Mini-Budget 2022: Key takeaways

Phil Moss, 23 September 2022

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On 23 September 2022, the Chancellor Kwasi Kwarteng delivered his first budget, just 17 days into his new job. The Chancellor described his Budget as the UK’s Growth Plan 2022 and we have summarised the main measures below.

The cost of the Growth Plan, when added to the Energy Relief measures separately announced, are forecast to cost the Exchequer £221 billion between now and 2027. The Chancellor is gambling on the Growth Plan working in order to help fund these costs, although they’ve not yet released any calculations to support this assumption.

Furthermore, unlike with a normal Budget there’s not yet been any independent checking of the governments figures calculations by the OBR, therefore we’ll be waiting some months to see the results of that review.

1. Cancellation of Corporation Tax rate increase

As widely expected, the Chancellor today confirmed that the planned Corporation Tax increase from 19% to 25% from April 2023 will no longer go ahead. This is welcome news as not only does it reduce the tax burden, it also avoids the added complexity of marginal relief for companies with profits of between £50,000 and £250,000.

2. Permanent increase to the Annual Investment Allowance

The Chancellor also announced that the £1 million Annual Investment Allowance limit, which was scheduled to reduce to £200,000 on 31 March 2023, is to be made permanent to encourage businesses to invest in the plant and machinery used in their businesses. Broadly the relief provides for 100% tax relief in the year of the purchase, rather than having to spread the tax relief over many years.

Additionally, no changes have been announced in relation to the Capital Allowances super deduction. This was originally intended to allow companies to benefit from an effective 25% tax saving for investment in plant and machinery, in the periods prior to the 25% rate being introduced. However, now the rate increase has been cancelled, it effectively becomes an absolute benefit for companies that invest prior 31 March 2023.

3. Investment Zones

The government has announced that it will introduce a number of ‘investment zones’ in which businesses will benefit from a wide range of tax incentives, including full relief from business rates, enhanced capital allowances, and Structures and Buildings Allowances (meaning that full relief for investment in business property will be available over a five year period) and relief from employers NIC for salaries up to £50,270.

Discussions are underway with 38 local authorities regarding the introduction of the zones, and a definitive list of the zones will be released in due course.

4. Stamp Duty Land Tax (SDLT)

In welcome news for house buyers, the government is from today increasing the threshold above which SDLT must be paid on the purchase of residential properties from £125,000 to £250,000. They have also increased relief for first-time buyers by increasing the threshold for first-time buyers from £300,000 to £425,000 and increasing the maximum value of a property on which first-time buyers can claim relief from £500,000 to £625,000. As SDLT matters are devolved in Scotland and Wales, these changes only apply to house purchases in England and Northern Ireland.

5. Seed Enterprise Investment Scheme (SEIS)

In order to support startups, the government has increased the limit that companies can raise through the scheme from £150,000 to £250,000, and also increased the gross asset limit from £250,000 to £350,000.

To ensure that as many companies as possible can benefit from this, the age limit for companies raising funds under the scheme has increased from two years to three years and the maximum annual limit for investors has doubled to £250,000. This is good news for startups as it significantly increases the funds that can be raised under SEIS, which can be very tax advantageous for the investors.

6. National Insurance Contributions and the Health and Social Care Levy

As widely expected, the recent rise in National Insurance Contributions (NICs) by 1.25% points will be reversed from 6 November 2022. This applies to both employers and employees Class 1 and self-employed Class 4 NICs. The New Health and Social Care Levy, which was to replace the NIC increase from 6 April 2023, will not be introduced.

7. Changes to Income Tax from April 2023

Additional Rate of Income Tax to be abolished from April 2023

The current additional rate of income tax is 45% and this generally applies to those who have taxable income of more than £150,000 per tax year. The additional rate is to be abolished from April 2023, from which point the new top rate of income tax will be 40%.

Reduction in basic rate income tax from April 2023

The basic rate of income tax is currently 20% which is paid on income falling within the basic rate band (broadly income between £12,571 and £50,270). This rate will drop to 19% from April 2023.

8. Changes to Dividend Tax from April 2023

The income tax charged on dividends increased by 1.25% points from 6 April 2022 for all tax bands. This increase will be reversed from April 2023 and as such the rates will drop back to 7.5% for dividends falling within the basic rate and 32.5% for dividend falling within the higher rate. The abolishment of the additional rate will also apply to dividends so the top rate will now be 32.5%.

9. VAT

It was also announced that VAT-free shopping for overseas visitors is to be introduced, which promises to be more efficient and digitalised in comparison to the old pre-Brexit paper-based scheme that was in place, making the purchase of goods by overseas visitors to the UK more attractive.

10. Further changes to the off-payroll/IR35 rules

In a surprise move the government has today announced that it will be repealing the reforms to the off-payroll working rules (also known as IR35) from 6 April 2023. This is a remarkable U-turn considering the most recent changes were only implemented just over 12 months ago.

According to the Chancellor, workers providing their services via an intermediary, such as a personal service company (PSC), will once again be responsible for determining their employment status and paying the appropriate amount of tax and NIC’s to HMRC.

The initial changes were introduced back in 2017 for the public sector and eventually expanded to the majority of the private sector in April 2021. As it currently stands, the rules require the hiring party (or end-user) to decide if the working relationship resembles a self-employed engagement or one of employment. At the moment, the fee-paying party (or end-user) bears all the risk for an incorrect status determination with any financial liability in relation to PAYE/NIC’s (and potential tax penalties) being transferred to them instead of the actual worker/recipient of the income. This has led the majority of end-users to avoid any worker operating via a PSC.

Although the changes announced today will once again mean that workers (using a PSC) will be responsible for determining their own employment status, this will not remove all the risk of making an incorrect employment status decision. It is likely that HMRC will now focus their investigation attention on the individual PSC itself, mining information gained from employment compliance reviews undertaken on end-user fee-payers.

During such a review, HMRC will always ask an employer for the details of payments they make gross (without deducting PAYE/NIC) to PSC’s, consultants, advisors etc. and this information will no doubt be used to carry out further tax investigations into the recipients of this “off-payroll” income.

11. Bankers’ bonus

The Chancellor confirmed that the current cap on the bonuses of certain bank staff which limited a bonus to 100% of fixed pay (or 200% with shareholder approval) will be scrapped. The Chancellor describes the cap as “poorly designed EU rules” that failed to limit bankers’ pay.

How can we help?

If you need assistance or guidance regarding any of the changes announced, please speak to your usual Lubbock Fine contact or get in touch.