The government has provided a mini-budget to introduce a variety of tax cuts as a means to ease the burden of the current economic climate.
The mini-budget includes cuts to income tax, stamp duty and a reversal of the national insurance rise implemented by the previous Chancellor in November last year.
Read through our summary of the main points below:
The Chancellor pledged to scrap the top rate of income tax of 45%, and cut the basic rate tax from 20% to 19% from April 2023.
That would mean that from April next year, the UK would have only two tax bands, a basic rate band at 19% and a higher rate band at 40% for those earning over £50,270.
The Chancellor has since performed a U-Turn, confirming that the 45% tax rate would remain.
Although previously announced, the planned National Insurance hike in April is to be reversed as of 6th November 2022, which will prove beneficial for both businesses and workers. The 1.25% increase was implemented by the former chancellor, Rishi Sunak.
The planned increase in corporation tax for companies making more than £250,000 in profit has also been scrapped. Corporation Tax was due to rise from 19% to 25%. The Chancellor has boasted that the UK will have the lowest rate of corporation tax in the G20, and the reversal of his predecessor’s proposed hike will enable £19billion a year to be ploughed back into the economy.
The Chancellor has also promised to simplify the current rules which govern how temporary contractors are paid. IR35 obligations were originally introduced in 2017 for the public sector, and in 2021 for medium and large private clients.
From April 2023, the onus of deciding whether an engagement contract falls inside or outside IR35, and therefore to account for PAYE/NIC accordingly, now falls on the contractor’s personal service company. The changes will result in workers being enabled to determine their employment status and paying the appropriate amount of tax and national insurance contributions as opposed to the fee-paying party shouldering the responsibilities.
Annual Investment Allowance
The Annual Investment Allowance, a relief for businesses investing in plant and machinery, is to remain at £1m permanently rather than the initial plan to bring it back down to £200,000 in March 2023.
Stamp duty obligations have been immediately changed. Buyers will see no stamp duty payable for the first £250,000 of their property’s value, which is double the current amount allowed.
First time buyers will not pay stamp duty up to £425,000, which has increased from the previous threshold of £300,000.
The government is introducing new investment zones across the UK, aiming to provide more targeted support for the local economy in designated areas. This will include provision of tax incentives and planning liberalisation. Investment zones will be decided following an expression of interest process and after obtaining local consent.
Tax incentives under consideration for the scheme include:
- 100% Relief from business rates on newly occupied or expanded business premises,
- 100% First year capital allowances on plant and machinery; increased structures and building allowances at 20% per year,
- No employer NIC’s on salaries of new employees up to £50,270,
- Full SDLT relief both for land and buildings for commercial use or development and for land or buildings for new residential development.
The Investment Zone scheme is not anticipated to replace the existing freeport programme.
Reversal of Dividend Tax Increase
The proposed 1.25% dividend tax rate increase set for April 2023 in the UK has been reversed. Ordinary and upper rates will return to 2021/22 levels of 7.5% and 32.5%
The CGT windows will increase from 30 days to 60 days.
SEIS/ EIS/ VCT
From April 2023 the the SEIS maximum investment amount will increase from £150,000 to £250,000. Qualifying criteria will also be relaxed by increasing the gross asset limit from £200,000 to £350,000 and age limit from 2 to 3 years.
The annual investor limit will also be increased from £100,000 to £200,000.
The government has expressed support of the EIS and VCT with a view to extend as the EIS looks to expire on the 6th April 2025.
The value of options which may be granted under a CSOP will be increased to £60,000 from April 2023 compared to the previous upper limit of £30,000. The government hopes this will encourage share ownership by employees and in turn help British companies attract and retain top employee talent.
Stamp Duty Land Tax (SDLT)
The nil-rate band for purchases of residential property in England and northern Ireland will be doubled to £250,000. First time buyers will have a threshold increase to £425,000 and the maximum value of a property on which first time buyers relief can be claimed will increase to £625,000. These will be permanent cuts from 23rd September 2022. Separate funding will be provided where SDLT does not apply such as in Scotland and Wales.
VAT Free Shopping Scheme
A VAT-free shopping scheme will be introduced. Although the date hasn’t been confirmed, government forecasts it will be sometime in 2024. This will enable non-UK visitors to Britain to obtain a VAT refund on goods bought in the airport, high street and other departure points.
Freeze on Alcohol Duty
Alcohol duty rates will be frozen for all categories from 1st February 2023 to address the cost of living crisis. The government also intends to introduce reforms into the next finance bill that will create a standardized series of tax bands based on alcohol by volume (ABV). This will be introduced from 1st August 2023.
Office of Tax Simplification
The office of tax simplification is to be closed. The office was set up to independent tax advice to the government to simplify the tax system whilst easing the burden on individual taxpayers and businesses. The government have a view to embed the tax simplification goal directly into institutions of the government, with a mandate for HMRC and the Treasury.
As the office has been a statutory body since 2016, the closure will take effect once the Finance Bill 2023 receives Royal Ascent.