Status Determination Statement in respect of the worker, with the fee-payer (and not the PSC itself) having responsibility for deducting the tax and NIC liability via payroll, if the relevant employee is found to have employee status for tax purposes. The rules apply if a worker provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly. Initially, the new rules only applied to public sector clients from April 2017, but from 6 April 2021 they extended to clients in the private sector that are medium or large.
Where a contractor is working for a small client entity the OPW rules continue to apply as prior to April 20017 in respect of potential deemed employment relationships, i.e. it is the PSC which has any responsibility for paying PAYE/ NIC to HMRC.
4. Research & Development (“R&D”) Changes
Changes to the R&D schemes were not unexpected following the 90% increase in R&D enquiries amid HMRC’s continuing concerns over the level of error and fraud in R&D claims. It is hard to see however how the changes introduced can be used to prevent fraudulent claims. Changes to both schemes from 1st April 2023 are as follows:
- SME incentive scheme:
- – Additional deduction reduced from 130% to 86%
- – SME tax credit reduced from 14.5% to 10%
- RDEC incentive scheme:
- – RDEC rate increased from 13% to 20%
Further measures to tackle fraud in R&D claims have been set out in draft legislation, intended to be introduced from April 2023, and include the requirement to name the adviser preparing the R&D report on the claim, the requirement to make advance notification of a claim and the requirement to have the claim signed off by a senior officer of the company. The requirement to name the adviser compiling the report will presumably help HMRC develop a list of trusted agents which could then expedite some claims, freeing up HMRC staff to enquire into the higher risk claims.
5. Stamp Duty Land Tax (“SDLT”)
On 23rd September, Kwasi Kwarteng announced, as part of his Growth Plan, the doubling of the stamp duty threshold to £250,000 and increased the threshold for first time buyers from £300,000 to £425,000 and increased the maximum property value for first time buyers from £500,000 to £625,000.
There had been no time limit placed on these threshold extensions, however Jeremy Hunt has now confirmed in his Autumn Statement that this will be a temporary measure, ending on 31 March 2025.
6. Surviving from the Growth Plan
Between the Growth Plan Statement and the Autumn Statement many elements of the former were quickly dropped. To try to stabilise the markets the abolition of the additional rate band was abandoned (with the Autumn Statement increasing the band of income which will be subject to the additional rate), the cancellation of the increase in corporation tax was set aside, as was the cancellation of the increase in dividend tax rates. Not all elements of The Growth Plan were scrapped though, as set out below:
- – The permanent increase of the Capital Allowances Annual Investment Allowance to £1 million remains
- – The increase in the Company Share Option Plan Limit from £30k to £60k will go ahead
- – The increase in the amount of SEIS investment companies can raise (from £150k to £250K) has been retained
- – The Health and Social Care levy remains cancelled.
It is to be hoped that, following an Autumn of significant upheaval for the Government – in terms of both economic policy and personnel – there will be a period of relative calm which will allow businesses to adjust to the new landscape. However, there are no guarantees of this in the current climate and businesses will need to remain adaptable in the face of ongoing political and economic uncertainty.
If you would like to discuss any of the above matters (or any other tax related issues) in more detail, please contact any member of our Tax team.
Appendix – NIC rates and band applicable in 2022/23
The rates for 2022/23 are as follows:
6th April 2022 – 5th July 2022
| Band | Percentage | |
| Employee Contributions | Between £12,570 and £50,270 | 13.25% |
| Over £50,270 | 3.25% | |
| Employer Contributions | Over £9,100* | 15.05% |
6th July 2022 – 5th November 2022
| Band | Percentage | |
| Employee Contributions | Between £12,570 and £50,270 | 13.25% |
| Over £50,270 | 3.25% | |
| Employer Contributions | Over £9,100* | 15.05% |
6th November 2022 onwards
| Band | Percentage | |
| Employee Contributions | Between £12,570 and £50,270 | 12.00% |
| Over £50,270 | 2.00% | |
| Employer Contributions | Over £9,100* | 13.8% |
*Disregarding the exemption for employer’s contributions in relation to employees under 21 years of age.