Chancellor Jeremy Hunt has just delivered his Autumn Statement 2022 speech in the House of Commons. He set the scene by laying out the government’s priorities of stability, growth and public services and then unveiled a detailed plan of tax rises and spending cuts worth £55 billion to mend the nation’s finances.

Here are some of the key points to note that will affect small businesses and the self-employed from April 2023.

Personal taxes

  • The threshold for the top income tax rate (45%) will be reduced from £150,000 to £125,140. Someone earning £150,000 or more will have to pay over £1,200 per year in extra taxes.
  • The 40% and 20% tax thresholds will be frozen until April 2028 instead of increasing in line with prices.

The changes mean millions of people will pay taxes on a larger proportion of their earnings. Some will be pushed into higher tax brackets as their earnings increase over the next few years (a concept known as fiscal drag).

Tax-free allowances

  • As predicted, the tax-free dividend allowance will be slashed from £2,000 to £1,000. And from April 2024, this will drop further to £500.
  • The capital gains tax allowance will be reduced from £12,300 to £6,000, and from April 2024, it’ll reduce to £3,000.

The tax-free dividend allowance affects company directors and shareholders who pay themselves an income tax efficiently, using dividends. This change means that many small businesses and the self-employed will end up paying taxes sooner. The capital gains allowance affects firms selling assets or shares – meaning many could find themselves paying this type of tax for the first time.

Business taxes

  • The Employers NICs threshold will be frozen until April 2028.
  • The Employment Allowance remains at the new level of £5,000.
  • The VAT registration threshold will remain at £85,000 until March 2026.
  • R&D tax relief will be cut for SMEs.
  • Business rates will get an almost £14 billion tax cut over the next five years.

Freezing the threshold on Employers NICs and VAT registration means that thousands of small businesses will pay more tax over the next few years. Many small firms will need to register and pay VAT as their turnover increases in proportion with rising prices.

On business rates, the Chancellor said that nearly two-thirds of commercial properties won’t pay a penny more over the next year and that a new Transitional Relief scheme would be introduced (where changes to bills are phased in gradually). The scheme is expected to benefit 700,000 businesses, particularly retailers, pubs and restaurants.

Following reports of fraud in SME R&D tax relief, Hunt announced that the deduction and credit rates for the SME scheme would be cut to 86% and 10%, respectively. Eligible SMEs undertaking innovative projects will be disappointed by these changes. However, the separate R&D expenditure credit will increase from 13% to 20%.

Now’s the time to check your business is tax efficient

The Chancellor previously warned that difficult decisions would have to be made. And it seems no business or individual will remain unscathed in the government’s bid to replenish the Treasury’s coffers.

As a small business or self-employed contractor, you’ll undoubtedly feel the brunt of these tax reforms as you watch your bills rise amid rising inflation and energy costs. Therefore, it’s more important than ever to ensure you’re running your business as tax-efficiently as possible and are utilising all eligible tax-deductible allowances and reliefs.

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