NEWS

Mini Budget Update: September 2022

September 30, 2022
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BSc ACA, Audit Partner
West London



Mini Budget Update: September 2022



NEWS

Mini Budget Update: September 2022

Image


BSc ACA, Audit Partner
West London


This blog has been updated 18 October 2022 to reflect a number of additional announcements made by the Government scrapping many of the announcements made in this mini-budget. See below, notes in bold for updated information.

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. Nevertheless, Mr Kwarteng’s launch of ‘The Growth Plan’ contained some surprises. Detailed below are the main announcements.

 

Tax Announcements

Income tax

Oct 2022 Update: The abolition of the 45% higher rate of income tax and the 1p cut in basic rate income tax due in April will now not happen.

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.

Comment: Tax cuts for the higher paid were certainly not expected nor perhaps warranted at this time. For higher earning business partnerships and LLP’s, the rate cut from 23/24 also gives an unforeseen benefit in that 23/24 is the year in which those businesses are moved to a current year basis of taxation. This allows some of their previous year profits to be taxed at the new lower rate as well as the 23/24 year. Professional partnerships will be a significant winner if the abolition of additional rate tax survives.

Dividend taxation

October 2022 Update: This announcement has been scrapped and the planned 1.25% rise in dividend tax will go ahead as originally planned from 6th April 2023.

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
2022/23 8.75% 33.75% 39.35%
2023/24 7.50% 32.50% N/A

 

Comment: This is another unexpected saving for the wealthier taxpayer given that most seemed happy to contribute 1.25% tax on their investment income to the “Care Levy”.

National Insurance Contributions

October 2022 Update: This announcement will remain and there will not be any rise in National Insurance from 6 November 2022.

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
Class 1    
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%
2022/23
Directors: Primary £11,908–£50,270 pa: 12.73%
Over £50,270 pa:         2.73%
Secondary Over £9,100 pa:         14.53%
 
Class 4   
Self-employed

On profits

£11,908–£50,270 pa: 9.73%

Over £50,270 pa:          2.73%

Comment: This is a sizeable change as it effectively reduces the Revenue’s NIC take by 2.5% on all salary amounts over £12,570 in any one year. For the care sector, this funding was intended to provide much needed resources.

The employers NIC cut will be a welcome boost to businesses whose payroll costs have soared through salary inflation, auto enrolment pension contributions and an NIC level of 13.8%, already 1.8% above the historic 12% norm.

For employees, the 1.25% cut in employee NIC will now be needed to cover mortgage interest increases whether they were coming or not.

IR35 – off-payroll working

October 2022 Update: The new Chancellor has announced that the off-payroll working reforms introduced in 2018 and 2021 will no longer be reversed and current rules will remain in place.

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.

Comment: This is a surprising reversal given successive government’s attempts to reign in the one-man service company and the tax advantages they create. Whilst IR35 still applies, HMRC have had little success in convincing one-man companies to pay themselves by salary rather than by dividend. Forcing the onus of this onto the main Employer seemed to be the answer and has been working. Perhaps the administration of this is too much of a burden or the need to find additional workers through the one-man service company sector has become much more important.

Stamp duty land tax

October 2022 Update: This announcement will remain in place and SDLT thresholds will increase.

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.

Corporation tax

October 2022 Update: This announcement was scrapped; therefore, Corporation tax will now increase from 19% to 25% in April 2023.

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%.

Comment: Whilst this was informally announced ahead of the mini budget, we welcome this development. The increase to 25% has become more of a talking point amongst business owners as its inception date has approached. Businesses of all sizes will welcome the reversal and the additional cash to reinvest in their business.

Annual investment allowance

October 2022 Update: The AIA will remain at £1m

The current £1 million level of the annual investment allowance will be made permanent.

Capital allowance – super-deduction

October 2022 Update: This will remain until 31 March 2023

Some of the technical provisions for the super-deduction will be amended to ensure that the relief continues to operate as intended.

Comment: Continuing tax allowances for growing businesses and encouraging investment is excellent news.

Company Share Option Plan

October 2022 Update: This announcement remains in place and increased limits will apply

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.

Comment: The OTS seems to have been around for a long time, and during that period we note the tax system only becoming more, more and more complex. For almost all but the most experienced tax practitioner, the current quantum of tax legislation is almost beyond comprehension. As a consequence, good tax advice is difficult to obtain, more expensive and now results in more and more litigation not only between the adviser and HMRC but also between the advisor and his client. Simplification is now a must, but it may be that the solution is anything but simple.

Other announcements

Investment zones

October 2022 Update: Creation of these low-tax, low-regulation investment zones continues as per the announcement below.

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.

VAT-free shopping

October 2022 Update: The changes to introduce VAT free shopping for overseas visitors has now been scrapped and will no longer go ahead.

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.

EBRS
Fuel Support level unit charge
p/kWh
Maximum discount
p/kWh
Gas 7.5 11.5
Electricity 21.1 40.5

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.

Follow up – please do be in touch

If you have any questions about the announcements or would like further information on how they may affect you and your business, then please do not hesitate to contact us.

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