Shadow Chancellor, Rachel Reeves compared the government to “pickpockets,”
saying they had forced the country into a “doom loop” of low growth, high taxes,
and high inflation. By reference to ‘pickpocket’ I think she summed up Hunt and
his proposals fairly accurately.
The Tories cannot claim to be the party of low taxation and champions of
enterprise when they stifle business growth, particularly SME’s, with punitive
tax measures. However, this is what you get with centrist politics – the lines
are blurred and it is difficult to distinguish the two main parties by
policies.
Corporation tax (C.T)
From 2023 we are set to a return to a similar C.T regime that we said goodbye
to in 2015, with the re-introduction of the small profits rate. Whilst the rate
of C.T will increase to 25% on profits exceeding £250K, companies with profits
under £50K will still pay the current rate of 19% and there will be an
effective marginal rate for profits between £50K - £250K so that companies will
not pay the full 25% but greater than 19%. More C.T payable by SME’s and a
layer of complexity being added to the tax system when what is required is
simplification.
Dividend taxation
From April 2023, the dividend allowance is to be reduced from £2K to £1K, then
halved again in April 2024 to £500. The incentive and reward to individuals
running their own companies is yet again being squeezed & diminished. If
future budgets continue hammering SMEs in this way, there will come a point
when contractors may consider that it may not be worth the hassle and headache
of running a limited company if they are simply going to be taxed in a similar
fashion to employees.
Point 2.8 of the Autumn Statement only serves to support that view – “A fair tax system also ensures that individuals doing similar work pay a similar amount of tax, and those with unearned income also contribute.” If any government gets around to harmonising tax & NIC then, in my opinion, IR35 would become obsolete.
Taxation by stealth
Personal allowance & higher
rate thresholds, along with NIC thresholds already fixed until April 2026, will
be maintained until April 2028. So, if and when wages rise, then the government
will take more tax. Whilst these measures can be easily reversed if the economy
grows, it’s that pickpocketing that Rachel Reeves mentioned!
The VAT registration threshold is
maintained until March 2026, so more businesses will have to start charging VAT
as they grow and will be saddled with the burden of MTD for VAT.
Additional rate
The 45% additional tax rate
threshold is to reduce from £150K to £125,140 from April 2023, which is likely
to be a blow for the higher end of middle earners. However, this group will
receive little public sympathy as they will be regarded as having more
resources with which to shoulder the national burden.
CGT allowance
The annual exemption is be cut
from £12,300 to £6K from April 2023 and then halved to £3K from April 2024.
Record amounts of capital gains and tax were recorded in 2020-2021, with total
CGT liability increasing by 42% from the previous year. Whilst CGT only comes
from a small number of taxpayers, the swingeing reduction in the annual
exemption is likely to expose more taxpayers who dispose of capital assets in
the future.
I’m left scratching my head as to
how Hunt expects to stimulate growth with these proposals but his and Sunak’s main
priority seems not to be the people of this country, but rather appeasing the
markets!
----------- ends ----------------
Andy Vessey – ATT
Head of Tax
With over 40 years’ experience,
Andy has been Head of Tax at Kingsbridge since 2019. He started his career at
the Inland Revenue, before working at various accountancy practices. Andy has
spent the last 20 years specialising in employment status, in particular IR35.
He has successfully defended over 550+ contractors against HMRC IR35 enquiries
and in 2018 he successfully represented Jensal Software Ltd at the First Tier
Tax tribunal.