Following the appointment of Rishi Sunak as the new Prime Minister on 25 October 2022, the Chancellor, Jeremy Hunt, delivered his first Autumn Statement on 17 November 2022. The Autumn Statement is the latest in a recent series of fiscal events, with some announcements having already been accelerated by the Chancellor to 17 October 2022 (Interim Statement). The Interim Statement included the reversal of a number of announcements made at the Government’s Mini-Budget on 23 September 2022.
A summary of the key announcements from the Autumn Statement for employers and employees is set out below:
Employment
Additional rate of tax
The Chancellor has announced that the threshold for the additional rate of tax, which currently is payable on income over £150,000 is to be reduced so that it becomes payable on income over £125,140 from April 2023.
The change in the threshold will apply UK-wide for savings and dividend income. However, for non-savings/non-dividend income (including employment income) the announced measure (as with the income tax threshold announcements below) only apply to England, Wales and Northern Ireland. We await confirmation as to whether the Scottish Government will replicate this measure for Scottish taxpayers.
Income Tax and NIC allowances and thresholds
In the Spring Budget 2021 the then Chancellor, Rishi Sunak, announced that the standard Personal Allowance for the 2022/23 tax year would remain at £12,570 and the higher rate threshold would remain at £50,270 and that in both cases the level of these thresholds would remain in place until April 2026. It has now been announced by the current Chancellor that the level of these thresholds will remain in place until April 2028.
From 6 July 2022 the earnings threshold at which employees started to pay NIC increased from £9,880 to £12,570 per year. It has now been announced that this threshold will remain at this level until April 2028.
The current earnings threshold at which employers start to pay Class 1 Secondary NIC for their employees (£9,100 per year) will also remain at this level until April 2028.
National Living Wage and National Minimum Wage
Following recommendations published by the Low Pay Commission on 17 November 2022, the Government has announced increases to the National Living Wage (NLW) and the National Minimum Wage (NMW) from 1 April 2023:
NLW (age 23+): increase from £9.50 to £10.42 ( 9.7% increase)
NMW (age 21-22): increase from £9.18 to £10.18 (10.9% increase)
NMW (age 18-20): increase from £6.83 to £7.49 (9.7% increase)
NMW (under 18): increase from £4.81 to £5.28 (9.7% increase)
Apprenticeship Wage: increase from £4.81 to £5.28 (9.7% increase)
Accommodation offset rate: increase from £8.70 to £9.10 (4.6% increase)
This means that a full time worker (35 hours a week) 23 or older currently on the NLW will see an increase of over £1,600 in their annual earnings. These increases are designed to ensure that the Government is on track to meet its commitment to have a NMW equal to two-thirds of median earnings (for workers aged 21 and over) by 2024.
The rules governing the calculation of NLW and NMW are complex and have been subject to change over the past few years, which has meant that many employers have found themselves breaching the rules inadvertently. The financial and reputational implications of a NLW or NMW breach are significant and include penalties of up to 200% and being publicly named and shamed by the Government. Employers should consider carefully the impact of the increases on their business and how they can ensure compliance.
Investment Zones
In the Mini-Budget the Government stated that it would work to introduce Investment Zones across the UK with the aim of driving growth and unlocking housing and this would include some NIC benefits for employers.
The status of the Investment Zones is now unclear as the Government has announced that it will refocus the programme and further announcements would be made in the coming months.
Company cars and vans
The benefit in kind charge for private fuel provided for company cars and vans, and the van benefit charge, will increase in line with CPI from April 2023.
The benefit in kind percentage for electric cars will remain at 2% until 5 April 2025. The rate for electric and ultra-low emissions cars emitting less than 75g/km will then increase at 1% per tax year for the following 3 tax years. The electric car benefit in kind percentage from 6 April 2025 will therefore be 3%, before increasing to 4% from 6 April 2026 and 5% from 6 April 2027. For ultra-low emissions cars the benefit in kind percentage will increase to 19% from 6 April 2025, 20% from 6 April 2026 and 21% from 6 April 2027.
The benefit in kind percentage for all other cars will increase by 1% from 6 April 2025, up to a maximum of 37%, and will then be fixed until April 2028.
The Vehicle Excise Duty exemption for electric vehicles will also cease from 6 April 2025.
Separately HMRC have announced an update to the Advisory Fuel Rates for fully electric cars. From 1 December 2022 the rate will rise from 5 pence to 8 pence per mile. The rates for petrol, LPG and diesel cars will remain at the level in place from 1 September 2022.
HMRC Compliance Resource
The Government has confirmed a further investment of £79 million over the next five years into additional compliance resources for HMRC. The stated intention behind this funding is to tackle cases of serious tax fraud and address tax compliance risks among wealthy taxpayers.
It is envisaged that this investment will allow additional HMRC staff to be allocated to compliance reviews and address tax compliance risks and is forecast to bring in £725 million in additional tax revenue over the five year period.
Reward
Company share option plans
In the Autumn Statement the Government indicated that it would be proceeding with the welcome reforms announced in the Mini-Budget for Company Share Option Plans (CSOPs), under which qualifying companies (broadly, independent companies and listed companies) will be able to award CSOP options to employees over shares worth up to £60,000 (double the current £30,000 limit which has been in place since 1996). This increase in the limit was due to apply from April 2023, but we await confirmation of this.
In addition, the restrictions on which share classes can be used are to be eased, better aligning CSOP with the Enterprise Management Incentive regime that applies to smaller companies (those with less than £30 million of gross assets and fewer than 250 employees).
Capital gains tax
In the Spring Budget 2021 it was announced that the Annual Exempt Amount (AEA) threshold for capital gains tax (CGT) would be £12,300 and would remain at that level until April 2026. It has now been announced that the current level of the AEA threshold will be reduced to £6,000 from April 2023 and then further reduced to £3,000 from April 2024.
For larger gains, the reductions in the AEA may not make a difference from a cost or practical perspective. However, the relatively small gains that many employees benefit from under tax-advantaged options under the all-employee SAYE (Sharesave) option plan or CSOP are now much more likely to be subject to CGT and the related reporting requirements may be new to many employees who have not previously needed to report gains. We expect that employers may need to provide employees with extra information and support to help with notifying HMRC and understanding the tax payments due under their option plans.
Dividends
The threshold for the Dividend Allowance (the amount of dividend income that can be earned each year before tax is payable), which is currently £2,000, is to be reduced to £1,000 from April 2023 and then to £500 from April 2024.
In addition, the Chancellor confirmed that the 1.25% dividend tax rate increases implemented with effect from April 2022 (which were not reversed alongside the NIC reversal in the Mini-Budget) are to be retained. This gives a tax rate on dividends above the Dividend Allowance of 8.75%, 33.75% and 39.35% from April 2022, for basic rate, higher rate and additional rate taxpayers respectively.