On September 8th, recently appointed chancellor Kwasi Kwarteng unleashed his ‘mini-Budget’ which brought with it some significant, unexpected and controversial measures.
Amid preceding uncertainty about if, when, or whether there’d even be a fiscal statement this month, Kwarteng heralded “a new era” for businesses and families across the United Kingdom.
So let’s look at the key changes facing the United Kingdom ahead of the larger autumn budget.
Income tax changes
Insisting that “high tax rates damage Britain’s competitiveness”, the Government had intended to abolish the additional rate of income tax (45%), which currently applies to income above £150,000, from April 2023.
However, on 3 October, Prime Minister Liz Truss announced a ‘u-turn’ on the policy after backlash, describing it as a “distraction from our mission to get Britain moving”.
The fiscal statement abolished the additional rate, additional tax band for savings and dividends removed from April 2023, and it seems this will still go ahead.
The Government is carrying forward the 1 percentage point cut to the introductory income tax rate to April 2023, reducing the rate from 20% to 19% 12 months earlier than planned.
This £5-billion-a-year tax cut will allow workers, savers and pensioners to keep an average of £170 of their income in 2023/24, according to the Treasury.
The cut applies to:
- the basic rate of non-savings and non-dividend income
- the savings basic rate (which applies to savings income for taxpayers across the UK)
- the default basic rate (which applies to any non-savings and non-dividend income that isn’t subject to either the main rates or the Scottish income tax rates).
National insurance rate reversal
The Government will reduce National Insurance Contributions (NICs)by 1.25 percentage points from November and cancel the health and social care levy that was supposed to replace the rise from April 2023.
Employees earning between £1,048.01 and £4,189 a month will see their NICs reduce from 13.25% to 12% from November, while earnings above £4,189 will revert to from 3.25% to 2%.
From 6 April 2023, the Government is also reversing the recently implemented 1.25 percentage point increase in dividend tax rates, applied UK-wide. The basic and higher dividend tax rates will be reduced to the 2021/22 levels of 7.5% and 32.5%, respectively.
As was rumoured days before the statement, the Government announced a permanent cut to stamp duty land tax (SDLT), effective immediately from 23 September 2022.
The tax, which only applies in England and Wales, affects people planning to buy a property, and the amount you pay depends on how much the property costs.
Before the announcement, no tax would be paid on transactions up to £125,000 (or £300,000 for first-time buyers), and from there, it rose in bands to a maximum of 12% for the portion over £1.5m, and raisedjust under £12bn for the Treasury pre-pandemic.
The limit has now been doubled to £250,000 – and £425,000 for first-time buyers – in an attempt, said Kwarteng, to help families aspiring to own their own homes and boost economic growth by stimulating the property market.
Corporation tax was due to increase to 25% next year for
company profits over £250,000, while the tax on profits between £50,000 and £250,000 would remain at 19%.
Kwarteng confirmed that the increase would be cancelled. This means that the UK’s corporation tax rate will remain at 19% for all UK companies, which the Government claims will bring almost £19 billion a year back into the economy.
IR35 rules repealed
IR35 was first introduced in 2000 and was brought in to tackle tax avoidance from contractors and their employers.
The Chancellor announced that the IR35 rules introduced in 2017 and 2021 would be repealed, helping to simplify off-payroll working and reduce extra costs for businesses that use contractors and subcontractors.
Low-tax investment zones
In a bid to support growth across the entire country, the Chancellor announced new low-tax investment zones.
Currently, in discussion with 38 areas of England, including Teesside, Norfolk and the West Midlands, the plan would see tax breaks to encourage businesses to set up and develop in these regions.
One of the other areas of focus was to elaborate on the Government’s relief package to help businesses and households tackle the catastrophic rise in energy prices. Kwarteng announced three key measures:
- The Energy Price Guarantee for households will mean the typical household – using 12,000 kWh of gas and 2,900 kWh of electricity – will pay no more than £2,500 a year (though this is dependent on usage).
- A one-off £400 fuel bill discount to all households this winter, and anyone who doesn’t use mains gas and electricity – like those using heating oil – will receive an additional £100 on top. The ‘most vulnerable’ will be offered additional support, with a total saving of up to £2,200.
- The Energy Bill Relief Scheme, aimed at supporting businesses (which aren’t covered by the energy price cap), will cap wholesale energy prices for six months from 1 October for all organisations.
With a host of changes affecting individuals and businesses alike, it’s no surprise the country has been rocked with uncertainty.
For many business owners, the changes made may increase growth or profitability, but it’s also likely that many will also feel the pinch.
Don’t hesitate to contact us for any advice, information or support on these changes. We’ll be happy to help where we can.