The Chancellor of the Exchequer, Jeremy Hunt, has today announced a series of Government measures in his Autumn Statement. This follows the reversal of many of his predecessor’s mini-Budget measures (see our previous blog posts here and here), and is announced against a backdrop of high inflation and rising interest rates. This blog post sets out a high-level summary of the key measures from an employment, pensions and reward perspective. Further details of the key takeaways from a tax perspective can be found here.
- Income tax: The income tax additional rate threshold will be reduced from £150,000 to £125,140 from April 2023. In addition, the income tax personal allowance and higher rate threshold will be frozen for an additional two years until April 2028. The personal allowance will therefore remain at £12,570 and the higher rate threshold will remain at £50,270. The Government will legislate for the income tax measures in the Autumn Finance Bill 2022.
- National insurance: In addition to the thresholds mentioned above, thresholds for national insurance contributions (NICs) will be frozen until April 2028 and some other amendments to NICs rates will also be made. These changes will be provided for in affirmative secondary legislation in early 2023. In particular:
- the NICs upper earnings limit and upper profits limit (£50,270) will be frozen until April 2028;
- to remain aligned with this, the upper secondary threshold, apprentices upper secondary threshold and veteran upper secondary threshold will stay fixed at this level until April 2028;
- from July 2022, the NICs primary threshold and lower profits limit were increased to align with the personal allowance and will be maintained at this level (£12,570) from April 2023 until April 2028;
- the class 2 lower profits threshold will also be fixed from April 2023 until April 2028 to align with the lower profits limit;
- the Government will fix the lower earnings limit (£6,396) and the small profits threshold (£6,725) at 2022-23 levels in 2023-24;
- the freeport upper secondary threshold will also be fixed (at £25,000); and
- the Government will use the September CPI figure of 10.1% to uprate the class 2 and class 3 NICs rates for 2023-23.
- Dividend allowance and capital gains tax annual exempt amount: Reductions in the dividend allowance and capital gains tax (CGT) annual exempt amount were also announced. The dividend allowance will be cut from £2,000 to £1,000 from April 2023, and then to £500 from April 2024. Further, the annual exempt amount for CGT will be cut from £12,300 to £6,000 from April 2023, and then to £3,000 from April 2024. These changes will be included in the Autumn Finance Bill 2022.
- Corporation tax: It has already been confirmed that corporation tax will rise to 25% from April 2023. The Autumn Statement confirms that the changes that were complementary to this policy – namely the increase in the diverted profits tax rate to 31% (to maintain the 6% differential as against corporation tax) and the reduction in the bank corporation tax surcharge rate to 3% – will go ahead as planned.
- National insurance: As mentioned above, NICs thresholds will be maintained at their current levels for a further two years. In particular, the level at which employers start to pay class 1 secondary NICs for their employees (known as the secondary threshold) will be fixed (at £9,100) from April 2023 until April 2028.
- State pension age: The state pension age is legislated to increase over the next 25 years. There is currently a review of the state pension age being carried out which is considering whether the existing timetable remains appropriate. It was announced in the Autumn Statement that this review will be published in early 2023.
- Uprating of benefits including state pension: The Government will increase benefits in line with inflation from April 2023, including increasing the state pension by inflation, in line with the commitment to the pensions triple lock. In addition, the standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023, rather than in line with average earnings growth.
- National Living Wage and National Minimum Wage: The National Living Wage (the legal minimum for workers aged 23 and over) will be increased from £9.50 an hour to £10.42 an hour from April 2023. The Government will also increase the National Minimum Wage from April 2023 as follows:
- increasing the rate for 21-22 year olds to £10.18 an hour;
- increasing the rate for 18-20 year olds to £7.49 an hour;
- increasing the rate for 16-17 year olds to £5.28 an hour;
- increasing the apprentice rate to £5.28 an hour; and
- increasing the accommodation offset rate to £9.10 an hour.
- CSOPs: The previous announcements in relation to company share option plan (CSOP) reforms will go ahead as planned. We understand that legislation will be introduced to effect these changes from April 2023 and that the Government will provide further guidance on the changes before they come into effect. In particular:
- qualifying companies will be able to issue up to £60,000 of CSOP options to employees (double the current £30,000 limit); and
- the employee-control and open market shares rules in paragraph 20 of Schedule 4 of the Income Tax (Earnings and Pensions) Act 2003 will be removed.
- Company car tax rates: The Government is setting rates for company car tax rates until April 2028 in the Autumn Finance Bill 2022. Rates will continue to incentivise the take-up of electric vehicles.
- Solvency II: Solvency II (the regime that governs the prudential regulation of insurance firms in the UK) has been reviewed. As part of this review, a consultation was published in April 2022. Today, the Government published its consultation response setting out the final reforms of Solvency II.
- Office of Tax Simplification: In the mini-Budget, it was announced that the Government will abolish the Office of Tax Simplification (OTS) and instead embed tax simplification into the institutions of Government, mandating the Treasury and HMRC to focus on simplifying the tax code. Today, the Government announced that the OTS will publish its findings from the call for evidence on hybrid and distance working before the end of 2022 and not undertake any further work. Its formal closure will take effect when the next Finance Bill receives Royal Assent.
Crucially, the Autumn Statement document confirms the decision not to proceed with certain elements of the mini-Budget, including in relation to IR35. However, it does not include any reference to the bankers’ bonus cap, the pensions charge cap or strike action, so presumably these changes will go ahead as announced in the mini-Budget.
Less than eight weeks on from the former Chancellor Kwasi Kwarteng’s mini-Budget, the Government has changed course almost entirely. It remains to be seen whether the measures announced today will achieve the Chancellor’s aims of ensuring economic stability and reducing government debt levels, but they will certainly have far-reaching consequences for businesses and individuals across the UK. For more information on any of these measures, please speak to the authors of this blog post or your usual Freshfields contact.