EDIT - 17 October 2022
The text below was written at the time of the fiscal statement on 23 September 2022.
Since then the original Chancellor, Kwasi Kwarteng, rowed back on the removal of the Additional Rate (45% tax above £150,000 of personal income).
After pressure from the financial markets, on 14 October Mr Kwarteng was removed as Chancellor and the Prime Minister Liz Truss, announced that the Corporation Tax cut below would not go ahead.
The new Chancellor, Jeremy Hunt made an announcement today, 17 October 2022, that he was reversing all the tax cuts announced below, the only ones that continue are those for SDLT and National Insurance which had already been enacted.
We will issue a new blog post with revised position soon. In the meantime please do not act upon any of the information below without first checking the position with us
The new Chancellor, Kwasi Kwarteng, gave his fiscal statement, known as The Growth Plan, but effectively a Budget on 23 September 2022. This is six months after the last fiscal event, the Spring Statement, by a previous chancellor, Rishi Sunak, in March 2022.
Since then, several events have come to pass:
- The huge increase in energy prices
- Rampant inflation in the UK
- Lack of growth in the UK economy
- A new Prime Minister
The new government is clearly keen to reset the agenda and distance themselves from their predecessors with a hugely ambitious free market plan, ‘trickle-down’ economics for want of a better phrase. They want to encourage investment by private sector firms.
The Government is taking a huge gamble that by getting growth in the economy the tax revenues will flow. If they fail in this plan the public finances will be in a sorry state. The Government’s own estimates suggest they will borrow an extra £160bn over the next 5 tax years to cover these tax measures – this does not include the support for energy bills and energy companies plus the Investment Zones.
This newsletter is designed to give you the key points that arose from the statement. If you have any specific questions or comments, please do contact us.
The full government statement can be found here:
The statement did lack some details – we will fill those in, as we find out more, in the coming days and weeks.
The key changes were as follows:
National Insurance changes
The National Insurance rises that came in from July 2022 have broadly been reversed from 6 November 2022. This removes the extra 1.25% being charges to employees, employers and the self employed in this current tax year.
This will also reverse the increased limits for employees and the self employed at which they pay National Insurance. There will be blended annualised rates for company directors.
Health and Social Care Levy
This new tax was due to come in form 6 April 2023 and replace the National Insurance rise for this year. It has been completely abolished and the costs will be covered from general taxation and borrowing.
The Chancellor has brought forward the reduction to basic rate of income tax to 19% (from 20%). This was previously supposed to come on from 6 April 2024 but will now come in from 6 April 2023, a whole year earlier.
He also abolished the Additional tax Band – the highest rate, from 6 April 2023. This applied to income above £150,000 and was charged at 45% on earned income and 39.35% on dividend income, these rates will revert to 40% and 32.5% respectively from 6 April 2023.
EDIT - 3 October 2022
The chancellor announced today that he will in fact NOT remove the additional rate band of 45p. This will continue to be charged in income over £150,000 (38.1% on dividends).
The chancellor cancelled the planned rise in the Corporation tax rates on profit above £50,000 to 25% that were originally to come in from 1 April 2023. The Corporation Tax rate will remain at 19% on all profits.
The chancellor also announced that the £1m limit on 100% tax relief under the Annual Investment Scheme for plant and machinery will be permanent and will not reduce to £250,000. This is a useful scheme to back Investment by businesses. Do bear in mind that the Super deduction (an extra 30% free deduction) for assets will end on 31 March 2023 – a planning point here is to ensure that large purchases of assets are accelerated to prior to 31 March 2023 to take advantage of the extra tax relief available.
Along with National Insurance this rose across the board by 1.25% in this tax year due to previous announcements. These increases are reversed but only from 6 April 2023.
As a planning point if shareholders are looking to take large, extra dividend it will be sensible to wait until after 6 April 2023 to save 1.25% tax - but do tax advice on this at the margins.
The table below shows the impact of the changes to dividend tax:
|Tax Band (£)||2023/24 tax year||2022/23 tax year||Reduction|
|0 – 12,570||0%||0%||-|
|12,570 - 50,270||7.5%||8.75%||1.25%|
|50,270 - 150,000||32.5%||33.75%||1.25%|
The first £2,000 of dividends continues to be tax free.
From today SDLT rates will be cut in England and Northern Ireland – this reduce the point at which SLDT applies on a residential property to £250,000 (£425,000 for a first time buyer buying their first home to live in).
The Government has said funding will be provided to the Scottish and Welsh governments for a similar reduction but it will be for those devolved governments to announce their own changes.
Please note that the overseas buyers premium of 2% and the Additional dwelling supplement (4% in Scotland and Wales, 3% elsewhere) is not impacted by these changes and will still apply.
The Government will repeal the Off Payroll working reforms that came in in 2017 and 2021 effective 6 April 2023. This reverts the systems for contractors to assess their own status and removes the requirement for the engager to take a risk here. This will likely increase the number of engagements via Limited companies due to the flexibility afforded to the contractor and the simplicity for an engager.
It is still important for contractors to take advice on their contract to ensure they fall outside of the IR35 rules.
These are new zones where businesses will benefit from tax and planning incentives to help drive growth. The key incentives are:
• Lower taxes – businesses in designated sites will benefit from time-limited tax incentives.
• Accelerated development – there will be designated development sites to deliver growth and
housing. Where planning applications are already in flight, they will be streamlined. Development sites may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy.
Specified sites in England will benefit from a range of time-limited tax incentives over 10 years. The tax incentives under consideration are:
• Business rates – 100% relief from business rates on newly occupied business premises, and
certain existing businesses where they expand in English Investment Zone tax sites. Councils
hosting Investment Zones will receive 100% of the business rates growth in designated sites
above an agreed baseline for 25 years.
• Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying
expenditure on plant and machinery assets for use in tax sites.
• Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce
their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving
100% of their cost of investment over five years.
These areas are mainly in the north of England and deprived areas, but the Government is also in talks with local authorities in other areas of England to establish such a zone in their area. The initial list is England only with the Scottish, Welsh, and Northern Irish administrations to release similar schemes soon.
The full list of expected areas can be found in Annex A of the Growth Plan document linked above.
The UK economy is suffering from high inflation - The Bank of England’s report from 22 September 2022 (before the Chancellor’s announcements) suggested that they expect inflation to peak at 11% in October 2022 and then reduce. To counter inflation and reduce it back to their target of 2% the bank increased their base rate to 2.25% making borrowing more expensive and hoping to dampen demand.
This policy does seem to contrast with the Government’s own attempts to increase growth – there is a very fine balance to be struck here. Hopefully they get these decisions about right to ensure we all have a more prosperous future.
James and Brian
23 September 2022
EDIT - 26 September 2022
Since writing the above blog post we have produced the pdf document below.