Updated on 3 and 26 October 2022
Following weeks of controversy, we have a new Prime Minister, Rishi Sunak and Chancellor, Jeremy Hunt. The planned tax cuts announced by former PM Liz Truss and her original chancellor Kwasi Kwarteng in the original Mini-Budget, have been reversed in almost every instance. Below is an outline of what policies are being retained and what has been repealed.
Mini-Budget Tax Cuts Abandoned: What you need to know
What’s staying
• No Health & Social Care Levy
• NIC increases reversed
• AIA to stay at £1m
• No Stamp Duty to £250k or £450k for 1st time buyers
• New Investment Zones
• SEIS and CSOP limits increased
• EIS and VCT reliefs extended beyond 2025
• Business energy rates discounted for 6 months
• Domestic energy price cap (but now to end in April 2023)
What’s going
• Corporation tax freeze at 19%
• Income tax cut to 19%
• 45% additional rate tax abolished
• VAT free shopping for tourists
• IR35 reforms repeal
• Alcohol duty freeze
Initially, we were also expecting another Budget on 31 October 2022 as announced by Liz Truss. Due to the change of leadership, this has now been postponed until 17 November and we should expect some radical changes. We will provide an update as soon as we are aware of the changes initiated by the Sunak/Hunt regime.
The original article below is commenting on Kwasi Kwarteng’s Mini-Budget. Note the information contained within this article has been updated in line with new developments.
Chancellor Kwasi Kwarteng has whipped up a storm with a ‘mini budget’ that the Tory party claims is designed to do three key things: protect consumer confidence, cut taxes, and unleash investment. The policies announced are very controversial given that the tax cuts are so wide reaching whilst inflation is high and interest rates continue to increase.
These changes are however the first changes announced in a long time that radically affect business owners. Here is an overview of the key measures that most affect our readers:
Personal tax cuts
A range of cuts to personal taxes were announced:
Significant income tax reductions – the 1p tax cut to the basic rate of income tax from 20% to 19% which was planned for April 2024 will be brought forward to April 2023. This policy has since been reversed.
In the original Mini Budget, the Chancellor announced that the top rate of income tax of 45% will be scrapped in April 2023, meaning the highest rate of income tax in the UK will be 40%. As announced on 3 October 2022 this is not going ahead, the 45% rate of tax will not be removed.
National insurance – the April 2022 increase to national insurance contributions (NICs)will be reversed from 6 November 2022. This is the third NIC change to NICs in the current tax year – we have seen the introduction of the 1.25% increase on 6 April, followed by the increase to the NIC threshold in July, and now the reversal of the 1.25% increase on 6 November. Clearly the benefit of this reversal will be significantly higher for those with higher earnings; someone earning £20,000 will save c.£93 a year, whereas someone earning £100,000 will save £1,093. This policy remains valid.
Dividend tax – the removal of the NIC levy will impact dividend tax – from 6 April 2023 dividend tax will revert to the previous rate of 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers. The 38.1% rate will no longer apply. This policy has been reversed.
Business tax cuts
Corporation Tax – the main rate of corporation tax was due to increase in April 2023 from 19% to 25% for all companies with profits in excess of £50,000. This increase will no longer apply and the 19% rate will remain for all companies. This policy has since been reversed.
Annual Investment Allowance (AIA)– the temporary increase to the limit of AIA is now a permanent increase. This provides 100% tax relief on qualifying investments in plant and machinery to the value of £1 million per fiscal year. The limit of the allowances was due to be reduced to £200,000 in April 2023; this reduction will no longer happen. This policy remains valid.
National insurance – employers’ NICs will also reduce on earnings from 6 November – from 15.05% currently, to 13.8%. This policy remains valid.
SEIS, EIS and VCT changes
SEIS – the amount that companies may be able to raise under the SEIS will be increased from £150,00 to £250,000 from April 2023 and the amount that individuals can invest is to be increased from that date to £200,000 per tax year.
EIS & VCT – these schemes currently have an expiry date of 2025, but the government intends to extend the available reliefs beyond this date. Budget policies relating to SEIS, EIS and VCT remain valid.
U turn to IR35/ off payroll working
The responsibility for operating IR35, the scheme to catch disguised employment, was moved under ‘off payroll working’ legislation from the personal service company (PSC) to the end client unless the end client was small.
The off payroll working legislation is to be repealed in April 2023, and the previous IR35 legislation will again apply.
It is important to note the off payroll working legislation remains in place until April 2023.
If you work through a PSC for a medium or large end client, it is also important to note the responsibility for operating IR35 will revert to your company from April 2023. For those working through a PSC for a small end client, the IR35 legislation continues to apply to your PSC, as now.
If you work on a self employed basis, the responsibility for determining employment status remains with the end client.
Stamp duty land tax (SDLT)
Whereas previous budgets have introduced a temporary reduction to stamp duty, this time rates have been permanently reduced. The amount payable depends on the value of the property and whether the buyer is joining the property ladder for the first time or not. New rates are as follows and the change will be effective from 23 September 2023.
Now, the property price at which stamp duty is paid has been doubled from £125,000 to £250,000.
The new SDLT rates are now:
0%: £0 – £250,000 (£425,000 for first time buyers)
5%: £250,000 (or £425,000) – £925,000
10%: £925,000 – £1,500,000
12%: £1,500,000+
No stamp duty reductions are being offered for second home purchases or for companies, for which the current surcharges will continue to apply. The reduced SDLT rates continue to apply.
OTS will be disbanded
The Office of Tax Simplification (OTS) is to be disbanded – it was established in 2010, however the policies it has recommended have rarely been enacted. The government has now announced that rather than having the OTS as a separate organisation from the Treasury and HMRC, it needs to ‘embed tax simplification into the heart of government.’ We shall see.
If you have any questions arising from the mini Budget please contact partners@rjp.co.uk.