The Chancellor of the Exchequer delivered his Autumn Statement, announcing a series of significant changes to the UK's tax regime. Here, CLA experts have provided expert analysis on the announcements, and what they might mean for your business.
Capital Gains Tax
The Chancellor announced dramatic cuts to the annual exempt amount for capital gains tax. This is the level of gains that can be generated by an individual in any one tax year before capital gains tax becomes payable. Currently, the annual exempt amount is £12,300, but it will decrease to £6,000 from 6 April 2023 and further decrease to £3,000 from 6 April 2024.
What it means for you
This will mean an increase in the tax payable on the disposal of capital assets such as land. For example, a married couple with a combined allowances of £24,600 per tax year, would not pay capital gains tax if their joint gain was £20,000, but from April 2024 they would pay CGT on £8,000.
Members may wish to use reliefs to mitigate some of this effect. Where business assets are sold and the proceeds reinvested into other business assets, rollover relief may be claimed, whereas where a gift is made of business assets (or where a gift is made to a trust), holdover relief may be claimed. In both cases this is only a deferral of tax, and so where the annual exempt amount can cover the bulk of the gain it may be preferable not to claim the relief, but the cut in the exemption could alter this calculation.
Those who are thinking about making disposals of assets that are currently worth more than their acquisition cost, whether by way of sale or a gift, may want to consider whether it would be possible to make the disposal in the current tax year, in order to take advantage of the current annual exempt amount before it is reduced.
A major theme in the Chancellor’s announcement was a freeze in the thresholds applying to many taxes until April 2028. This can be seen as a form of stealth tax increase, particularly in light of this year’s high rate of inflation.
The freeze applies to the personal allowance and higher rate (40%) threshold for income tax; various national insurance contribution (NICs) thresholds and the nil rate band (£325,000) and residence nil rate band (£175,00) for inheritance tax.
The relevant thresholds for the tax year 2023-24 (and continuing until 2028) will be:
- The income tax personal allowance, NICs Class 1 employee primary threshold, Class 4 lower profits limit and the Class 2 lower profits threshold will be £12,570
- The higher rate income tax threshold, the NICs Class 1 upper earnings limit, the Class 4 upper profits limit will be £50,270.
- The NICs lower earnings limit will be £6,396 per annum (£123 per week) and the small profits threshold will be £6,725 per annum.
- The NICs secondary threshold for employers will be £9,100.
What it means for you
Anyone whose income increases, whether more or less than inflation, will find themselves paying a higher proportion of their income in tax. Any increase in property values will mean more estates becoming liable for inheritance tax.
One threshold that will not be remaining fixed next year is the income tax additional rate threshold, which from 6 April 2023 will be decreased from £150,000 to £125,140. This is the threshold above which non-dividend income will be taxed at 45%.
There will also be a reduction in the dividend allowance from £2,000 to £1,000 in April 2023 and £500 in April 2024. This is the amount of dividends that can be received each tax year free of tax.
What it means for you
A person who is currently paying the additional rate of income tax will find their income tax bill increasing by £1,243 per year as a result of this change, even before taking into account the impact of inflation.
Living wage and national living wage
The hourly national minimum wage rates will increase from 1 April 2023. The hourly rates of the National Minimum Wage will be increased for people aged 21-22 to £10.18 an hour, for those aged 18-20 to £7.49 an hour, for 16-17 year olds and Apprentices to £5.28 an hour.
For workers aged 23 and over, the National Living Wage will increase to £10.42 an hour. This is around a 10% increase.
What it means for you
The majority of agricultural businesses will be paying above the minimum wage so in a practical sense the increase in the minimum wage should not be an issue. However, it may set a precedent for wage increases in general, and increase costs to members. We are concerned that this could lead to a wage spiral that will add further inflationary pressure to the rural economy.
We are very aware that the rise in the minimum wage is a further cost to members in the tourism and hospitality sectors in particular.
CLA members can, through the CLA's cost of living hub, find information on how businesses can mitigate the impacts higher wages will have on margins and profitability. We will also continue to lobby Government to reduce the rate of VAT from 20% to 5%, as was the case during the pandemic, as a means of providing further support to tourism and hospitality businesses.
Business rates - England only
The government has not announced an overhaul of the business rates, but has instead added more help for businesses from 1st April 2023, when the new Valuation List takes effect. The government calculates this package to be worth £13.6bn over the next five years.
