The Chancellor’s 2022 Autumn statement contained a combination of tax increases and spending cuts, as part of what was stated to be a balanced plan for stability, growth and public services. It comes after a period of considerable economic uncertainty and while the UK is facing what is widely expected to be a lengthy recession ahead. On 22 November, the Finance (No 2) Bill 2022, which implements the Autumn statement resolutions, received its first reading.

We summarise the key tax and business-related implications below.

National Living Wage (NLW) and National Minimum Wage (NMW)

  • With effect from 1 April 2023:
    • The NLW will increase for workers aged 23 and over to £10.42 (from £9.50) per hour. This equates to an increase of £1,600 per year for a full-time worker.
    • The NMW will increase for workers aged 21-22 to £10.18 (from £9.18) per hour.
    • The NMW will increase for workers aged 18-20 to £7.49 (from £6.83) per hour.
  • The Government has set a target for the NMW to reach two-thirds of median earnings by 2024.

Income tax

  • The income tax personal allowance (£12,570), higher rate tax threshold (£50,270) and employers Class 1 NICs threshold (£9,100) have all been frozen at their current rates until April 2028. This is two years longer than originally proposed.
  • The threshold at which the 45% additional rate of income tax is paid will be lowered to £125,140 (from £150,000), with effect from April 2023.

National insurance contributions (NICs)

  • The reversal of the 1.25% increase in National Insurance contributions will be maintained, and the previously proposed Health & Social Care Levy will no longer be introduced in April 2023.

Business & investment tax

  • It has been confirmed that the current 19% rate of corporation tax will rise to 25% in April 2023.
  • The dividend tax free allowance will be lowered to £1000 (from £2000) from April 2023 and £500 from April 2024.
  • The annual exemption amount for capital gains tax will be lowered to £6000 (from £12,300) from April 2023 and £3000 from April 2024.

Off-payroll working rules

As we highlighted in our November article, the current off payroll working rules are set to continue. The proposed repeal of IR35 will not now proceed, which means that end user employers will retain responsibility for determining the deemed employment status for tax purposes of contractors that they engage through personal service companies.

If a contractor is within scope of the current off-payroll rules, the fee payer (normally the employer) must ensure that they continue to account to HMRC for the appropriate income tax and NICs that are payable.