The message from the Chancellor, Jeremy Hunt, in the days before he rose to the despatch box in the House of Commons to deliver the Autumn Statement was clear; he would be outlining billions of pounds of tax rises and spending cuts.

These spending cuts and tax rises, he said, would affect everybody and were necessary to re-establish the markets’ trust in the future health of the public finances.

What was less clear was exactly who the announcements would affect the most and how they would be impacted.

Of course, the challenges for the Chancellor extended well beyond winning the trust of the markets in relation to his stewardship of the public finances. He will also have been thinking about inflation, the cost-of-living crisis, interest rates and promoting economic growth, not to mention the political optics.

These are competing but intricately related pressures; action to address the cost of living carries with it the risk of further inflation; action to reassure the markets brings the twin dangers of not addressing the cost-of-living crisis or promoting economic growth. Different economic considerations do not exist in a vacuum.

Further underscoring the scale of the challenge, just a day earlier, the Office for National Statistics announced that inflation had reached a 41-year high of 11.1 per cent.

This followed warnings from the Bank of England’s Monetary Policy Committee, as it increased interest rates to three per cent in early November, that the UK faces a “prolonged” recession.

The only real questions concerned the detail of what the Chancellor would do. Which taxes would be affected? Will they rise now or in the future? Would tax rates rise? Would the focus be on freezing thresholds? How much pain would there be? Who would bear the brunt?

And, most importantly, would it work?

• Public finances
• Personal tax
• Business tax
• National Living Wage, Energy and Pensions
• Conclusion

Public finances

Addressing the Office for Budget Responsibility’s (OBR) economic forecasts, the Chancellor said that the economy is now in recession and is expected to shrink by 1.4 per cent in 2023/24 before growing in 2024/25.

Meanwhile, he said unemployment is expected to rise to 4.9 per cent in 2024, up from 3.6 per cent now, before falling to 4.1 per cent the next year.

Borrowing this year stands at 7.1 per cent of GDP, according to the OBR. Debt as a percentage of GDP is expected to peak at 97.6 per cent in 2025/26 before falling to 97.3 per cent in 2027/28.

Personal tax

Beginning with personal tax, the Chancellor said that the threshold for the additional 45p rate of Income Tax will fall from £150,000 to £125,140 from April 2023.

At the same time, National Insurance, Inheritance Tax and Income Tax thresholds and Allowances will be frozen at their current levels for a further two years to 2028.

He said the Dividend Tax Allowance will fall from its current level of £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25.

Turning to Capital Gains Tax, the Chancellor said the current Annual Exempt Amount will fall from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.

He then turned his sights to electric vehicles, saying that a road tax will apply to them from 2025.

Finally, on personal tax measures, he said that the Stamp Duty Land Tax (SDLT) cuts announced by his predecessor, Kwasi Kwarteng, in September 2022 will end on 31 March 2025 and will not be permanent.

Business Tax

Turning to business taxes, the Chancellor said he would reduce the enhanced deduction rate for Research & Development (R&D) Tax Relief for SMEs from 130 per cent to 86 per cent of qualifying expenditure from April 2023. The tax credit for loss-making SMEs will fall from 14.5 per cent to 10 per cent.

On Business Rates, he said that the revaluation exercise will go ahead as planned in April 2023. £13.6 billion of support will be provided over five years to help businesses transition to the new bills.

He said the Business Rates multipliers will be frozen in 2023/24 and there will be extended and increased relief for businesses in the retail, hospitality and leisure sectors. That relief will increase to 75 per cent.

The National Insurance Secondary Threshold will remain at £9,100 until April 2028.

National Living Wage, Energy and Pensions

Turning to the National Living Wage (NLW) and National Minimum Wage (NMW), the Chancellor announced he would increase the rates for those aged 23 and over by 9.7 per cent to £10.42 an hour from 1 April 2023.

Meanwhile, the rate of NMW for those aged 21 and 22, 18 to 20, and 16 and 17 will rise to £10.18, £7.49, and £5.28 an hour respectively. The apprentice rate will also rise to £5.28 an hour.

