The Chancellor has announced a series of changes to UK taxation this week that will kick in from April 2023.
As usual we'll be looking at the changes through the lens of the independent hospitality business.
Don't believe the hype, here's what it means for you...
Minimum Wage rises
In our view the biggest impact for hospitality businesses will be felt on staff costs, due to the increases in minimum wage rates.
These are going by 9%-10% from 1 April 2023.
Here's a breakdown of the upcoming changes:
Current rate (up to 31 March 2023)
New rate (from 1 April 2023)
21 to 22
18 to 20
We can help you work out which staff members in your team will need a pay rise and how much extra this will cost, but as an easy rule of thumb... you'll see your your current staff costs go up by around 10%.
The bad news is... from April 2023 Business Rates will be re-evaluated to take account of the rise in property values since 2017.
However, the business rates multipliers will be frozen in 2023-24 at 49.9p and 51.2p, which is a positive.
The real good news is... the Retail, Hospitality and Leisure Relief Scheme is increasing the discount from 50% up to 75% for 2023-24 (up to £110,000 per business)
There's also a 'Transitional Relief Scheme' that has been announced, that will smooth the increase over a few years - waiting for further details of how that will work.
So you may find that despite the valuation increasing, your rates bill may reduce in 2023-24.
No more support on business energy bills
One notable omission was any extension to the energy bill support for businesses.
The cap on unit costs ends in March 2023.
Corporation Tax Rates
Corporation tax will increase to 25% for companies with profits over £250,000 from 1 April 2023.
Companies with profits under £50,000 will still be taxed at the current rate of 19%.
Companies with profits between £50,000 and £250,000 will be taxed on a sliding scale between 19% and 25%
Dividend allowance reduction
The dividend allowance is being reduced from £2000 to £1000 in April 2023, which will mean an extra £75 on the tax bill of most company owners that pay themseves via dividends.
This will reduce further to £500 in April 2024.
Salary vs Dividends?
The upshot of the two changes above is that in some circumstances it may be more tax-efficient to increase your salary, instead of paying out cash via dividends.
We’ll run the numbers and update you in the Spring.
There may also be more to gain from paying additional contributions into your pension scheme, since the tax savings would be higher.
Freezing of thresholds for income tax and National Insurance
The personal allowance is frozen at £12,570 and the 'basic rate' tax band is frozen at £37,700. Both will stay at this level until 5 April 2028
So the 'higher rate' of tax (40% on income) won’t kick in until total earnings go over £50,270, which is the same as it is now.
The threshold for employers' National Insurance contributions will remain at £9,100 until April 2028. However, the employment allowance of £5,000 per year for small business owners can still be claimed.
All of the above basically means that if you make more money, you'll pay more tax.
The kicker is that the 45% 'additional rate' threshold will be reduced from £150,000 to £125,140, so if you're making over £125k a year you'll paying a fair bit more.
Other bits and bobs
There were other things announced that are not relevant for most if not all of our clients.
Drop us a line if you'd like to know more about any of these:
The Capital Gains Tax 'Annual Exempt Amount' is being reduced, so if you’re thinking of selling any assets which would incur capital gains tax (e.g. investment properties) it may well be worth doing so by March 2023
R&D tax relief rates are decreasing
Electric cars will be taxed more heavily from 2025 onwards
Recap of stuff that was previously announced
The increase of 1.25% in National Insurance rates that took effect from April 2022 has been scrapped from November 2022 onwards, and won't be coming back as far as we know.
That's one of the few surviving measures from the 'mini-budget' omni-shambles.
The 'Super Deduction' on purchases of most business assets is ending on 31 March 2023. If you're thinking of investing in any assets in 2023, it's definitely worth looking at making the purchase before April to take advantage of the relief before it ends.
What you can do to mitigate the impact of these changes
Here's our view on where you can take action to improve your profitability in 2023 and beyond:
Put together a forecast for 2023. It doesn't have to be fancy, just a basic one to quantity the impact of the changes above PLUS the changes you intend to make operationally. We'll be helping all our hospitality clients with this in the coming month or two.
Get accurate numbers on your business’s performance that you review at least quarterly, ideally monthly. Again, we'll be showing you these and helping you identify where you're on / off course, and what changes you can make to get back on track or improve further.
Be proactive in increasing your prices to reflect that your staff costs, material costs, and overheads are increasing. Keep in mind that most of your customers are likely getting a pay rise from their employers, and prices are increasing everywhere, so people expect they will be paying more for stuff generally and won't (or shouldn't) be shocked. And if you stand still, you'll end up going backwards.
Think about what level of pay increase to offer to those on salaries or paid hourly above their minimum wage - they will be expecting a pay rise too!
We'll be helping you design the optimum mix of salary and dividend payments for the 2023-24 tax year in the Spring - stay tuned!
Cost of living and the wider economy
Here's a quick-fire summary of some of the announcements on the cost of living and the wider economy...
State pensions and most benefits rising by 10.1% - in line with current inflation
Inflation rate to fall to ‘just’ 7.4% next year from the current rate of 10.1%
Energy price cap increases to £3,000 per year for a ‘typical home’
Energy bill support payments to be re-targeted to lowest incomes only from April 2023
House prices due to fall 9% by Autumn 2024
Council Tax can be raised by up to 5% per year (previously limited to 3%)
Biggest fall in living standards in six decades