As always, the Blue Rocket Accounting team are here to help you navigate the government financial changes; and there’s been plenty to digest of late.
We’ve summarised the measures in the mini budget which have been abandoned so far and confirmed what has remained the same and in what capacity.
Corporation Tax Increase
Announced on the 14th October; the main rate ofcorporation tax increase will go ahead and rise to 25% in April 2023 instead ofremaining at 19% as ex-Chancellor Kwasi Kwarteng had planned before therevision. Those under £50k will be taxed 19%.
Personal Tax Changes
The Chancellor Jeremy Hunt reversed all of the below income tax cuts in his statement on 17th October. The cut to the 45% additional rate of tax had been previously reversed by ex-Chancellor Kwasi Kwarteng.
Income Tax cuts scrapped
Currently, income within the basic rate band (from £12,571to £50,270) is taxed at 20%. In the Mini Budget, the former Chancellor pledged to reduce the rate by 1% from April 2023; this change will now not go ahead.
The Personal Allowance is set to remain at its current level of £12,570 and higher rate taxpayers (those with income of more than £50,270) will continue to pay tax at 40%.
This would have been the first change to the basic rate since 2008/09 and while the new Chancellor supports the goal of reducing rates, he has set no specific date when this may occur.
Additional Income Tax rate to remain
Currently, income of more than £150,000 per year is taxed at the additional rate of 45%, but on 23 September 2022, the Chancellor announced it would be abolished. However, on 3 October 2022, the Chancellor announced a change of plan, and the 45% rate will stay in place.
Individuals with income of more than £100,000 will also continue to have their Personal Allowance tapered, with those on incomes of more than £125,140, not being entitled to any Personal Allowance.
1.25% increase to dividend tax rates remains
Alongside the increase of 1.25% on National Insurance (NI)from 6 April 2022, there was also an increase of the tax rates applying to dividends. The increase applied from 6 April 2022 and dividends from this date are taxed at; basic rate - 8.75%, higher rate - 33.75% and additional rate -39.35%.
Following the Chancellor Jeremy Hunt’s announcement, the increase to dividend tax rates will remain in place.
The tax-free Dividend Allowance is understood to be unchanged and will remain at £2,000 from 6 April 2023.
IR35/ off-payroll Labour
The Chancellor is to reverse the plans to repeal the off-payroll (IR35) reforms that were previously announced last month.
IR35 was introduced to ensure that where services were provided by an individual through a personal service company (PSC), PAYE and NIC were operated if the worker’s relationship with the client was more in the nature of employment rather than self-employment. In the face of widespread non-compliance, the responsibility for determining whether IR35 applied moved to the end client (unless small) and the body paying the PSC had to operate PAYE and NIC. The Chancellor Jeremy Hunt confirmed that this would continue to be the case.
VAT free shopping for Overseas visitors scrapped
A VAT-free shopping scheme was announced by Kwasi Kwarteng, this will now be scrapped.
The scheme would have allowed tourists and non-UK visitors to the UK to obtain a VAT refund on goods bought in and then exported from the UK in personal baggage.
The proposed new duty regime for alcohol duties will now not go ahead.
The previous Chancellor had proposed that to assist the wine sector in transitioning, all wine between 11.5%-14.5% abv should be deemed and taxed as if it were to 12.5% abv. The draught duty discount was also to be expanded to include smaller containers (those exceeding 20 litres) and will also include pre-mixed spirits for use in a dispensing system.
The Chancellor confirmed that this proposal would be scrapped as of the 17th October.
Measures from the Mini Budget that remain:
National Insurance increase reversed
The planned 1.25% National Insurance cut will continue to take effect from 6th November 2022.
The increase was a temporary measure for the current tax year before the Health & Social Care Levy was formally introduced on 6April 2023. The Levy will now not be introduced.
Impact for individuals
This is the third NIC change that has impacted employees this year: the initial introduction of the 1.25% increase in April followed by the increase to the threshold when NIC becomes payable to bring it in line with the tax threshold (£12,570) in July, and now the reversal of the 1.25%increase. NIC will now be charged at 12% on earnings up to £50,270 per annum and 2% over this level.
Unlike tax, which is calculated on a cumulative basis throughout the tax year, NIC is calculated on a pay period basis (i.e. weekly or monthly) for employees, so they should see an immediate, albeit small, uplift in take home pay from 6 November (or potentially December if payroll software cannot be adapted in time).
Directors (those classed as ‘statutory directors’ for NIC purposes) have NIC calculated on an ‘annual earnings period’. The legislation to deal with the changes includes new NIC rates of 12.73% and 2.73% for payments to statutory directors throughout 2022/23 and there is an averaged Primary Threshold of £11,908 for the whole of 2022/23. The practical implementation of this change may prove challenging.
Any individuals paying reduced rate NIC will also see a change from 5.85% to 6.58%.
The self-employed will also see commensurate changes for Class 4 NIC with a reduction from 10.25% and 3.25% to 9.73% and 2.73% (averaged for 2022/23) respectively and returning to 9% and 2% for 2023/24.
For those individuals who need to consider whether they may have exceeded the annual maximum NIC threshold (i.e., those with more than one job and can claim ‘deferment’) new NIC rates of 12.73% for employees and9.73%/2.73% for the self-employed will need to be used in the calculations.
Impact for employers
Employers will see the same reduction in employers NIC from the current 15.05% to 13.8% on earnings paid after 6 November. Employers will, however, pay at a rate of 14.53% on any statutory directors’ remuneration for the whole of 2022/23.
Employers also pay Class 1A NIC on any benefits in kind provided, which covers the complete tax year and is remitted by July following the tax year. For the 2022/23 tax year only a new NIC rate of 14.53% is being introduced to again accommodate for the change. This new rate will also apply to any Class 1B NICs that apply to PAYE Settlement Agreements.
