It was described as a 'mini budget' in some quarters, however, new Chancellor Kwasi Kwarteng's plan for growth statement was anything but small scale. It signalled a major fiscal event because Kwarteng has brought in £43bn worth of tax cuts, the biggest tax cutting agenda since 1972 claims the Institute for Fiscal Studies.
It should be noted that several policies where in fact reversals of previously planned tax hikes. This has all been done in the name of boosting growth, through a lower tax burden, so that the economy expands its way out of inflation. Combined with unprecedented energy support measures, this means the challenge for the government is how much this will cost to deliver, and how it will be funded.
The current estimate is an additional £75bn spend requirement alongside the energy support initiatives. The Chancellor stated that this justifies additional government borrowing given the unprecedented energy price shock. There are significant questions moving forward, namely:
In this post we cover the following key policy announcements, and what they mean for you:
|Help with energy costs
|The health and social care levy, National Insurance and dividend tax
|Stamp Duty Land Tax
The government will help tackle higher energy prices through the Energy Price Guarantee. Their plans mean the average household could end up not paying more than £2,500 per year for the next two years from October 2022.
The Chancellor claimed that this, on top of the Energy Bills Support Scheme is likely to see all households get £400 support over the winter months. This could save them £1,400 on their energy bills over the next year.
Bills for businesses, charities and public sector organisations have also been capped in the same manner as for individuals, albeit for 6 months. A new Energy Supply Taskforce is going to be put in place to negotiate better longer-term agreements with gas producers.
There were key changes to income tax. The basic rate band will reduce from 20% to 19% by Spring 2023. The Chancellor stated this will benefit 31 million taxpayers.
The Chancellor originally announced that the additional rate of income tax of 45%, which applies to those earning over £150,000, was to be scrapped from April 2023. This would have meant the top rate of tax would have been the 40% higher rate threshold. However, Kwarteng has since abandoned this policy.
The 1.25% National Insurance increase, that took effect from April this year, will cease from 6 November 2022. In doing so this scraps the plans put in place by the previous Chancellor, Rishi Sunak, through the Health & Social Care levy.
The government claim this will leave 28 million people £330 better off next year, and around a million businesses will make a saving averaging £9,600. The idea behind this is to provide businesses with more funds from which to invest in their growth and expansion.
|Employee and employer National Insurance rates
6/07/2022 - 5/11/2022
6/11/2022 - 5/04/2022
|Employee - Primary
£242 - £967 per week: 13.25%
> £967 per week: 3.25%
£242 - £967 per week: 12.00%
> £967 per week: 2.00%
|Employer - Secondary
|> £175 per week: 15.05%
|> £175 per week: 13.80%
|Directors - Primary
£11.908 - £50,270 per annum: 12.73%
> £50,270 per annum: 2.73%
|Directors - Secondary
|> £9,100 per annum: 14.53%
£11,908 - £50,270 per annum: 9.73%
> £50,270 per annum: 2.73%
Also from next April, the government will reverse the 1.25 percentage point increase to the rate of income tax on dividends. The Federation of Small Businesses have claimed the move is the right one because the rise made it more expensive for owner managers to both pay themselves and their staff.
|Dividend tax rates and thresholds
Similar to the announcements reversing the National Insurance hike, the planned Corporation Tax rise for April 2023 has been scrapped. Instead Corporation Tax will remain at 19%, and as Kwarteng pointed out, that's the lowest rate in the G20 group of nations. He went on further to state that this will put £19bn back into the economy.
Another key point is that the Annual Investment Allowance is to remain at £1m indefinitely. This is a tax allowance for capital expenditure by providing an incentive for businesses to invest their money in plant and machinery. It works whereby you can reduce your taxable profits by the total cost of the qualifying investment(s) up to £1m per annum.
If your business spent £200,000 on new computers/computer machinery and your taxable profits for the year were £1m, then you would only be taxed on £800,000. That's £200,000 of expenditure subtracted from the £1m taxable profit.
Given the scrapping of the planned Corporation Tax hike, the government are set to amend some of the technical details around the Super Deduction. Details are yet to emerge but the aim is for the policy to continue to operate as it was intended.
There are also plans to remove the IR35 off working payroll working rules for both the public and private sectors from April 2023. These rules, introduced in 2017 and 2020 respectively, sought to avoid non-compliance and tax avoidance by identifying contractors who should be employed under PAYE contracts, rather than freelance.
The removal of these changes means that employers will no longer have the burden of assessing whether individuals should be employees. Instead, from the 2023/24 tax year, workers operating through an intermediary, such as a personal service company, will be responsible for assessing their own employment status as well as tax and National Insurance liabilities.
There was some speculation that Stamp Duty Land Tax (SDLT) would be scrapped entirely, this didn't happen. However, the minimum threshold level is to double from £125,000 to £250,000.
This is a permanent change, not a time limited policy per previous amends to SDLT. For first-time buyers, the maximum value on a property on which they obtain tax relief is going up from £500,000 to £625,000.
Furthermore these changes take effect as of 23 September 2022. This is likely to stoke demand in the housing market, and house price inflation. However, a key issue is the supply side of housing in terms of the number of houses available.
More details are to be released soon regarding planning reform to help address the supply challenges, this includes the disposal of surplus government land for the purpose of new build developments.
Alcohol duty rates will also be frozen from 1 February 2023. This means the planned levy increase from next year has been cancelled.
The government will change Universal Credit with a desire of encouraging more people into work. Benefit recipients will need to provide evidence that they're making progress to move into a higher employment. Otherwise, they risk having their benefits cut.
The government will also provide additional support to the over-50s age group to encourage them back into the workforce.
As mentioned on this blog and in various Wellers' videos regarding taxation, Kwasi Kwarteng has committed to tax simplification. His ambition is to embed tax simplification into heart of government, and this means winding down the existing Office of Tax Simplification.
The Treasury and HMRC will be tasked with focusing on how to simplify the tax code. It also means the sunset of various EU regulations moving forward, further details will likely emerge in the budget in November.
Businesses are set to receive significant tax cuts and relaxed planning restrictions as part of new investment zones in the country. The government is said to be in discussion with 38 local authorities in England about their plans, it is said that 24 sites have been designated as prospects.
Planning changes are likely including removing restrictions on height limits, scrapping requirements for affordable housing alongside new developments, and ditching other environmental regulations.
Businesses will benefit from tax reliefs for 10 years for structures and buildings, and 100% tax relief on their investment in buildings, plant, and machinery. Also, there won't be any stamp duty on the purchase of land, and buildings, for business or residential development in these zones.
However, house purchases within the zones will still be subject to the tax. Also, businesses won't pay business rates on newly occupied premises, or where they've expanded premises. Employers won't pay any National Insurance contributions on the first £50,000 of workers’ salaries as long as those employees are based on that site for at least 60% of the time.
There was also a pledge to increase the limits on the Seed Enterprise Investment Scheme (SEIS), from April 2023, companies will be able to raise up to £250,000 of SEIS investment, a £100,000 increase on the current limit. The company age limit will be lifted from 2 to 3 years, and the annual investor limit will double to £200,000.
Finally, VAT free shopping will return for overseas visitors and this will be brought in with a new digital system.
The content of this post was created on 23/09/2022 and updated on 04/10/2022.
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