Moving to address energy costs, the Chancellor said the current Energy Price Guarantee (EPG) will remain in place until April 2023, limiting typical energy bills to £2,500 per year. From April 2023, the EPG will rise to £3,000 for the typical household.

Concluding his speech with pensions, the Chancellor said that the State Pension Triple Lock will remain in place, meaning the State Pension will rise in April 2023 in line with September 2022’s rate of CPI – 10.1 per cent.

Conclusion

The economy is a complex and dynamic system, and there are limits to what can be known about how it will respond to any particular intervention – it is the sum of the ever-changing actions of millions of individuals.

What is more, the Chancellor only has his hands on some of the levers of economic influence, not all of them, and moving one of the levers he controls can stop him from moving another.

Mr Hunt will be hoping he has pulled the right levers by the right amount and that the factors out of his control move in the direction he wants them to.

For businesses and business owners, the impact of the changes is likely to vary considerably and a renewed focus on tax planning is likely to be needed.

Link: Autumn Statement 2022

HM Revenue & Customs (HMRC) is introducing a new point-based VAT penalty system from 1 January 2023 that replaces the existing late submission penalty regime and is in line with the latest Making Tax Digital requirements.

This new system will see taxpayers accrue a point for each submission deadline that is missed. Once a certain number of points for late submission are incurred, a fine will be issued.

HMRC says that this is a more progressive approach to penalties. However, how many points you will need to accrue before you are penalised will vary depending on how frequently you are required to submit information.

For example:

• For annual submissions, accruing two points will result in a penalty.
• In the case of quarterly reports, such as those required under Making Tax Digital, four points will result in a penalty
• If you are required to make more regular monthly submissions, five penalty points will end in a fine.

A standard fine for each of these submission penalty thresholds is an automatic £200 penalty. However, every single late submission after this initial fine will result in an additional penalty being added.

Although points are accrued over time, they will also expire after two years when a taxpayer demonstrates ongoing compliance with the rules.

The two years are counted from the month after you received the point. However, points will not expire when the penalty threshold is reached.

You won’t face automatic fines for late submissions under this system but the potential for a larger overall fine for extended or regular periods of non-compliance is greater.

What about late VAT payments?

You will not receive a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days one and 15.

If payment continues to be due from day 16 to day 30 you will receive a first penalty calculated at two per cent on the VAT you owe.

Finally, if your VAT payment is 31 days or more overdue, then you will receive a second penalty calculated at a daily rate of four per cent per year for the duration of the outstanding balance.

These penalties are calculated when the outstanding balance is paid in full, or a payment plan is agreed upon.

How to prepare

HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023. However, it will be charging a second penalty for payments that are 31 days late or more.

However, before this new system of penalties is introduced, the online VAT services facility will close on 1 November 2022.

After this date, businesses that fail to file their VAT returns under the Making Tax Digital for VAT rules using compliant software face significant fines and interest.

If you do not comply, HMRC could issue fines of up to £400 for every VAT return and you could receive a penalty of between £5 and £15 each day that digital records are not kept, or digital links are not maintained.

Need help with Making Tax Digital for VAT? Speak to our team today.

Inflation has been described as paying £15 for the £10 haircut you used to get for £5 when you had hair.

It is soaring at the moment and leaves business owners facing real problems. If they increase their prices, they risk losing customers, but if they peg prices, they put their profits and potentially their business at risk.

Inflation hits just about everything, from raw materials to higher fuel and energy costs to customer confidence.

The hope is that it will be short-term, but with borrowing costs spiralling as interest rates rise, businesses should look at practical savings and decide:

• Are you paying for services you no longer use regularly?
• What measures can you adopt to cut energy bills?
• Can you achieve discounts with bulk ordering or cut costs by reducing excessive orders?
• Are you making efficient use of your staff?

Maximise technology use

Accounting and financial technology can give you instant information on sales, costs and products and allows cloud-based apps to reduce the time needed for vital but time-consuming tasks.

