We predicted a gloomy economic outlook, but we expected worse news. That also seems to be the rhetoric from many people after yesterday’s Autumn Statement announcements.
‘Eye watering’ tax increases were expected, as well as potential percentage points added to dividend and income tax rates which never materialised.
The main driver for the announced tax rises is the ‘fiscal drag’, essentially a slowing in the economy’s growth. Tax bands and allowances were frozen, meaning more people would pay taxes for the first time or higher rates.
It seems business owners are in a rock and a hard place. After all, when one eye is fixed upon your destination, only one eye is left to find the Way. The Autumn Statement and prior reversal of tax reversals have not made it easy, and now business owners face more obstacles to navigate.
What are the problems of a higher tax burden?
We are on course for the highest tax burden since WW2.
The dividend allowance has been halved and is to reduce further in 2024. The additional rate at which individuals pay 45% is also now reduced. Add to the mix the increase in the corporation tax rate to 25%; many businesses will be reviewing how they can manage the new tax burden.
Businesses may find it challenging to grow and expand in this environment. And with R&D relief also being struck with the incentives reduced, it looks like an anti-growth set of policies.
A lack of staff, inflation hitting the cost base, and increased living wage will further burden businesses, especially those in the hospitality sector.
Energy support for business will likely reduce significantly in 2023; a consultation on this support is due in December 2022. One good change for those businesses was the increase in support for business rates in the hospitality and retail sectors, with this increasing from 50%-75%
Glenn Collins, Head of technical and Strategic Engagement at ACCA, commented on tax policies: “While a route map for tax changes ahead is useful, wage inflation has raised the spectre of fiscal drag. Scrutiny and transparency about the implications of these tax changes will be key, especially where taxpayers find themselves subject to additional administrative requirements. Many more businesses (and individuals) will find themselves caught in the VAT and CGT regimes at a time when HMRC is already under severe pressure.
“The aim of the statement, it appears, was to provide stability and show how we are fiscally more responsible. The picture painted was gloomy, and with the war in Ukrainian driving the cost of energy up and impacting inflation, the growth forecast for the UK is still below pre-pandemic levels, which is slower than other countries. Should there have been more incentives and impetus for growth? Taxing and reducing spending too far can not quickly drag us out of this recession. We shall wait and see; businesses need more help now than ever to navigate these changes and plan a way through.”
Small businesses must now take stock and plan ahead in 2023. Looking at costs, cash flow, and overall business strategy to remain profitable will be critical to survival and growth.
At Grenfell James, we work with ambitious companies across Warwickshire and London, using technology to simplify processes and accelerate business growth. If you need help or advice with your business growth plans, tax efficiency or profitability, don’t hesitate to contact the Grenfell James team at 01789 294 484.
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