Forget the dividends changes, the elephant in the room at Autumn Statement was corporation tax

It might be tough for some PSC contractors to digest as they crunch over their own individual numbers this morning after their bottom line was collectively squeezed on Thursday by chancellor Jeremy Hunt, but Autumn Statement 2022 was good for the financial markets, writes Chris James, head of limited company accounting at Workwell.

It's job-done for Jeremy...

Hunt gave us very little to get excited about, and almost all of the unpalatable bits were very clearly trailed in the statement’s preceding few days. So in terms of stability, and especially as those unpalatable bits (made up of spending cuts and tax rises) will shore up the UK by some £40billion, it’s job done for this new chancellor.

But some of the most striking things about Hunt’s Green Book was what it left out. He didn’t mention the elephant in the room for SMEs and most contractor limited companies -- the huge increase in corporation tax, announced by the now-prime minister Rishi Sunak when he was chancellor. That elephant, remember, was abandoned by the previous PM Liz Truss, before it was quickly reinstated again, in a panic. It was a glaring mis-step on business taxation that on Thursday, wasn’t even deemed worthy of a mention by Hunt. 

Some keen-eyed PSC owners may have been a little relieved that the new changes to dividend taxation are not as severe as feared before Thursday. Remember, there was talk of sharp increases in dividend tax rates -- those rates having been increased as part of the Health and Social Care Levy noise in April 2022. 

A liability of £3,750 -- much more than a dividend allowance clawback-type sting

But what came out in the wash at Autumn Statement was only a reduction in the ‘tax free’ dividend allowance. For a contractor or SME making profits of around £100,000, and drawing most of that as dividends, the additional dividend tax would be £337.50 per year.

Yet related to that elephant that the government didn't mention – the corporation tax hike mess -- the additional corporation tax bill for such a company would be a hefty £3,750 or so! And more still if the business owner has more than one company of course.

Clearly having received the memo not to broach their old boss's corporation tax raid, the Treasury’s documents released alongside Autumn Statement do not appear to mention this detail. Instead, HMT focused on how the full rate of corporation tax applies to profits over £250,000. 

Are you ready for a 26.5% marginal corporation tax rate?

But the reality is, once growing SMEs and high-end contractor companies pass profit levels of £50,000, each extra £1,000 is going to be taxed at 26.5%, until £250,000 is reached, when the effective rate reduces to 25%.

Also on Thursday, there were equally significant but smaller issues similarly ignored ('baby elephants in the room,' if you will).

In particular, there was no new detail on IR35 or any review of the off-payroll working rules  -- again something that played big in Truss’s brief tenure. My view is that the value of any new off-payroll rules review is questionable at best. The government may be signalling that it has the same view – given that the only explicit IR35 mention in the Autumn Statement relates to the ‘tax saving’ that going ahead with the rules generates. My take? The figures included, as well as the rationale for that description are all highly challengeable.


Nobody likes being told that there’s no elephant in the room when they’re sat starting at one. Or worse, sat starting at two elephants -- as is the case for freelancers running their own limited company.

In fact, as I told FreelanceUK after Hunt’s Autumn Statement, freelancers and contractors -- just like small to medium-sized enterprises, will be feeling bruised. Once again (and I’ve been a contractor accountant long enough to tot up a few chancellors’ Budgets), the government doesn’t seem to value the way they work. Or the spirit that leads them to set up their own business in the first place. 

The unlikely couple: the 'next Silicon Valley' paired with cuts to tax-free capital gains

A final trumpet from the government that seems to confirm its aggressive stance to one-person incorporated businesses? Well, Hunt is also reducing the amount of capital gains that can be made tax-free in a year. So contractors closing their companies with assets will have a higher tax bill from April 6th 2023, and that bill increases further from April 6th 2024.

With all these measures, you’d be forgiven for feeling like Hunt wants to hunt the loveable PSC to extinction! Against that backdrop, somehow the chancellor saw fit to suggest that he wanted the "next Silicon Valley" to be in the UK. Contractors will question whether the government thinks they should be a part of it -- and if they’ve got long memories, they may soon return their own bruising once a general election comes around.

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Written by Chris James

Chris James BFP FCA is a Chartered Accountant who regularly speaks on taxation matters affecting Limited Company contractors, umbrella workers and the recruitment supply chain. He is is head of limited company solutions at Workwell.
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