The Chancellor of Exchequer, Kwasi Kwarteng, gave his first and likely controversial “mini-Budget” today announcing sweeping changes to the tax system in what has been hailed as the biggest tax cut programme since 1972.
The mini-Budget has not been scored by the Office of Budget Responsibility, which is normally something cleared in advance of the announcements in Parliament. This is due to happen within the next couple of months. In light of the changes announced, many people believe this to have been a deliberate move and the Chancellor certainly appeared uncomfortable every time this was pointed out by the Opposition.
What follows is a summary of the key announcements:
- Income tax rates are set to drop from 6 April 2023 – the basic rate will be cut from 20% to 19% while the additional rate of tax (45%) for incomes over £150,000 will be removed altogether. The abandonment of the additional rate of income tax is a very significant step which removes a great deal of incentive for business owners to consult advisors on how to extract profits from their business of more than £150,000 per year without paying the top rate.
- The temporary increase in National Insurance of 1.25% will be withdrawn with effect from 6 November 2022 and the Health and Social Care Levy intended to be introduced from 6 April 2023 has been scrapped. HMRC have already acknowledged that payroll software providers may not have tested and rolled-out the required changes before November payrolls need to be run. Employers are advised to explain to staff that any over deduction of National Insurance contributions will be corrected as soon as possible.
- The dividend tax rates will drop back down to 7.5% and 32.5% for basic rate and higher rate taxpayers respectively from 6 April 2023. This announcement is very significant for shareholders in owner managed businesses as there may be tax advantage in delaying dividends until the lower rates take effect. We will be carefully studying the fine print once it is available to assess the opportunities here.
- Cancellation of the Corporation Tax rate increase that was due to come into effect from 1 April 2023, which would have increased the main rate of tax from 19% to 25% for all but the smallest of companies.
- Repealing the off-payroll working reforms introduced in 2018 for public bodies and 2022 for the private sector in respect of medium and large entities only. This move will doubtless anger a lot of businesses that will feel they have wasted time and effort putting in place changes that will last for only a single year. There has a been strong current pushing high earning contractors towards PAYE arrangements over the last few years by making alternative arrangements costly to implement and risky for businesses. It may take some time to assess the Government’s true direction of travel and whether intermediary or personal service companies will now be considered acceptable tax planning.
- The threshold above which Stamp Duty Land Tax is chargeable will be doubled from £125,000 to £250,000. A number of changes for first time buyers will also been introduced.
There were various other changes including:
- Removing the bankers’ bonus cap.
- Making the temporary Annual Investment Allowance limit of £1M permanent – this was expected to return to £200,000 after 31 March 2023.
- Doubling the limit for companies issuing Company Share Options from £30,000 to £60,000.
- Increasing the limit for Seed Enterprise Investment relief to £250,000 from £150,000 together with some other technical changes to the relief. The Government is also intending to remove the sunset clause meaning that EIS, SEIS and VCT will now extend beyond 2025, which is very good news for investors.
- Abolishing the Office of Tax Simplification whilst calling for the tax code to be made less complex – something of a paradox!
- A revamped VAT free shopping scheme for overseas visitors.
- The knock-on impact of the change to the basic rate of tax will mean that charities will receive less under the gift aid scheme, however, the Government has announced a four year transition period to ease this.
The impact of these announcements is already being felt as the value of Sterling has fallen dramatically as the market struggles to decide in which direction the UK economy has been set.
Is this a Budget that will rev up the economy as the “growth plan” that it is intended to be or will it be seen as “tax cuts for millionaires”.
Should you have any questions or if you would like to discuss any of the planning options mentioned above then please do not hesitate to contact us.