Autumn 2022 Mini-Budget analysis and comment
Updated 03/10/22 Following Kwasi Kwarteng's decision to not implement the planned top-rate tax cut we've updated our blog to reflect this.
The key announcements in Chancellor Kwasi Kwarteng's Mini-Budget.
Press leaks, tax cuts, rumours, anticipation… All the hallmarks of a budget are present bar one – any requirement for the proposals to be scrutinised by the Office for Budgetary Responsibility. This is not, of course, unusual in recent times. The Coronavirus Job Retention Scheme, the energy bills package and the health and social care levy were all announced outside of the normal budgetary cycle. Yet, making major decisions without a full economic and fiscal forecast is seen by many as a gamble and perhaps a last roll of the dice by Prime Minister Truss to save the Conservatives at the next General Election.
Also not unusual, for the first actions of a new Chancellor of the Exchequer, is the swift reversal of the policies of their predecessor. If Kwasi Kwarteng wanted to stamp his authority and distance his policies from those of Rishi Sunak, he has certainly gone about it in an audacious manner. Not least because the Institute for Fiscal Studies has said that the planned tax cuts are likely to push UK borrowing and debt to unsustainable levels.
Reversal of NIC increase
The recent 1.25% increase in National Insurance Contributions for both employees and employers will be completely reversed with effect from 6 November 2022. This includes the scrapping of the forthcoming Health and Social Care Levy, which was due to come into effect on 6 April 2023.
This reversal is anticipated to save 28 million people an average of £330 per annum. As an example, someone earning £30,000 a year will save £214 and someone earning £80,000 a year will save £839. This will also be worth £4,200 on average for small businesses and £21,700 for medium-sized firms that pay National Insurance. In total, 905,000 micro, small and medium businesses will benefit in 2023-24.
Temporary annualised NI rate
In order to ensure that those paying NIC on an annualised basis are on an equal footing with ordinary employees, a temporary annualised rate of 14.53% will be used for the 2022/23 tax year only. This covers the following categories of income:
- Directors (Class 1)
- Benefits in kind (Class 1A)
- PAYE settlement agreements (Class 1B)
Payments for termination awards and sporting testimonials will be subject to the rates prevailing at the time and will not use the temporary annualised rate.
The Class 4 NIC rates of 10.25% and 3.25% applicable to the self-employed will temporarily become 9.73% and 2.73% for 2022/23 only.
Reversal of dividend tax rate
In order to ensure those extracting business profits by way of dividend were also contributing to health and social care, the Government increased the basic, higher and additional rates of tax on dividend income by 1.25%.
This increase will also be reversed and rates will return to 7.5%, 32.5% and 38.1% respectively. However, this reversal will not take place until the start of the next tax year on 6 April 2023.
No change to increased NI thresholds
In the Spring Statement 2022, the Government announced an increase in the National Insurance thresholds with effect from 6 July 2022. The Primary threshold (the point at which employees pay NI) from 6 July 2022 to 5 April 2023 was raised to £242 per week, or £12,570 per year, an increase of £2,690 over the previous year. Kwasi Kwarteng has committed to retaining the level of these thresholds.
Planned rise in Corporation Tax scrapped
The Government previously announced that from 6 April 2023 the main rate of Corporation Tax would leap from 19% to 25% for businesses with profits exceeding £250,000. Businesses with profits under £50,000 would continue to pay at 19% and those in between would be subject to the long-forgotten marginal rate relief calculations that many of us will remember from days gone by.
Kwasi Kwarteng confirmed in this Mini-Budget that this planned increase will be scrapped, which will be a relief to the businesses affected.
Planned reduction in Income Tax accelerated
On her leadership campaign trail, Prime Minister Truss pledged to reduce the basic rate of Income Tax by 1% from April 2024. This measure will now come in one year early, effective from 6 April 2023. This is expected to save 31 million people an average of £170 over the course of the tax year.
Additional rate of Income Tax abolished
Effective from April 2023, the highest rate of tax payable by individuals on their earnings will be 40%.
Kwasi Kwarteng has announced that best thing to do was to not proceed with the abolition of the 45p rate.
Annual Investment Allowance to remain at £1m
As seems to happen each year, the planned reduction of the AIA back to its original level of £200,000 has once again been extended so that the £1m level continues.
Office for Tax Simplification to be scrapped
Rather than continually ignore the suggestions put forward to the Treasury by the Office of Tax Simplification, the Government has now decided to consign its function to history. And we wait with bated breath to see what the next steps are.
Simplification of IR35 rules
The 2017 IR35 reforms made public bodies responsible for determining the employment tax status of all those they hired through intermediaries. The Government introduced this change to increase compliance with the IR35 rules after previous changes between 2007 and 2015 had not been successful in doing so. In April 2021, the Government made further reforms and extended the requirements on determining tax status to medium and large organisations in the private and third sectors. This significantly increased the number of organisations in scope of the legislation. Both reforms will now be repealed.
Stamp Duty thresholds increased from today
There will be no Stamp Duty payable on house purchases up to the value of £250,000 (previously £125,000). First-time buyers will not pay Stamp Duty on the first £425,000 (previously £300,000) and the property value limit for such purchases will rise from £500,000 to £625,000.
Seed Enterprise Investment Scheme (SEIS)
From April 2023, companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from 2 to 3 years. To support these increases, the annual investor limit will be doubled to £200,000. These changes will help over 2,000 companies a year that use the scheme to grow.
Company Share Option Plan (CSOP)
From April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.
Other measures either announced or confirmed in September’s Mini-Budget:
- Energy bill relief scheme to reduce energy costs for businesses, charities and the public sector.
- Energy markets financing scheme to support energy traders.
- Independence of the Bank of England in setting interest rates to remain.
- Tougher legislation on union powers to strike.
- Removal of cap on bankers’ bonuses but bank surcharge of 8% will remain.
- New investment zones with preferential tax rates for capital allowances, Stamp Duty, business rates and employers NI.
- VAT-free shopping for overseas visitors.
- Planned increases in alcohol duties cancelled.
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