How the Autumn Statement affects Small Business

Autumn Statement affects Small Business

How the Autumn Statement affects Small Business

On 17th November the Chancellor announced the Autumn Statement, which will impact most people all over the country. Here we are going to examine specifically how the Autumn Statement affects small business, and small business owners. 

Increased National Living Wage

The National Living Wage will increase from the current level of £9.50 an hour for over-23s to £10.42 per hour

The Trades Union Congress has called for the minimum wage to increase to £15 an hour to help households cope with "eye-watering bills and soaring prices".

Although directors of Limited Companies are not personal subject to minimum wage/national living wage legislation for their own pay, you will potentially have to adjust the pay of any living wage level employees, which, of course, results in a cost increase for your business which will need to be factored into your Profit Plan

Some important terminology: 

  • A National Minimum Wage - the minimum pay per hour workers are entitled to
  • National Living Wage, which is higher than the National Minimum Wage - workers get it if they're over 23

Top rate of income tax threshold to be lowered

The threshold when the highest earners start paying the top rate of tax will be lowered to £125,140 from £150,000. This will only be applicable in England and Wales, since Scotland has devolved powers for income tax. This will affect you if you are paying yourself primarily via payroll (as opposed to salary and dividends) and are at this level of salary. 

Dividend tax free allowance reduction

The tax free amount that business owners can pay themselves via dividends (when they are also shareholders) will be cut from £2,000 a year, to £1,000 a year, which in reality means tax increases for directors who pay themselves via salary and dividends. From April 2024 that will then reduce again to £500 a year.

Business Rates

The program of property revaluations is to continue, and from April, business rates are expected to be uprated by the consumer prices index measure of inflation.

Freezing VAT Threshold 

The VAT threshold is to be held at £85,000 revenue in a rolling 12-month period, until 2026. What this means in real terms, as prices increase and therefore small business need to increase prices to keep up, more businesses will hit the VAT threshold and be liable to collect VAT, as well as account for it (which can also come with an increase in bookkeeping and accounting fees for businesses).  

Capital Gains Tax

If you are thinking of selling your business, then it's important to know that the Annual Exempt Amount for Capital Gains Tax will be cut from £12,300 to £6,000 next year, then £3,000 from April 2024.

R&D Tax Credits

The deduction rate for the SME R&D tax credit scheme will be cut to 86% and the credit rate to 10%.  However, the rate of the separate R&D expenditure credit will be increased from 13% to 20%.

Employment Allowance

This is to stay at £5,000 a year. 

And previously announced was the increase in Corporation Tax Rates

Corporation tax currently sits at 19% will increase to 25% by 2023. Of course, there are a few things to note about the increase:

  • Corporation Tax will remain at 19% for small profit rate businesses (earning £50,000 or less), which covers 70% of companies or 1.4 million UK businesses.
  • There will be a tapered rate (gradual increase) for corporation tax for businesses at different profit levels. The maximum of 25% corporation tax is applicable for businesses with a £250,000 profit rate which is currently equivalent to 10% of UK businesses.

Overall this was not a statement that was helpful or positive for business owners, in 2023 we will see: 

 - cost to employ higher

 - business rates potentially increasing for many

 - corporation tax increases

 - tax paid on take home increasing with the reducing in dividend tax free amount, along with the reduction in the threshold for the upper level tax rate, and freezing of personal allowance

 - increasing energy costs 

 - increasing supplier costs with the cost of living crisis 

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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.