This can include invoicing systems that tell you what’s been paid and other apps that help you keep track of your cashflow.

Examine your products and workforce

• Can you abandon or suspend certain products which deliver weak margins? At the same time, can a best seller withstand a price increase and boost profitability?
• Are you overstaffing shifts?
• Do you have lengthy processes with unnecessary steps?
• Do you really need those temporary workers?

Stay competitive and prioritise customers

Check out the competition, both locally and nationally, to see what they are charging for similar products and services.

This can often depend on different areas of the country and levels of relative prosperity. Can less well-off consumers withstand price increases?

Make maximum use of your accountant

Accountants offer a wide range of services, including strategic advice and money-saving and revenue-boosting ideas, including:

• Advising on business strategy
• Addressing your cashflow
• Debt management and credit control.

Link: Effect of inflation on business

The season of goodwill is just around the corner as Christmas approaches.

It is a time of year when employers look to reward their staff for their efforts throughout the year.

But they should be aware that certain tax, National Insurance and reporting obligations could apply.

We want to ensure that you enjoy the festive season just as much as your team, so we’ve put together our top tips to ensure that you stay on the right side of the taxman this Christmas.

What about staff parties?

According to HMRC, the total cost must not exceed £150 per head and must be for your employees and any members of their family and household who attend as guests. The total needs to include VAT and other costs, such as transport and accommodation.

All staff must also be invited. If you spend more than £150 per person, the entire amount is a ‘benefit’ and must be declared on the P11D and tax will be due.

Getting gifts right

Trivial benefits are items of value given to an employee that do not count towards taxable income or National Insurance Contributions (NICs).

To qualify, the gift must meet ALL of the following conditions:

• The gift isn’t in the terms of the employee’s contract
• It is below the value of £50
• It isn’t a performance-linked reward
• It isn’t cash or a cash voucher.

A trivial benefit in kind could include a Christmas lunch, a small Christmas present, or a gift on the day of an employee’s wedding.

If the gift does not meet all of the above criteria, it must be reported as a benefit in kind to HM Revenue & Customs (HMRC) and tax must be paid as appropriate.

What about incidental expenses?

Incidental expenses, as described by HMRC, are expenses “incurred by an employee while travelling overnight on business”.

These may include purchasing newspapers, paying for laundry or using the hotel telephone.

As long as the value of the expenses does not exceed more than £5 per night for travel within the UK and £10 per night for travel outside the UK, they do not have to be reported to HMRC.

Link: Tax on trivial benefits

The status of IR35 or off-payroll working has caused some confusion since the repeals to reforms put forward by former Chancellor Kwasi Kwarteng were subsequently scrapped by new Chancellor Jeremy Hunt.

IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration, where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through an intermediary, such as a Personal Service Company (PSC).

Engagers now responsible

The IR35 rules, which originally changed in April this year under the 2021 reforms in the private sector, exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.

Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.

The official guidelines for businesses affected by these rules are as follows:

• Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
• Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
• Have processes in place to deal with any disagreements that arise from your determination.

If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.

What businesses does this apply to?

According to the Companies Act 2006, a business is defined as ‘medium’ or ‘large’ if it meets two of the following criteria:

• The company has a turnover of £10.2 million or more
• The company has a balance sheet total of £5.1 million or more
• The company has 50 employees or more.

Link: Understanding off-payroll working

Card payments rocketed during the pandemic and that trend has continued since then.

According to figures from the British Retail Consortium (BRC), card payments account for four out of every five payments made.

But as consumers switch, the soaring cost of accepting card payments is hitting retailers and adding to the cost of doing business.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), in October last year both Visa and Mastercard raised their cross-border interchange fees on purchases made by UK consumers to European businesses from 0.2 per cent to 1.15 per cent for debit cards, and 0.3 per cent to 1.5 per cent for credit card transactions.

Move to improve services

Meanwhile, transaction fees on digital wallets are also on the up as PayPal increased its fees for payments between businesses in the UK and Europe from 0.5 per cent to 1.29 per cent in November 2021.

