The November budget announcement has seen income tax thresholds reduced from £150,000 to £125,140, with capital gains tax allowances being reduced from £12,300 to £6,000 in 2023, then to £3,000 in 2024. This combination means that many taxpayers will now be left in a higher tax bracket than before, with small businesses taking a significant hit from the allowance reduction.

Similarly, dividend allowances will be reduced by half next year, with plans to halve again in 2024. The allowance – now at £2,000 – will reduce to £1,000 in 2023, before dropping to £500 in 2024.

A recent NerdWallet survey found that 45% of UK business owners feared their business would have to close as a result of the energy crisis, with 47% supporting increased levies for energy companies. The Chancellor has revealed windfall taxes to be placed on energy companies going forward – with the energy profits levy increasing from 25% to 35%, alongside a temporary 45% levy on electricity generators to be implemented on the 1st of January 2023.

Commenting on the Chancellor’s new fiscal plan, NerdWallet’s business finance expert, Connor Campbell, said:

“The UK continues to see a trend of tough financial decisions that leave both businesses and the general public struggling to make ends meet.

“The Chancellor had previously announced during his first public statement that hard decisions would need to be made to bring the current rate of inflation back under control and curb the market instability that resulted from the September mini-budget. We have now been given a sense of what these ‘tough decisions’ entail.

“The fiscal budget announcement has unveiled several changes to tax thresholds that will likely be harmful to the UK’s small businesses and their owners, with the £150,000 income tax threshold being reduced to £125,140 and capital gains tax allowances also seeing a 50% decrease from £12,300 to £6,000 in 2023, then to £3,000 in 2024.

“This will leave many British taxpayers under more financial strain from an additional tax that they may not have been required to pay before. Many of these taxpayers will be small business owners that are already struggling with rising supply prices due to the cost of living crisis alongside increased energy costs and the ongoing impact of Brexit.

“The budget announcement has revealed the £2,000 dividend allowance will be cut by half in 2023, costing the average business taking £40,000 in annual dividends around £87.50 per year. This, combined with the reinstated 1.25% tax rise coming into effect in April 2023, will effectively create a tax rate of over 50% – which will no doubt be a major concern for small businesses across the country.

“And it sadly doesn’t end there, with dividend allowances set to fall again in 2024, dropping to £500.

“Business owners are also likely to breathe a sigh of relief that employee allowances on National Insurance are set to remain at the current rate of £5,000 per year.

“With the rate of inflation now reaching over 11%, it is unsurprising that the Chancellor has unveiled a rise to the national living wage, with the new rate of £10.42 per hour for over-23s to come into effect in April next year.

“Whilst this move will be a relief to the thousands of people across the country that are struggling under the financial pressures of the cost of living crisis and inflation, it leaves business owners with one more additional cost to front somehow.

“As the financial landscape of the UK continues to remain volatile, with the ongoing cost of living and energy crises placing additional strain on both businesses and the general public, it is unfortunate that moves to support one group of people will have a negative impact on the other.

“It seems plausible that there will be further tough decisions yet to come, with the recession predicted to last until 2024.”