In today’s “Autumn Statement 2022”, the Chancellor confirmed a freeze to income tax and NIC thresholds, personal allowances and tax rates for an additional two years until April 2028. Although there are no increases to actual tax rates, employers and employees will ultimately pay more tax as wages increase. The Chancellor has also backed up his comment that those who earn more will pay more. From April 2023 the additional income tax rate threshold will decrease from £150,000 to £125,140 increasing the amount of people subject to the higher 45% additional tax rate.
Employers are already bearing increasing wage costs as a result of high inflation along with the associated knock-on increases in national insurance contributions, auto-enrolment costs and apprenticeship levies. Following today’s announcements, employers will also have to fund the largest increase in the National Living Wage, which is due to go up by 9.7% to £10.42 from April 2023.
However, the Chancellor has provided for some more subtle measures that will help employers and employees.
Eligible employers will continue to benefit from the £5,000 Employment Allowance, which will mean 40% of businesses will not have to pay national insurance contributions.
Employers and employees were also provided with some reassurance on benefit in kind charges on the provision of electric company cars, with the Chancellor confirming that low benefit in kind rates will remain.
Mr Hunt went further stating that any increases in the benefit in kind rates for electric and ultra-low emission cars (emitting less than 75g of CO2 per kilometre) 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.
Rates for all other cars will also increase by 1% up to a maximum of 37% and remain fixed for 2026-27 and 2027-28. Car and Van fuel benefit in kind charges will increase in line with the Consumer Price Index.
The Chancellor supported the measures in the initial mini-budget that widened the scope for tax efficient equity-based employee rewards. Awards of share options under HMRC’s approved Company Share Option Plans are currently limited to £30,000 but from April 2023, this will increase to £60,000. Restrictions on the class of shares are also being lifted which should make tax-efficient plans available to a wider catchment of businesses.
Although there was no increase in the capital gains tax rates, the Chancellor has reduced the capital gains tax-free exemption, currently £12,300 to £6,000 from April 2023 and £3,000 from April 2024, however, this should not negate the tax savings and benefits of providing equity-based benefits to employees.
The Chancellor did not restrict tax efficiencies around pension contributions and real savings fpr both employer and employee, can still be made using salary sacrifice pension plans.
Inflation is likely to remain high for the sometime and with a freeze on tax-free thresholds and bands, many employees will not see any real rises in disposable income. Employers will have to remain innovative and proactive when it comes to recruitment and retention so it will be important to ensure tax efficient benefits and opportunities, such as those highlighted above are utilised.
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