Following a review by the Payments System Regulator (PSR), the Government watchdog announced new rules in October to improve card services and help businesses shop around and switch to more cost-effective services.

From January next year, 14 of the most significant providers of card-acquiring services will be required to remind businesses at the end of their contract term that they could compare prices to get a better deal.

In addition:

• Providers will also have to provide information to businesses about their charges and provide an initial online quotation tool of key charges to help businesses make a choice.
• Following concerns that businesses were being locked into lengthy contracts for card readers, the regulator is also limiting point-of-sale (POS) terminal contracts to 18 months.

Link: Mitigating card payment costs

If you are an owner of a limited company, taking money out of your business using dividends is a mainstay of effective tax planning, thanks to an additional £2,000 annual allowance and lower rates than apply when taking money in the form of salary.

However, there are restrictions on the circumstances in which a limited company can pay a dividend.

Crucially, the company must have sufficient profits from the current and previous financial years to cover the dividend payment.

The company will also need to pay a dividend to all eligible shareholders, so you will need to factor this into any calculations.

Dividends must be declared by the directors and minutes of the meeting must be kept, even if there is only one director.

A dividend voucher will need to be prepared, including the date, the company name, the names of the shareholders receiving the dividend and the amount.

Copies must be given to the shareholders receiving the dividend and retained on the company’s records.

Link: Running a limited company: Your responsibilities

The markets have experienced considerable volatility as a result of the ‘Growth Plan’ delivered by the former Chancellor, Kwasi Kwarteng on 23 September.

That made regaining economic confidence an urgent task for the newly appointed Chancellor, Jeremy Hunt, who has delivered a reversal of many of the key tax measures announced in the mini-Budget in a new fiscal statement.

The only big measures to survive were changes to Stamp Duty Land Tax (SDLT) thresholds and the cut to National Insurance due on 6 November.

The new announcements at a glance:

Changed:

Income Tax

As previously announced, the Additional rate of Income Tax will remain in effect.

The Chancellor has now also cancelled the one penny-in-a-pound cut to the Basic rate, which was brought forward by Kwasi Kwarteng from April 2024 to April 2023. It will now remain at 20 per cent indefinitely.

Dividend Tax

The 1.25 percentage point increase that took effect from April 2022 will no longer be reversed from April 2023. This means the current rates of dividend tax will instead remain in effect.

Corporation Tax

As announced by the Prime Minister on Friday, Corporation Tax will not remain at 19 per cent for all companies and instead will be levied at 25 per cent for those with profits of more than £250,000 from April 2023.

Those with profits below £50,000 will continue to pay at 19 per cent, while marginal relief will be available to those with profits between £50,000 and £250,000.

Energy Price Guarantee

The Energy Price Guarantee for households will remain in effect until April 2023, rather than for two years as originally announced. The Energy Bill Relief Scheme for businesses will also be reviewed before April 2023.

HM Treasury will review these policies with a view to reducing the cost of the measure and making business support more targeted.

IR35/Off-payroll Working Rules

The planned reversal of the 2017 and 2021 reforms to the IR35/Off-payroll Working Rules in the public and private sectors from April 2023 will now not take place.

It will remain for employers to determine whether a contractor falls within the scope of the rules and should be taxed similarly to an employee.

Alcohol Duty

The planned freeze in Alcohol Duty rates from 1 February 2023 has been cancelled.

Unchanged:

National Insurance/ Social Care Levy

The cancellation of the increase in National Insurance from 6 November and the Social Care Levy that was to have been introduced from April 2023 remains in effect.

Stamp Duty Land Tax (SDLT)

The changes to the Stamp Duty Land Tax (SDLT) thresholds that took effect immediately after the mini-Budget remain in place and will not be cancelled.

Annual Investment Allowance

This tax relief on plant and machinery will be permanently retained at £1 million, as outlined in the mini-Budget.

Tax-advantageous investment schemes

The Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to further support business investment having been expanded upon in the mini-Budget.

The Chancellor’s announcements may have significant tax planning implications. Please contact us for advice.