Well Jeremy promised eye watering tax rises and he certainly didn’t let us down. The tax changes he announced yesterday will increase the overall tax burden as a percentage of GDP from 33% to an estimated 37% by 2027/28, the highest since WW2 apparently. This is being achieved indirectly for the most part, by freezing or reducing tax allowances and thresholds.
As I have commented previously, with inflation running at 10% this will push more low earners into the tax paying net, and for those already paying tax, into higher tax rates. A lot of middle earners will find themselves over the high rate tax threshold in the next few years. However the group most hit by the changes will be highest earners as a result of the reduction in the additional rate threshold.
Anybody receiving part of their income as dividends, such as directors of their own companies, will also suffer from the slashing of the dividend allowance. This was £5,000 as recently as 2018 and will have shrunk to almost negligible £500 by April 24. I’ve summaries the main points of interest to small business owners and individuals below –
Personal tax allowance of £12,570 frozen until April 2028
High rate threshold ( point at which you start paying tax at 40%) of £50,270 frozen until April 2028
Additional rate threshold (45% rate) reduced from £150,000 to £125,140 from April 2023
Basic rate stays at 20%
Dividend allowance reduced from £2,000 to £1,000 in April 23, and then to £500 in April 24.
National InsuranceThe thresholds for all types of national insurance will be frozen until April 2028
The employment allowance will remain at £5,000 for employers
The annual exemption for gains will reduce from £12,300 to £6,000 in April 23 and then £3,000 in April 24.
Inheritance tax nil-rate band and residence nil-rate band frozen until April 2028 at £325,000 and £175,000 respectively
VAT registration and de-registration thresholds frozen at £85,000 until April 2026
Hope that all makes sense, but as usual if you need any elaboration drop me an email,