Chancellor steps into the fiscal storm and pulls more people into the top income tax band
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On Thursday 17 November, the Chancellor presented the government’s Autumn Statement in which he told the House of Commons his plans to tackle the cost-of-living crisis, “rebuild our economy” and significantly reduce borrowing over the coming years.
The Chancellor said that global factors are the primary cause of current inflation and that most countries are still dealing with the fallout from the pandemic. He stated that the measures taken to combat Covid-19 in the UK must be paid for. He also acknowledged that the UK is in recession and that things will have to get worse before they get better.
His measures on taxes mean that tax as a percentage of national income will increase by 1% over the next 5 years and this is now amongst the highest proportion of income going to HMRC for at least 70 years.
The key taxation points made by the Chancellor include:
Some of the key spending statements made include:
In other announcements, help for energy bills will be extended, but it will be less generous. There will be targeted support with the cost of living for those on low incomes and disability benefits, as well as for pensioners. These include £900 to be paid to those on means-tested benefits, £300 to pensioner households and £150 to people on disability benefits. The National Living wage will be increased from £9.50 an hour for over-23s to £10.42 from April 2023.
Pensions and means-tested benefits, including Universal Credit, will also rise in line with September’s inflation figure of 10.1% from April 2023. Rent increases in the social sector will be capped at 7% from the same date.
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Immediately after the Autumn statement, the Office for Budget Responsibility (OBR) released its November 2022 economic and fiscal outlook. Forecasts predict the economy will shrink by 1.4% next year.
Their summary makes grim reading. They state that inflation is set to peak at a 40-year high of 11% in the current quarter, and the peak would have been a further 2? percentage points higher without the energy price guarantee (EPG), limiting a typical household’s annualised energy bill to £2,500 this winter and £3,000 next winter.
Rising prices will erode real wages and reduce living standards by 7% in total over the two financial years to April 24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support. The squeeze on real incomes, the rise in interest rates, and the fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022, with a peak-to-trough fall in GDP of 2%. Unemployment rises by 505,000 from 3.5% to peak at 4.9% in the third quarter of 2024.
Some businesses are more likely to be affected by the downturn and get into cash flow problems, while others will be more resilient. If you are a business owner, you might be wondering which category your business falls into. No matter how inventive or simple your business model is, you can still have problems with?cash flow. ?Here are our thoughts on managing the flow of cash in your business:
Book a free meeting? with us about preparing a fund flow statement and annual budget so that you can work on your business for maximum success!
Get ready for new VAT penalties from 1 January 2023
For VAT periods starting on or after January 1, 2023, HMRC is replacing the default surcharge with separate penalties for late returns and late payment of VAT. At the same time, HMRC is changing how they charge interest on VAT that has been paid late.
The new points-based system for late submissions is designed to be more lenient for the occasional slip-up, whilst still penalising those who repeatedly fail to comply. It will operate in a similar way to the penalty points system for motoring offences. Also, like the system for motoring penalties, the points expire after a period of time. Read more...