Mini-Budget Update: September 2022
Kwasi Kwarteng’s first set piece as Chancellor of the Exchequer was never going to be easy, even before the 0.5% increase in interest rates the day before. The new Prime Minister Liz Truss revealed much of what we might expect before Mr Kwarteng spoke a word, so we already knew that there would be:
- a two-year £2,500 Energy Price Guarantee (EPG) for consumers;
- similar but shorter-lived support for businesses and other non-domestic energy users;
- cuts to National Insurance Contribution (NIC) rates; and
- a reversal of the planned April 2023 increases in the rate of corporation tax.
Nevertheless, Mr Kwarteng’s ‘Mini-Budget’ contained some surprises, including the end of additional rate income tax (outside Scotland) and the reversal of recent changes to IR35.
Mini-Budget Tax Announcements
The reduction in the basic rate of income tax to 19%, which was originally scheduled for 6 April 2024, will now take effect from the beginning of the 2023/24 tax year.
A four-year transition period for gift aid relief will maintain the income tax basic rate relief at 20% until April 2027. A one-year transitional period for relief at source will allow pension schemes to continue claiming relief at 20%.
The additional rate tax of 45% that currently applies on annual income over £150,000 in England, Wales and Northern Ireland will be abolished from 2023/24.
These changes do not affect Scottish tax rates.
The additional rate for savings, dividends and the default rates will also be removed from April 2023 and this change will apply across the whole of the UK.
From 2023/24, the tax rates applicable to dividends will be reduced by 1.25 percentage points, taking them back to 2021/22 levels.
|Basic rate||Higher rate||Additional rate|
National Insurance Contributions
The additional 1.25 percentage points previously added to all 2022/23 Class 1 and Class 4 NIC rates will be scrapped. The change will take effect from 6 November 2022.
The 1.25% health and social care levy, due to replace the NICs increase from 2023/24, will be abandoned.
There is no change to the increased 2022/23 Class 1 primary threshold and Class 4 lower profits threshold announced in the Spring Statement 2022.
The rates and thresholds for the rest of the 2022/23 tax year for those affected are as follows:
|6 July 2022 to|
5 November 2022
|6 November 2022 to|
5 April 2023
|Employee – Primary||£242–£967 pw: 13.25%|
Over £967 pw: 3.25%
|£242–£967 pw: 12.00%|
Over £967 pw: 2.00%
|Employer – Secondary||Over £175 pw: 15.05%||Over £175 pw: 13.80%|
|Directors:||Primary||£11,908–£50,270 pa: 12.73%|
|Over £50,270 pa: 2.73%|
|Secondary||Over £9,100 pa: 14.53%|
|£11,908–£50,270 pa: 9.73%|
Over £50,270 pa: 2.73%
IR35 – off-payroll working
The 2017 and 2021 reforms to the off-payroll working rules (commonly known as IR35), which required employers to categorise their workers, will be repealed from 6 April 2023.
From 2023/24, workers providing their services via an intermediary, such as a personal service company, will be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
Stamp duty land tax
Stamp duty land tax (SDLT) rates for residential property will be revised from 23 September 2022, increasing the 0% band threshold from £125,000 to £250,000.
The Government will also increase relief for first-time buyers, raising the 0% band threshold from £300,000 to £425,000 and the maximum value of property on which they can claim the relief from £500,000 to £625,000.
These changes only affect England and Northern Ireland. The Scottish Government has announced that it will set out its plans for land and buildings transaction tax as part of the normal budget process and the Welsh Government has given no information about its land transaction tax.
The increases to corporation tax rates due to take effect from April 2023 will no longer take place. The main rate of corporation tax will remain at 19%.
The corresponding increase in diverted profits tax from 25% to 31% will also be cancelled from April 2023.
Furthermore, the 5% reduction in the bank corporation tax surcharge will no longer take place, meaning it will remain at 8%.
Annual investment allowance
The current £1 million level of the annual investment allowance will be made permanent.
Capital allowance – super-deduction
Some of the technical provisions for the super-deduction will be amended to ensure that the relief continues to operate as intended, despite the cancellation of the corporation tax increase.
Company Share Option Plan
From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, doubling the current limit. The ‘worth having’ restriction on share classes within the CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive (EMI) scheme and widening access to CSOP for growth companies.
Venture capital schemes
From April 2023, companies will be able to raise up to £250,000 of seed enterprise investment scheme (SEIS) investment – a £100,000 increase on the current limit. At the same time:
- the gross asset limit will be increased to £350,000;
- the company age limit will be raised from two to three years; and
- the annual investor limit will double to £200,000.
The SEIS, enterprise investment scheme (EIS) and venture capital trust (VCT) scheme will now be extended beyond 2025.
Office of Tax Simplification
The Office of Tax Simplification (OTS) will be abolished, to be replaced with a mandate to the Treasury and HMRC to focus on simplifying the tax code.
The Government will work with the devolved administrations and local partners to introduce investment zones across the UK. These zones will have a range of benefits, including:
- time-limited tax incentives;
- accelerated development with streamlined planning requirements; and
- greater control over local growth funding for areas with appropriate governance.
The following are among the ten-year tax-incentives that are being considered for England:
- 100% relief from business rates on newly occupied business premises and certain existing businesses where they expand into an English investment zone tax site;
- 100% first-year capital allowances for plant and machinery;
- accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment a year;
- zero-rate employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on annual earnings up to £50,270; and
- full SDLT relief for land and buildings bought for use or development for commercial purposes and for purchases of land or buildings for new residential development.
The investment zones will be developed alongside the existing freeports programme.
A new shopping scheme free from any value added tax (VAT) will be developed for overseas visitors to Great Britain. This will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. A consultation will gather views on the approach and design of the scheme, to be delivered as soon as possible.
The energy price schemes
By the time the Chancellor spoke, the Government had already announced a scheme aimed at limiting the impact of soaring gas and electricity prices for businesses.
The non-domestic energy scheme
On 21 September, the Department for Business, Energy and Industrial Strategy (BEIS) revealed details of its Energy Bill Relief Scheme (EBRS) for businesses, public bodies, charities and other non-domestic energy users.
The scheme applies to non-domestic customers who are:
- on existing fixed price contracts that were agreed on or after 1 April 2022;
- signing new fixed price contracts;
- on deemed / out of contract or variable tariffs; or
- on flexible purchase or similar contracts.
The EBRS will operate by reducing the estimated wholesale element of unit prices to Government supported price levels, subject to a maximum discount per unit.
Support level unit charge
For comparison, the BEIS estimates that the wholesale costs in England, Scotland and Wales for this winter are currently expected to be around 60p/kWh for electricity and 18p/kWh for gas.
Further details about the EBRS include:
- The EBRS support will apply for all eligible non-domestic customers for six months from 1 October 2022.
- The Government will publish a review in three months’ time focused on ‘the most vulnerable non-domestic customers’. This will form the basis for decisions about ongoing support after the EBRS ends.
Equivalent support to the EBRS will be provided for non-domestic consumers who use heating oil or alternative fuels instead of gas.
- A parallel scheme to the EBRS, based on the same criteria and offering comparable support, will be established in Northern Ireland.
If you have any questions about the announcements or would like further information on how they may affect you and your business, then contact us.
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