The new Chancellor, Kwasi Kwarteng, presented his Mini-Budget on Friday 23 September 2022. It included several tax cuts, reversing planned tax rises and increasing tax allowances.
So, what were the key announcements and what do they mean for you? We go through both the personal tax and business tax changes below.
Personal Tax Changes in the Mini-Budget
NIC increase is being cancelled from November 2022, but dividends, basic rate tax and additional rate reductions will not apply until April 2023.
How much are the National Insurance rates decreasing by?
Previously implemented National Insurance increase of 1.25% will be reversed from 6th Nov 2022. It is expected that the rate reduction will be received directly via the employees November payroll.
National insurance payable on benefits in kind will be averaged out so the effective rate is 14.53%.
Are there any changes to the National Insurance thresholds?
In July 2022 the thresholds increased so that fewer employees paid National Insurance. There are no changes to the thresholds in this mini-budget.
The primary threshold remains at £12,570. This is the rate at which employees pay National Insurance.
What are the income tax changes?
From 1 April 2023, the 45% additional rate for income tax will be abolished while the basic rate of income tax will drop from 20% to 19%. The top rate of tax on dividends of 38.1% will also be abolished.
How much is stamp duty reducing by and when does it commence?
The £nil rate tax threshold is increasing from £125,000 to £250,000.
There are further reliefs for first-time buyers, which means they will have no stamp duty on purchases up to £425,000.
These changes were immediate and apply to any transactions after 23rd September 2022.
Business Tax Changes
The main business tax announcements in the mini-budget are detailed below:
Corporation tax is remaining the same, and the 130% super deduction will cease in March 2023 – so the timing of purchases may be key!
The planned Corporate Tax increase to 25% has been abolished and the rate will remain at 19%.
What capital allowances are available on the purchase of assets?
The Annual Investment Allowance (AIA) limit which was due to reduce from £1m to £200,000 from April 2023, will not happen. The allowance will be permanently set at £1m.
Has the super deduction been scrapped?
Qualifying expenditure on business assets purchased up to 31st March 2023 receive an uplift of 130%.
No announcement was made in the mini-budget on these allowances. As a result, it is expected that this beneficial uplift will cease from April 2023.
Tax Tip – it may be beneficial to purchase new assets (Limited companies only), before 31st March 2023 to optimise the tax savings.
Did the rules on IR35 change in the mini-budget?
The rules on IR35 have not changed. It is still important for Limited companies to follow the IR35 rules which deals with disguised employment.
What has changed is that from April 2023 it will be the responsibility of the company providing the service to decide if IR35 applies. This reverses the rules back to how they were pre-2017.
Currently, the employment status is decided by the contractor or end user. This is typically a public authority or large/medium-sized contractor.
- Increase in limits to the Seed Enterprise Investment Scheme and Company Share Option Plan.
- No announcements were made in respect of Capital Gains tax and Inheritance tax.
- Alcohol duty is to be frozen from February 2023 with future reform planned.
If you have any questions on how any of these changes impact you, please get in touch.