On 23 September 2022, Kwasi Kwarteng released his Mini Budget in the UK as part of his “Growth Plan 2022”, with the main objective being to reduce taxes in order to stimulate sustainable growth, which will ultimately result in “higher wages, greater opportunities and provide sustainable funding for public services”.
In this article, we take a look at the policies announced by our new Chancellor and what it means for you.
Business Taxes
A welcome announcement for many businesses, corporation tax will no longer be increased to 25% in 2023 as announced in the previous budget. Instead, it will be kept at the current rate of 19%. EDIT: In a second U-turn on Friday 14th October this has now also been cancelled.
In addition, the temporary increase in the Annual Investment Allowance to £1 million, which was due to end in March 2023, will now continue. This means that businesses will be able to benefit from a full corporation tax deduction on the purchase of up to £1 million of new plant and machinery.
Personal Taxes
Mr Kwarteng also announced a number of Personal Tax cuts. Firstly, and as expected, the increase of 1.25% in both Employee’s and Employer’s National Insurance Contributions (NICs) will be reversed from November. Employee’s NIC will be 12% and Employer’s NIC will be 13.8% (they were 13.25% and 15.05% respectively).
Moreover, the reduction in the Basic Rate of Income Tax from 20% to 19% will be brought forward from April 2024 to April 2023 and the Additional Rate of Income Tax, which is currently 45% on income over £150,000, will be completely abolished from April 2023. EDIT: The abolishment of the 45% tax rate has now been scrapped in a u-turn by the Chancellor on Monday 3rd October!
The increases in Dividend Tax of 1.25% will also be reversed. Dividend rates will be 7.5% for the Basic Rate band and 32.5% for the Higher Rate band. Finally, the cap on Bankers’ Bonuses (a limit of 100% of their fixed pay for certain bank employees) will be reversed.
Stamp Duty Land Tax
Changes to Stamp Duty Land Tax (SDLT) have also been made within this Mini Budget, with the nil-rate threshold having been doubled from £125k to £250k. And for first-time buyers, the amount at which they will start to pay SDLT has been increased from £300k to £425k.
Also, the maximum value of a property on which First-Time Buyers’ Relief can be claimed will increase from £500k to £625k.
Energy Price Guarantee
The average household will pay no more than £2,500 per year for energy costs for a period of two years from October 2022. (This had already been introduced prior to the Budget). The Energy Bills Support Scheme had also previously been introduced, with all households set to receive an amount of £400 to support them with energy costs over the coming winter. Furthermore, for those who use alternative heating fuels and thus cannot receive support through the Energy Prices Guarantee, there will be an additional payment of £100.
In addition, the Government has committed to a new six-month Energy Bill Relief Scheme for businesses and other non-domestic energy users, providing them with a discount on energy prices. It will be reviewed in March 2023.
In the long term, the Government will identify how to assist those non-domestic customers who are most vulnerable. An Energy Supply Taskforce will also have the objective of negotiating long-term agreements with major gas producers as well as a new pricing system which will better reflect the UK’s home-grown, cheaper and low-carbon energy sources. If this is successful, it should reduce the likelihood of similar energy price crises in the future.
New Investment Zones Announced
Also announced were 40 new “Investment Zones” in the West Midlands, the Tees Valley and Somerset. These investment zones will benefit from:
- Relaxed planning rules;
- Time-limited tax incentives for businesses in designated sites;
- 100% relief for business rates on newly occupied business premises and certain existing businesses;
- Enhanced capital allowances – full cost of qualifying plant and machinery can be deducted from business profits before calculating tax, if used within the investment zone;
- No employer NIC on salaries of a new employee working at least 60% of their time within the investment zone;
- No SDLT on land and buildings bought for use or development of commercial purposes, and for purchases of land or buildings for new residential development.
IR35
Previous IR35 rules made it more difficult for contractors to offer their services via their own limited companies. This resulted in many directors closing companies and entering employment. However, from 6 April 2023, these rules will be reversed and contractors will be responsible for determining their own employment status. Not only will this help contractors, but it will also benefit businesses looking for flexible workers who they don’t have to employ.
Other Announcements
Other announcements that were made were as follows:
- The Alcohol Duty increases have been frozen from 1 Feb 2023 to support the sector;
- A modern, digital VAT free shopping scheme will be implemented to support, and create jobs in, the retail, hospitality and tourist sectors.
- The Health and Social Care Levy has been reversed (this was introduced in the last budget at an additional 1.25%).
If you have been affected by any of the above changes, or would like further information on them, please feel free to get in touch by emailing: hello@pinkpigfinancials.co.uk
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