Given the backdrop of post pandemic deficit, recession and war, the harshness of the 2022 autumn statement is unsurprising, and had been well flagged beforehand. However, it was reasonably well received in the financial markets, and to quote a Times by-line “the only consolation is that at least we know where we stand”.
Whilst most of the detail and the general thrust of the statement (to raise substantial amounts by “stealth taxes”) will have been the subject of much discussion before this article is published, it is perhaps worth considering the impact of the changes on the agricultural sector specifically.
- The widening of the 45% band has no particular impact for agriculture other than that it will neatly coincide with the transitional year, which will disproportionately affect farmers because so many have non-fiscal year ends. This means that what might, in any event, be a year of high taxable profits will now also be a year of higher tax rates – as will any later years which include a spreading charge. This underlines the need to at least consider changing the year end to 5 April 2023 and forgoing the benefit of spreading relief, relying instead on backwards five-year averaging. There is a very strong case for using good management accounts to weigh the options and deferring the submission of any figures until the last moment.
- The reinstatement of the 25% mainstream corporation tax rate will be painful for corporate enterprises (particular in view of the relatively low small company threshold) and the reduction in the dividend allowance from £2,000 to £500 by 2023/4 will further reduce the advantages of the small, incorporated business. It may also be inconvenient for those companies with minority shareholders who have recently been receiving dividends as a means of spreading income around the family. In future, this will not only give rise to a tax charge but might also drag more taxpayers into the tax return/MTD regime who would otherwise have remained happily “under the radar”.
- The review of capital allowances which was promised in the Spring statement has not happened and one wonders if it has simply been quietly shelved. On the positive side, the confirmation that the annual investment allowance will permanently remain at £1,000,000 will be welcomed by both corporate and unincorporated businesses alike.
- The freezing of the VAT registration limit will not generally have an impact on farms other than perhaps to restrict the possibility of keeping some diversification out of the VAT regime. As a general point, in the wider rural economy it may discourage businesses on the margin from expansion and will encourage the black economy.
- The changes in capital gains tax deminimis thresholds seems particularly poorly thought out and given the relatively small amount of tax at stake one wonders whether the motivation may be political rather than fiscal. Given that a substantial number of taxpayers affected by this have investment gains which are deliberately triggered by brokers to utilise the allowances, it seems highly likely that they will simply work to the new lower limits. However, on a practical level, if the disclosure level for gross capital transactions remains at four times the annual exemption, the number of taxpayers who must file a self-assessment return even if no CGT is at stake (such as those who inherit an asset and sell it before any significant gain has arisen) will rise significantly. This will put further pressure on a struggling HMRC at just the point that the transitional self-employment changes and implementation of MTD are taking place. There is also potentially a significant issue where gains arise on gifts of capital assets to family members, transfers between unmarried cohabitees and even some chattel sales which could easily escape disclosure, even for represented taxpayers.
- The freezing of Inheritance Tax nil rates is likely to be particularly problematic. Like all stealth taxes it has crept up by small increments but will become more significant as inflation accelerates its devaluation. Since the nil rate band has not been increased since 2009 it seems quite likely that, by the time the freeze ends, it will be worth about half of the 2009 value. Similarly, the £2m gross estate value for the residential additional band will put some smaller farm estates (or planning exercises) under pressure. On the positive side, one might hope that the treasury view is that these changes will be the most effective way of increasing the yield from IHT and may therefore shelve any proposals for further reform. This may just be wishful thinking, and on the basis of “hoping for the best and preparing for the worst” – there is a strong argument for revisiting existing IHT planning and testing how well it will work in an era of high inflation and frozen allowances.
All this is making the role of the accountant an increasingly important one. There will be a plethora of opportunities for short term tax planning over the next few months (and no doubt the Treasury are anticipating some windfall profits of their own for 2022/23 as a result). In the longer-term, CGT strategies will, need revision, there will be an influx of new tax return clients and inheritance tax planning will become increasing relevant – all at a time when the transitional year and MTD are already keeping profession fully occupied. On the other hand, there will be opportunities for providing valuable services to both existing clients and those being brought into the tax regime for the first time – it is to be hoped that they will be duly appreciative.*The views expressed are the author’s and not ICAEW’s.