The week leading up to Chancellor Kwasi Kwarteng’s ‘Mini Budget’ may have been a short one due to the Queen’s funeral, but the new government managed to fill it with a stream of policy announcements.
Before Mr Kwarteng stood up to make his statement on ‘The Growth Plan’ much of what he had to say about energy support for businesses and households, bankers’ bonuses, investment zones and reversals to NICs had already been announced. The government also said that the Chancellor’s statement would not be subject to a forecast from the Office for Budget Responsibility. However, this did not stop the media from dubbing this event a Mini Budget.
The Growth Plan set out a new approach to the economy built around three central priorities:
In September 2021 the government published its proposals for new investment in health and social care in England. The proposals were intended to lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government introduced a UK-wide 1.25% Health and Social Care Levy based on the National Insurance contributions (NICs) system but ringfenced for health and social care.
The Health and Social Care Levy Act provided for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates were intended to revert back to 2021/22 levels and be replaced by a new 1.25% Health and Social Care Levy.
However, the new Chancellor has decided to:
The Health and Social Care Levy was expected to raise around £13 billion a year to fund health and social care and the Chancellor has confirmed that funding will be maintained at the same level as if the Levy was in place, funded from general taxation.
The changes take effect for payments of earnings made on or after 6 November 2022, so:
The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.
Following the principle detailed above, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.
The government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This is now being accelerated so that it takes effect from April 2023.
In addition, to ‘incentivise enterprise and hard-work and simplify the tax system’, the government will abolish the 45% additional rate of income tax from April 2023. Consequently, there will be a single higher rate of income tax of 40%.
There are a number of tax consequences which stem from these changes. One of them is the amount of tax relief given at source on pension contributions and Gift Aid donations. This is currently given at the basic rate of 20%. The government has stated that there will be a four-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027. This will support almost 70,000 charities and is worth over £300 million. However, there was little comment on pension contributions other than that there will also be a one-year transitional period for Relief at Source pension schemes to permit them to continue to claim tax relief at 20%.
From April 2023:
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, it will also reduce to a 32.5% charge for loans made on or after 6 April 2023.
These changes will apply in Scotland as the rules on dividends apply to the whole of the UK.
It had been previously announced that the rate of corporation tax would increase for many companies from April 2023 to 25%. This change will now not go ahead, leaving the rate of corporation tax at 19% for the majority of companies.
The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery, including cars with zero emissions, up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.
Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses. Interestingly, these allowances were not mentioned, other than minor amendments to the current rules, so it appears the scheduled withdrawal of them will occur in 2023.
A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. Generally, the changes increase the amount that a purchaser can pay for residential property before they become liable for SDLT.
The residential nil rate tax threshold is increased from £125,000 to £250,000.
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 to £625,000.
The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes.
There are no changes in relation to purchases of non-residential property.
Residential rates may be increased by 3% where further residential properties are acquired.
There were a number of other interesting comments made by the Chancellor which suggest future policies and changes, although lacking detail at the moment.
Over the last 20 years, there have been numerous changes to the tax system to try and address ‘disguised employment’ and to generate additional tax and NICs accordingly. In a surprise announcement, the government has stated that it will repeal the off-payroll working rules from 6 April 2023. From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will be required to meet regularly with their work coach and take active steps to increase their earnings or face having their benefits reduced, broadly from January 2023. Jobseekers over the age of 50 will also be given extra time with Jobcentre work coaches, to help them return to the job market.
On 21 September 2022 the government announced a new scheme, the Energy Bill Relief Scheme, which is designed to cut energy prices for non-domestic energy customers, such as businesses, charities and public sector organisations. The new scheme is in addition to the recently announced Energy Price Guarantee for households.
The scheme will apply to fixed contracts agreed on or after 1 April 2022 in addition to deemed, variable and flexible tariffs and contracts. Running for an initial six-month period, the scheme will apply to energy usage from 1 October 2022 to 31 March 2023. According to the government, savings will first be seen in businesses’ October bills.
Businesses are not required to take action or apply for the scheme, support will be automatically applied to bills.
The government intends to conduct a review of the scheme in three months to assess:
Support after 31 March 2023 will be determined following the review.
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