Happy Friday – today’s mini budget from Kwasi Kwarteng is the biggest tax cutting bonanza since 1972. Being born slightly later than that, it is officially the biggest set of tax cuts in my lifetime. Goodness only knows how the country is going to afford it after the last couple of crazy years, but I guess we will worry about that later! So what are the major headlines?
Reduction in Income Tax
The proposed basic income tax rate reduction from 20% to 19% in England and Northern Ireland, which was due to come in from April 2024, will now happen from April 2023. The additional higher tax rate of 45% which applies to annual income above £150,000 will be abolished from April 2023.
Update 3 October 2022: The 45p tax rate is NOT going to be abolished. The basic income tax rate reduction is however still going ahead.
- Consider delaying the payment of bonuses until after 5 April 2023
- If you can bring forward your pension contributions to before 6 April 2023 in order to maximise the value to your pension pot if you are a basic rate or additional rate tax payer
Health & Social Care Levy cancelled
The Government has announced that the 1.25% increase in National Insurance rates brought in this year will be reversed with effect from 6 November 2022. The 1.25% on dividends will hang around for a bit longer, but will be abolished from April 2023. The proposed standalone Levy due to come in from April 2023 will not now happen.
- Consider delaying the payment of bonuses until after 5 November 2022
- Potentially also consider delaying paying out dividends until after 5 April 2023 – although you still need to make sure you are utilising your basic rate band effectively
Changes to IR35
The off payroll working rules (commonly called IR35) have been the source of much angst for freelance consultants among others for many years. The 2017 and 2021 reforms to IR35 will be repealed from 6 April 2023. From 6 April 2023, workers across the UK providing services through an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance.
- Both the worker and employer/end user should carry out an IR35 status review considering the changes announced
Corporation Tax increase has been cancelled
The proposed increase in the Corporation Tax rates up to 25% (on profits above £250,000) which was due to come in from April 2023 will not now happen. The main rate of Corporation Tax will now remain at 19%.
- There is less reason to delay investing in the business, and instead there is the added tax cash flow advantage of doing so before the accounting year end
Seed Enterprise Investment Scheme (SEIS) is expanding
The Government is expanding the Seed Enterprise Investment Scheme (SEIS) to help more UK start-ups raise higher levels of finance. From April 2023, companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase. The gross asset limit will be increased to £350,000 and the age limit from 2 to 3 years. The annual investor limit will be doubled to £200,000.
- If you are considering raising investment for your business it is worth revisiting the SEIS scheme as your business is now more likely to qualify
Stamp Duty Land Tax (SDLT)
The SDLT nil-rate tax threshold on the purchase of a residential property in England and Northern Ireland increases from £125,000 to £250,000. This means an additional SDLT saving of up to £2,500. The nil-rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased from £500,000 to £625,000. This is an additional SDLT saving of up to £6,250. These increases come into effect for residential properties purchased on or after 23 September 2022 – but can’t be backdated.
The Energy Bill Relief Scheme
The Scheme will cap wholesale energy prices for all businesses for 6 months from 1 October. The Government has set a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas, less than half the wholesale prices anticipated this winter – which is a discounted price per unit of gas and electricity. It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. Firms do not need to contact suppliers as this will be automatically applied to them.