The government has not progressed its online sales tax proposal as this has proven to be too complex, reflecting the CLA’s consultation response on the proposal earlier this year. The government has instead banked on a reduction in values of high street premises and a rise in the value of warehouse and distribution depots to achieve a rebalance - whether this will be sufficient to the health of high streets will depend on individual revaluations.
Retail, Hospitality, and Leisure Relief will be increased from 50% to 75% for 2023/24 up to a maximum of £110,000 per business. This is very welcome and will help many businesses in rural areas who have struggled since Covid. This follows on from discussions the CLA has been having with Government officials and provides more certainty to plan ahead in these sectors.
When the new valuation list takes effect, businesses with a reduced valuation will see that reduction applied immediately, and where values rise, the transition to the new rate will be capped year-on-year. This cap will mean that the maximum rise in 2023/24 will be 5% for small ratepayers (RV £20-28k), 15% for medium properties (£29-100k) and 30% for the largest (over £100K). The last revaluation saw big increases in rateable value and the government had to react after the event. These measures should help ease the transition.
For businesses that claim Rural Rate Relief or Small Business Rate Relief, and which will exceed the £15,000 threshold after revaluation, the bill increase will be capped at £600 per year for 3 years. Again, this should help mitigate the effect of the change by avoiding a huge and sudden rates bill.
The business rates multiplier will be frozen for a further year, instead of rising by 6%. This is very welcome, as the multiplier has in the past has compounded the problems of revaluation.
The investment zones set out in the financial statement on 23 September have been scaled back. The Chancellor announced that these will now be linked to universities across the country in order to focus on greater innovation and targeted R&D.
There was a real risk with the previously defined investment zones that rural areas would be severely disadvantaged, with greater resources being sucked into areas that were given major financial inducements. This will no longer be the case and there is a logic for investment zones to be located around universities with innovation becoming the key objective. If proper consideration is given to how R&D can benefit the rural economy by encouraging wide ranging innovative projects, investment zones can provide the necessary platform for future rural economic growth.
The Energy Bill Relief Scheme, which caps the wholesale price of electricity and gas, will end in April 2023. Following a review of the scheme which will be published by the end of the year, identified vulnerable sectors will continue to receive a level of support that is still to be decided. With the end of the business price cap, rural businesses will face a cliff edge unless a particular rural sector is deemed as vulnerable. The CLA will be lobbying government accordingly.
Those who use heating oil because they are off-grid will receive a rebate of £200 this winter, rather than the originally planned £100. Although the rebate may have been doubled to £200, this is still only half of what those on the gas grid are receiving. Given that 70% of rural properties are not on the gas grid, rural communities are once more disadvantaged.
In the meantime, members will need to consider how best to mitigate the impact of further price increases. This could be by reducing energy usage and developing other energy sources where possible. Along with CLA Energy Services, we will be providing further advice and support for members that will be available on the Cost of Living Hub on the CLA website.
To see if CLA Energy Services can help you to make savings on your energy bills, click here.
Electricity Generator Levy
The Electricity Generator Levy announced by the Chancellor is unlikely to directly affect CLA members. The Levy will apply to businesses generating more than 100 Gigawatt-hours (GWh) per annum of electricity from renewable electricity generation assets connected to the national or local grid networks.
What this means for you
CLA members who generate renewable electricity directly are likely to be doing so at scales far lower than this threshold.
Renewable generators who lease land to produce power may be impacted if their company or group generates power above this annual threshold across their operations. Any effect on the landowner in terms of rent would be dependent on lease terms and rental formula. The levy could affect overall returns to renewable power companies and therefore investment decisions going forward, but this remains to be seen.
Existing capital infrastructure projects will remain in place and the budgets allocated will continue at current levels. This means that HS2 will continue, as will Project Gigabit, the programme to increase the deployment of fibre optic to enable the UK to benefit from gigabit capable broadband.
There were numerous media reports that the Chancellor would scale back existing infrastructure programmes in order to partly fill the fiscal black hole. But the Chancellor made clear that these schemes are vital to ensure future economic growth.
We welcome the Government’s ongoing support for a 21st Century digital network. Without this, rural businesses will be at a serious disadvantage and the rural-urban digital divide will widen further. However, we know there is still £3.8bn of the £5bn fund still unused. It is incumbent on the Government and its broadband delivery arm, BDUK, to set out how these unused funds are going to be spent. Put simply, without the necessary digital connectivity, rural businesses will not be able to reach their real potential.
Other points to note:
- The VAT registration threshold is frozen at £85,000 until April 2024