What Does the Autumn Budget Statement Mean for Businesses & their Employees?

Published - Dec 05, 2022

Chancellor Jeremy Hunt released the Autumn Budget Statement on the 17th of November. The Autumn Budget Statement affects SMEs in a big way. Here is everything small business owners and its employees need to know about the Autumn Budget Statement.

National Living Wage Increase

The Autumn Budget Statement has announced a “substantial boost” to the national living wage. From April 2023, the national living wage will increase to £10.42 per hour. This change will be applied to employees over the age of 23.

What this means for Employers

Increasing the National Living Wage is a good thing for individuals and the economy, but it does put more pressure on SMEs who are already feeling the pinch.

Tax Allowances

The Autumn Budget Statement has reduced the dividend allowance to £1,000 (down from £2,000) starting in the 2023/24 financial year. In 2024/25 it will be reduced again down to £500. Capital gains tax allowance will also be cut to £6,000 in 2023/24 (from £12,300). In 2024/25 it will be cut again to £3,000.

What this means for Employees

SME business owners and shareholders will have to pay taxes on dividends and capital gains earned above the allowance. This increases the personal tax a small business owner will pay.

Personal Tax Allowance

The lower bracket of personal tax allowance has been frozen at £12,570 until 2026 as per the Autumn Budget Statement. The additional income tax threshold will be reduced to £125,140 (from £150,000). Taxpayers will pay 45% on any earnings above that threshold.

What this means for Employees

Between the tax increases and inflation, small business owners will find that they are losing more of their income.

Electrical Vehicle

The Autumn Budget Statement announced that electric cars are no longer exempt from VED (Vehicle Excise Duty) starting from April 2025. The company car tax for electric vehicles will also increase 1% each year between 2025 and 2028.

What this means for Business Owners

Electric vehicles will still be lower priced than vehicles that run on fuel, but it is still an increased cost for SMEs.

Research and Development Tax Relief

Due to fraud and abuse, the research and development tax relief for small businesses will be reduced.

• • The rate will drop to 86%
• • The credit rate will drop to 10%
• • The research and development expenditure credit will increase to 20% (from 13%)

VAT

The VAT threshold has been frozen at £85,000. Once businesses reach £85,000 in turnover, they need to register to pay VAT tax.

What this means for Businesses

While it may seem like a good thing that the VAT threshold is frozen, VAT is based on turnover, not profit. This means that if small businesses adjust their prices to keep up with inflation, they may find themselves over the VAT threshold without any additional profit to show for it.

Posted in Finance on Dec 05, 2022