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The biggest pinch may be the freeze on Income Tax and National Insurance thresholds which, when looked at in conjunction with the 9.7% National Minimum Wage increase from April 2023, means employers and employees will ultimately pay more tax despite no actual increase to the tax rates.
Consequently, this also impacts on any amounts payable for auto-enrolment contributions and apprenticeship levies, although, employers will continue to benefit from a £5,000 Employment Allowance from April 2023.
For individuals, from April 2023 the 45% additional income tax threshold will reduce from £150,000 to £125,140 capturing more individuals who would have previously paid 40% on that slice of income. This also affects employers with international workers as hypothetical tax contributions will increase for any tax equalised UK-outbound assignees and UK-inbound assignees will face higher taxes, unless they too are tax equalised.
Despite rumours of Capital Gains Tax rates increasing, the Chancellor instead declared a phased reduction of the tax-exempt amount currently at £12,300 to £6,000 from April 2023 and £3,000 from April 2024.
This approach has also been applied to the tax-free dividend allowance from the current £2,000 to £1,000 from April 2023 and £500 from April 2024.
The “freezes” continue, with the tax-free threshold for Inheritance tax (IHT) remaining at £325,000 until 2028 (which has not changed since 2009) resulting in an increased number of estates having IHT applied if asset values rise.
Despite previous promises by the Chancellor, there was no reference to addressing the problems of Pension Annual Allowance and Lifetime Allowance and the adverse effect on retaining doctors in the NHS, especially GPs.
It is not all bad news, however. The Chancellor confirmed that increases in the benefit-in-kind rates for electric and ultra-low emission cars will be limited to 1% a year from 2025-26 up to a maximum of 5% for electric cars and 21% for ultra-low emission cars. Furthermore, no restrictions on tax efficiencies around pension contributions were revealed meaning real savings for both employer and employee can still be made using salary sacrifice pension plans.
Additionally, awards of share options under HMRC’s approved, ‘Company Share Option Plans’, which are currently limited to £30,000, will from April 2023 increase to £60,000, and restrictions on the class of shares are also being lifted which should make tax-efficient plans available to a wider catchment of businesses.
Overall, the Chancellor’s plan for the statement revolved around the freeze of or the reduction in tax-free thresholds, which may appear like a softer approach than increases in tax rates but don’t be mistaken, no one escaped and everyone will be paying their part.