On Friday 23 September, the Chancellor of the Exchequer Kwasi Kwarteng unveiled his ambitious Growth Plan which sets out to include the biggest package of tax cuts for businesses and individuals in generations.
Friday’s ‘fiscal event’ introduced measures with the intent to drive economic growth by backing businesses and helping households. Seen as a Mini-Budget, but ultimately not so mini overall. We’ll be talking about these points in our next LIVE Tax Clinic.
Here are our 10 Key Points
The most easy to comprehend is the reduction to the basic rate income tax rate from 20% to 19% with effect from April 2023. It was originally initiated by the last Chancellor to come into effect from April 2024, so it is no real surprise, it has just been brought forward a year. The income tax changes will not apply to non-savings income in Scotland.
With this reduction, we’ll also see a drop in the basic rate pension relief with investors receiving just 19% relief at source on personal pension contributions and this will come effect a year later, from April 2024.
Also, what does this mean for charities? Charities will only benefit from 19% in Gift Aid but fortunately there will be a transition over the next 4 years. What does this mean for you as the donor and the charity as the recipient? Well simply, nothing is changing for 4 years.
The Social Care Levy that was due to come in from April 2023 has been scrapped. This was effectively a type of tax/NI contribution (by another name) costing the taxpayer a further 1.25% on relevant earnings. This was effectively an increase to NI rates, an additional tax for pensions and an increase to the dividend tax rate, so good news for many.
In addition, the temporary 1-year increase of 1.25% in Class 1, 1A/B, and Class 4 National Insurance rates effective from April 2022 will be stopped from 6 November 2022. This means that there are going to be some strange blended/quasi/averaged NI percentage rates applied for 2022/23, for example 14.53% for Employers Class 1 for fixed salary earners and directors and 9.73% Class 4 rate for the self-employed, and 2.73% for income above the upper earnings limit. Just something else for us to work out!
The additional rate of income tax at 45% will be abolished from April 2023. The additional tax rate of 38.1% (that was increased by a further 1.25% because of the Social Care Levy) on dividends will also be removed. This has certainly been an area of controversy in the last few days!
There will be no increase to the corporation tax rate as originally proposed, so this will remain at 19%, apparently the lowest in the G20.
The SDLT-nil rate threshold has doubled from £125k to £250k with immediate effect, effectively removing the 2% band. This is of course some light relief for anyone buying property right now and will give a saving of up to £2,500. For first time buyers, the zero-rate threshold has increased from £300k to £425k, with the maximum purchase price being increased from £500k to £625k.
The recent IR35 changes to off-payrolling will be repealed with effect from April 2023. This doesn’t change the original IR35 legislation that came into effect from April 2000, and there is no indication that this is going to change, so the original PAYE tests will still need to be applied by the personal service company. This stops large companies and public sector contractors taking a ‘blanket’ approach and stopping tax and NIC without any employment rights being given, even though they weren’t supposed to.
From April 2023 the Seed Enterprise Investment Scheme (SEIS) will enable companies to raise up to £250k. Investors will individually be able to put up to £200k into an SEIS for income tax relief. The scope of qualifying companies has been enhanced and the company can now be up to 3 years old to qualify, increasing from 2 years.
The current capital allowance regime will remain, with the maximum Annual Investment Allowance (AIA) staying at £1m. The Super-deduction will end as expected in April 2023.
The government is introducing a digital VAT-free shopping scheme for non-UK visitors shopping in the UK. Retailers may need to get familiar with this if their overseas customers are asking. This could take some time for this to be introduced and a timeframe has not been confirmed, but likely 2024/25.
There will be a Universal Credit review helping recipients get into paid employment or face having benefits reduced.
There was a lot more detail than can be explored here and we can no doubt expect a number of further announcements and details in the coming weeks and months. With the change in government leadership, the rise of interest rates and the drop in value of sterling, with the Bank of England intervening, it’s no surprise this fiscal announcement is getting mixed reviews. There’s no doubt the removal of the cap on bankers’ bonuses and abolishment on the additional tax rate has left eyebrows raised and many questions being asked. Despite this, there are opportunities for planning, particularly for those who wish to make pension contributions and/or run small businesses.
“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.”
