Stealth tax rises and allowances cut

Stealth tax rises

This year we have had four different Chancellors of the Exchequer and three Prime Ministers. There have been three Government fiscal statements this autumn alone and we expect another series of Budget announcements next spring.

In our newsletter we set out what you need to know about the tax landscape over the next 12 months, but please check with us before finalising any big financial decisions just in case the tax treatment has changed after publication.

In the first of those Autumn fiscal statements the rates of all classes of National Insurance Contributions (NICs) were cut by 1.25 percentage points, from 6 November 2022. This reversed the increase in NICs rates that came into effect on 6 April 2022. Those rates have not been changed again by the current Chancellor.

However, almost all the thresholds for both NICs and income tax have been frozen until April 2028. With inflation running at over 10%, this freeze will pull a lot of earners into the higher tax bands as their salaries or business profits rise; this also has a knock-on effect on the amount of personal savings allowance (PSA) available to set against income such as interest. Income within the PSA is taxed at a nil rate.

Once into the 40% band, the PSA is cut from £1,000 to £500 per year; it disappears completely for anyone who pays income tax at 45%. In fact, the 45% threshold will be cut to £125,140 from 6 April 2023, which means many more people will lose their PSA.

Individuals who are resident in Scotland pay income tax on earnings and profits

at different rates.

The dividend allowance will be cut to £1,000 in April 2023, having been £2,000 for several years, and cut again to £500 from April 2024. This means more dividend income will be taxable each year, although the tax rates applicable to dividends are not changing in 2023/24.

The personal allowance has been frozen at £12,570 until April 2028; that allowance is tapered away by £1 for every £2 of income over £100,000 per year.

The annual exemption for capital gains tax will be slashed from £12,300 to £6,000 in 2023/24 and then halved to £3,000 in 2024/25.

The combination of the allowance cuts and threshold freezes will affect the tax and NICs payable by directors and shareholders of family companies.

Those with money to invest will be given greater tax incentive to subscribe for shares in certain start-up companies, as the annual investment cap for the Seed Enterprise Investment Scheme (SEIS) will be raised from 6 April 2023, when there will also be a relaxation of qualifying conditions for those companies.

From 1 January 2023, HMRC is introducing a new system of penalties to encourage taxpayers to file their VAT returns on time using MTD-compatible software, together with new penalties to encourage prompt payment of VAT liabilities.

All employers need to budget for increases in the rates of National Living Wage and National Minimum Wage from 1 April 2023.

We recommend you undertake an annual review of your financial affairs, in order to check that you are not paying more tax than you need to and to see whether any structures you set up in the past are still appropriate. Between now and the end of the tax year (5 April 2023) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.
Of course, the personal circumstances of each individual must be taken into account in deciding whether any particular plan is suitable or advantageous, but these suggestions may give you some ideas. We are happy to discuss them with you in more detail.