2022 Year in Review and 2023 Economic Preview
It’s no secret that the economic situation has been difficult for businesses in the UK since the dawn of the pandemic. Stunted growth, reduced customer revenue, difficulty retaining or hiring new employees: all these and more have combined into a torrid time for businesses in the UK of late.
However, could the situation be better for businesses in 2023 and beyond? While the UK economy still isn’t expected to grow throughout 2023, are there other factors that could help businesses get back on their feet.
Read on to find out what could be in store for your business next year!
2022 was categorised by financial instability
Two monarchs, three prime ministers, four chancellors… 2022 was a year riddled with change, uncertainty, and turmoil, especially for the financial industry.
Several geopolitical factors, such as the war in Ukraine and energy price cap rises, contributed towards a 40-year high inflation rate and climbing interest rates towards the end of the year.
Plus, several changes announced throughout the year were quickly undone or changed after their unveiling, making it difficult to keep up and understand which changes are coming into effect.
The UK economy in 2023 – downturn with potential
The UK economy is forecast to shrink by 1.4% in 2023, a significant change compared to the original government predictions that were made in March. The then-chancellor, Rishi Sunak, claimed that the UK would experience economic growth of 1.8% throughout the year.
On the contrary, the prediction for GDP growth rate was also reanalysed and has increased from 3.8% to 4.2%, potentially due to the energy price subsidy scheme, which will continue into early 2023.
The expectation is that an economic downturn next year will result in an economic growth rate of 1.3% in 2024, though this is still a downward revision when compared with the 2.1% growth previously reported.
The markets have reacted well to these initial plans, which were outlined in the Autumn Statement, especially given that the previous mini budget announcement caused plenty of market instability almost immediately. This could be a good sign that, while individuals and businesses may need to maintain cost-cutting measures, stability is on the horizon.
Elsewhere, different industries and markets will experience different results. For example, it is predicted that house prices across the UK will fall by almost 5% over the course of the year; the first annual drop in well over a decade. This is after house prices experienced a brief, monthly drop in October 2022.
New tax changes for individuals
Tax changes for both businesses and individuals will be coming into effect in 2023. For individuals, from the 6 April 2023, the Additional Rate tax bracket will be reduced from £150,000 to £125,140 in an attempt to generate more revenue from tax on higher earners.
This means that any earnings over £125,140 will be taxed at 45%, rather than the Higher Rate of 40%.
National Insurance rates will also be changing for the 2023/24 tax year. NIC rates will return to previous levels, while 1.25% Health and Social Care Levy will be introduced. This will apply to every employee, employer, and self-employed even if they are above State Pension age.
New tax changes for businesses and sole traders
For businesses, Corporation Tax will be increasing from 19% to 25% from the 1 April 2023, a change that is expected to generate an estimated £18 billion a year. Smaller or less-profitable businesses will not pay the full 25%, and businesses earning a profit of £50,000 or less will see no increase at all. The impact of these changes will be reviewed and analysed in October 2023.
The self-employed will be undergoing a transitional period in the 2023/24 tax year, with new “Making Tax Digital” improvements coming into effect in the 2024/25 tax year. The new changes will replace the current Self-Assessment method.
In summary, MTD affected taxpayers will need to upload their data to the HMRC servers four times a year, rather than the just the one tax return per year that is currently required. This data must be kept in a format that is able to synchronise with the HMRC server.
Find out about the government’s financial plans for 2023.
Want to discuss how upcoming changes might affect you?
If you’re interested in learning more about potential changes to the economy from a business perspective, or how you might personally be affected, we’re here to help. Our Chartered Accountants in Birmingham will do everything we can to ensure that you understand any potential changes.
Contact either our accountants in Walsall to find out exactly how we can help you! Alternatively, contact our Birmingham auditors to ensure that your practices will remain within the law, regardless of any expected legal changes.
For our West Midlands office:
Tel: 01922 743 100
Email: aldridge@edwardsaccountants.co.uk