Finally, employers should consider any potential bonuses or pay increases due to be awarded, because the cost to the business and net pay impact for employees will be more attractive if these are paid after the 6November change (although this would not benefit statutory directors).
Stamp Duty cut
In a bid to encourage home ownership and house building, particularly for first time buyers, the Stamp Duty Land Tax (SDLT) threshold for purchases of residential property in England and Northern Ireland was increased to£250,000 for all buyers, and to £425,000 for first-time buyers. The threshold for the value of properties qualifying for the enhanced nil rate band for first-time buyers will be increased to £625,000. These measures took effect from 23 September 2023.
Previously, the nil rate band was £125,000 for all buyers, and £300,000 for first-time buyers in respect of properties up to a value of £500,000.
The measures do not apply in Scotland or Wales, where regional land transfer taxes apply (although Wales has raised its Land Transaction Tax Threshold to £225,000 from 10 October 2022).
From 23 September 2023, the new standard residential SDLT rates are as follows:
Higher Rates apply to purchases of additional properties and are three percentage points above standard residential rates. A Non-Resident surcharge applies to purchases of residential property by non-UK residents and is two percentage points above standard residential rates.
Business Energy Relief Scheme
The government announced that support on business energy costs will apply from 1 October 2022 – this will continue as planned.
The Energy Bill Relief Scheme will provide support for all non-domestic energy users for energy supply contracts entered into after 1April 2022 (now extended back to 1 December 2021). The government will provide a discount on gas and electricity unit prices - to calculate the discount, the estimated wholesale portion of the unit price users would be paying this winter will be compared to a baseline ‘government supported price’ which is lower than currently expected wholesale prices this winter. For all non-domestic energy users in Great Britain this government supported price has been set at:
· £211 per megawatt hour (MWh) for electricity
· £75 per MWh for gas
This represents a significant discount on the current wholesale price. Discounts will be applied to bills automatically by suppliers so there is no need for a business to apply for support.
The support scheme will operate until 31 March 2023 and the government will review the scheme early in 2023 to assess whether it will need to be continued for businesses in certain sectors, for example, hospitality businesses.
The government aims to help businesses in the UK to grow through a number of changes to existing enterprise incentives. It is increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS)and the Company Share Option Plan (CSOP), designed to improve ability of the UK to raise money, attract talent, grow and succeed.
Company Share Ownership Plan (CSOP)
A CSOP is a tax-advantaged employee share plan allowing companies to grant options to employees which grant certain tax benefits. Companies can currently confer qualifying CSOP options over shares worth up to £30,000 to each eligible employee. This limit has applied since the introduction of the CSOP in the 1995 and has, therefore, been eroded through inflation.
Today, the government announced that the personal CSOP limit will be doubled to £60,000 from April 2023. This should make CSOP more attractive to companies looking to incentivise employees using options, in particular for senior executive schemes.
Seed Enterprise Investment Scheme (SEIS)
Companies can currently raise up to £150,000 of SEIS investment. As announced today, the amount that companies may be able to raise under SEIS will be increased by two-thirds to £250,000. Companies that qualify for SEIS will therefore have access to a larger amount of funds that they can then invest.
There is also an annual limit on how much an individual can invest in SEIS shares, which has been doubled to £200,000.
Currently, only companies with gross assets below £200,000 at the date of investment can raise funds under SEIS. Under the new measures, this limit will be increased to £350,000.
Another qualifying rule for SEIS is that companies must not have been trading for more than two years: this period will be increased to three years.
EIS and VCT Tax Relief
The government remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees value in extending them in the future (beyond their current 2025 expiry date).
Capital Allowances Changes
Annual Investment Allowance
Kwasi Kwarteng had announced that the temporary increase in the limit of the Annual Investment Allowance (AIA) of £1 million per annum will be made permanent.
This measure would continue to benefit businesses investing in qualifying plant and machinery in the period from 1 April 2023 and provide greater stability for planning investments.
Amendment to super-deduction rules
As a consequence of reversing the planned increase in Corporation Tax from 1 April 2023, the government has announced that some amendments will be made to the current rules in respect of the super-deduction to ensure that the enhanced relief will operate as originally intended.
New Investment Zones
Kwasi Kwarteng had announced the creation of low-tax, low-regulation investment zones in every part of England, with the aim of encouraging rapid development and business investment. The government is in discussions with 38 local authorities, including Greater London, Liverpool, Greater Manchester, Cornwall, the West Midlands, Cumbria, the Tees Valley, West Yorkshire and Norfolk.
For 10 years, businesses in designated areas in investment zones will benefit from:
· 100% first year enhanced capital allowance relief for plant and machinery used
· Accelerated Enhanced Structures and Buildings Allowance relief of 20% per year
· 100% relief from business rates on newly occupied business premises and some existing businesses expanding into an Investment Zone tax site
· Full stamp duty land tax relief for land and buildings for commercial purposes, and for land or buildings for new residential development
· A zero rate for Employer National Insurance contributions for new employees working in the tax site for at least 60% of their time, on earnings up to £50,270 per year.
Local authorities hosting Investment Zones will receive 100%of the business rates growth above an agreed baseline for 25 years. Subject to demonstrating readiness, Mayoral Combined Authorities hosting Investment Zones will receive a single local growth settlement in the next Spending Review period.
If you have any questions about the changes to the mini budget, please get in touch. At Blue Rocket Accounting we want to help you navigate the complexities of tax and finance, that’s why as soon as the ‘fiscal statement’ is released by the government later this month, we’ll share an update of what it includes.