Following on from the Chancellor’s statement earlier today, we have highlighted the main impacts of the budget below and stated what they mean for you as a small business owner:

Freezing tax allowances

The tax-free allowance on income tax and the 40p threshold will both be frozen until April 2028.

Allowances on National Insurance and Inheritance Tax will also be frozen for the same period, to raise more money for the exchequer.

A freeze on these thresholds when inflation is high is effectively a tax rise.

Reducing the Capital Gains Threshold

The annual exemption for capital gains will be reduced from £12,300 to £6000 next year, then £3,000 from April 2024.

The effect of this will, depending on what you dispose of, this will affect landlords higher than normal taxpayers as CGT tax on residential properties is higher than normal capital gains.

Electric Car Tax

If you own, or are thinking of purchasing an electric vehicle, then you need to be aware that they will no longer be exempt from vehicle excise duty. No details were given about the cost of this, but the chancellor says it will be lower than for petrol and diesel vehicles.

In addition, the £5,000 electric vehicle incentive will be scrapped.

Cutting the additional rate threshold

Although he has kept headline rates of tax flat, the chancellor has reduced the threshold at which the top 45p rate becomes payable, from £150,000 to £125,140.

This means if you were previously paying yourself £150,000 you will now pay an additional £1,250 in tax.

Cutting the Dividends Allowance

The chancellor also announced that the dividend allowance would be cut from £2,000 to £1,000 next year, then £500 from April 2024.

This means that the amount of tax-free allowance will now be charged at 8.25% costing you an additional £82.50 in 2023 and £123.75 in 2024.

National Living Wage

The National Living Wage will increase next year by 9.7%, pushing up the hourly rate to £10.42 from April.

This will further increase the costs of employing people putting a further strain on small employers.

Business Rates Relief

The Chancellor announced a £13.6bn business rates relief package to counter the rise in the levy for hundreds of thousands of companies, set to take place in April next year.

Hunt said that the five years temporary relief scheme meant that two-thirds of properties would not need to pay any more in business rates next year.

Research & Development

For expenditure incurred on or after 1 April 2023, Research and Development (R&D) tax reliefs will be changed as follows:

• the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%
• the SME credit rate will decrease from 14.5% to 10% and
• R&D expenditure credit rises from 13% to 20%.

This is a surprising move for a government that wants to invest in entrepreneurship and help businesses innovate and grow.

Summary

This budget will cost you more but maybe it isn’t as bad as the media made out.

In a nice kick in the teeth, after announcing the extra costs for everybody, Chancellor Jeremy Hunt has slashed the tax surcharge on banks by more than 60% in a reprieve for UK lenders.

In the Autumn Statement on Thursday, the government said the 8% surcharge applied to bank profits would be cut to 3% from April, in a move aimed at making Britain’s banking industry more attractive.

So, it’s nice to know that with Corporation Tax rising and the rest of the country suffering, the banks will have some additional savings.

Please contact us if you have any concerns about how this may impact you and your business’ finances.