Mo Chaudhry outlines the key pointers from the 2022 Autumn Statement and the impact it has on locum optometrists, dispensing opticians and practice owners…
Although Kwasi Karteng’s budget was maybe on the face of it a nice budget for us – scrapping the corporation and dividend rate increase, etc – it received unfavourable response from the markets and led him to lose his job. In contrast, the 2022 Autumn Statement from the new chancellor Jeremy Hunt offered a completely different picture, implementing drastic changes, with the aim to provide stability to the UK economy.
It has been difficult to find positives from this budget – and we advise all readers that perhaps now is more than ever the time to think about your tax mitigation strategies.
This budget was laid out to encounter the monumental debt that we have found ourselves in as a country coming out on the other end of the Covid reliefs. Add to this the Ukraine crisis, Covid legacy supply chain issues, an arguably harder than needed Brexit, the now with hindsight policy error of quantitative easing during Covid when output was stalled, all snowballing into what is for many unseen levels of ballooning inflation. It is no surprise the taxpayer is being summoned now to bear the fiscal pain for years to come, to get the country’s debt within what the global markets would perceive to be under control.
In this article, we highlight the measures announced and explain how they are likely to affect your business.
Minimum wage
The national minimum hourly wage rate will increase from 1 April 2023 as follows:
• For over 23-year-olds to £10.42 an hour
• For 21-22-year-olds to £10.18 an hour
• For 18-20-year-olds to £7.49 an hour
• For 16-17-year-olds to £5.28 an hour
• For apprentices to £5.28 an hour
Employers ought to take these hikes into consideration – along with other rising costs – when forecasting for coming years.
Income tax
The good news is that the income tax rate for the majority has not increased; however, there has been an indirect increase, a raise by stealth. For the high earners earning more than £100k, the additional rate income tax threshold is being reduced from £150,000 to £125,140 (1 April 2023). For all others, the thresholds will be frozen. Freezing of thresholds means those receiving a wage rise will pay more tax, hence a real time reduction in wages
Dividend tax
This is one area that the chancellor seems to be really targeting. Unlike the hike in National Insurance (NI) rates, the dividend tax rates have not been reversed. The dividend tax rate increases to 8.75 per cent, 33.75 per cent and 39.35 per cent – introduced from 6 April 2022 – will remain in place. Other than an increase in rates, there is also an attack on the annual dividend allowance, which is to be reduced from £2,000 to £1,000 (1 April 23) and then a further reduction to £500 (1 April 2024).
Something for business owners who take a loan from their company (not dividends) to be cautious about is that the rate of tax applied to overdrawn director’s loans will now be higher, in line with the dividend tax rate increase. A reduction in the allowance will increase the tax burden on owners who pay themselves using dividends and could mean that decisions on the structure on how best to trade might need to be re-evaluated.
NI contributions
Class 2 NI is paid by all self-employed locums who have profits of more than £6,725. From 1 April 2023, the charge will increase to £3.45 per week (previously £3.15). This will result in the majority of locums facing an additional cost of £15.60 per year.
Capital gains tax
Capital gains tax annual exemption is being reduced from £12,300 to £6,000 from 1 April 2023, further decreasing to £3,000 from 1 April 2024. All those dealing in stocks on the side might want to consider their approach on how to proceed. This, combined with the reduction in dividend allowance, will mean that a larger amount of investment income and gains will become subject to tax.
Corporation tax rates
The scrap on the corporation tax rate hike has been reversed, which means from 1 April 2023, corporation tax rates will increase from 19 per cent to 25 per cent for companies whose taxable profits are more than £250,000. If your taxable profits are below £50k then you will not see a difference and continue to be charged at 19 per cent. For companies with profits between £50,000 and £250,000, the tax due will be at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate. The increase in corporation tax rate is likely to add significant cost and complexity to companies.
VAT
The threshold for compulsory registration to VAT will remain at £85,000 until April 2026, by which time the threshold will have been frozen for nine years. With increasing inflation and thus prices, this means more and more business will find themselves hitting this threshold. In the optical profession, it could be beneficial to register voluntarily to take advantage of exempt sales.
Energy cap
With the ever-increasing costs of energy, a cap was introduced at £2,500. The chancellor is committed to maintaining the cap but at a higher level, £3,000 a year for the average household (1 April 2023). For practitioners who own their practices, the news is also quite bleak as no further clarification was announced on what would happen when the Energy Bill Relief Scheme comes to an end in April 2023. All we know is that any further energy bill support for businesses will be significantly lower and more targeted towards those most affected beyond March 2023. With energy bills continuing to rise, this lack of clarity is undoubtedly going to lead to more uncertainty, diminish confidence further leading to the downward pressure on business activity and investment.
Company vehicles
It seems like the holiday period for electric vehicles is coming to an end. Zero-emission vehicles (electric cars) registered on or after 1 April 2025 will pay the lowest rate of vehicle excise duty (VED), £10 in the first year. This will increase to the standard rate, currently £165, from the second year of registration onwards. Vehicles with zero-emission but registered before 1 April 2025 will pay the standard rate (£165) from 1 April 2025. Electric cars with a list price of £40,000 or over will also be subjected to the expensive car supplement from 1 April 2025, i.e., an additional £310 per year, for the first five years.
Other than no road tax, a huge benefit I found as a locum is the very low benefit in kind rates applicable to electric cars. Well, you guessed it, this is also changing and shall start to see an increase of one per cent annually from 25/26 to a maximum of five per cent for electric cars and 21 per cent for ultra-low emission cars. This will add to costs for companies who provide electric vehicle cars to employees or those locums who are trading under a limited company structure.
There is some good news where the current 100 per cent capital allowance for the provision of electric vehicle charge points that had been due to expire in 2023 will be extended to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
Stamp duty land tax
Stamp duty cuts that were announced as part of the 23 September mini budget will remain in place until 31 March 2025 and not for indefinite as previously declared.
Rates
The current doubling of small business rates relief, which means that small businesses occupying with property Rateable Value below £6,000 pay no business rates at all, will continue for a further year from 1 April 2016. This is welcome news for smaller businesses, but the relief is paid for by a supplement paid on the business rates of larger businesses and the announcement may well presage an increase in that supplement to fund the additional year’s relief for smaller businesses.
Annual investment allowance
The super deduction (130 per cent relief for capital expenditure) shall come to an end in March 2023. But the AIA, which was due to reduce to £200k from 2023 will now remain at £1m, which means businesses will be able write off their first £1m of capital expenditure against their tax bill.
Council tax
In addition to increasing food costs and energy bills, there is a good chance your council tax will also increase by five per cent with the chancellor making it easier for local authorities to increase council tax.
Summary
The freezes in thresholds will result in a gradual increase in the amount of tax that businesses and employees will pay overtime, bringing more people into higher tax bands, due to changing factors such as average earnings. Frozen allowances and bands, the reduction in the dividend allowance and capital gains exemptions will also lead to taxation by stealth.
Mo Chaudhry is a dual qualified optometrist and chartered accountant and heads the accountancy department at Locumkit. With his unique background he assists locums to practice owners in the optical industry with their accounting affairs and helping their businesses. If you have any questions on any of the topics covered in this alert, please contact Mo by emailing mochaudhry@locumkit.com