On Friday 23 September the Chancellor, Kwasi Kwarteng, announced a multitude of tax changes in his so called ‘mini budget’, the like of which haven’t been seen in a ‘full budget’ for decades! In an attempt to boost growth and make the UK attractive to businesses worldwide, there have been a number of tax cuts and reversals of previously announced measures. Here we summarise the main announcements for you and look at how you might be impacted.

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Changes to Personal Tax

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Higher rate tax – currently if you earn over £150,000 you pay the additional rate of income tax at 45%, this has been removed from April 2023. As the Scottish Government sets its own income tax rates and bands this change does not automatically apply in Scotland.

Basic rate tax - the basic rate of income tax will be cut by 1% (from 20% to 19%) from April 2023. Again, this change does not automatically apply in Scotland.

Bankers bonus cap - Currently bankers’ bonuses are capped at 100% of their fixed pay, or 200% with shareholder approval, this cap is being removed.

National Insurance Contributions/ The Health and Social Care Levy - the planned introduction of the Health and Social Care Levy which was due to be introduced as a separate tax of 1.25% from April 2023 has been cancelled. The 1.25% increase to NIC which was implemented on 6 April 2022 has been repealed with effect from 6 November, this applies to both employers and employees’ contributions.  

Dividend tax - the 1.25% increase in dividend tax rates which also came into force on 6 April 2022, has been reversed and will apply to dividends received after 6 April 2023. This means the previous rates of 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers will once again apply. The additional rate of 38.1% is abolished along with the 45% additional rate for other income.

Stamp Duty Land Tax –the Stamp duty land tax (SDLT) threshold up to which no SDLT is due has increased from £125,000 to £250,000, effective now. In addition, the threshold above which first time buyers pay SDLT has increased from £300,000 to £425,000and the maximum purchase price of properties eligible for first time buyer’s relief has increased from £500,000 to £625,000. This means many more property purchases will escape SDLT altogether, however the additional 3% rate for second properties continues to apply.‍

This table demonstrates how the changes to personal taxes will affect employees’ take-home pay:

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Changes to business tax

Corporation tax - the rate of corporation tax will remain at 19% for all profits and not increase to 25% in April 2023 as had been previously announced.

Investment zones - new Investment Zones across England will be created.  Areas with Investment Zones will benefit from tax incentives, planning relaxation, and wider support for the local economy. Scotland, Wales, and Northern Ireland will have funding to allow them to introduce equivalent areas. The tax incentives to be included are:

• 100% relief from business rates.
• 100% first year allowance for companies’ qualifying expenditure on plant and machinery.
• Structures and Buildings Allowance increased to 20% from 3%.
• 0% Employer National Insurance contributions on salaries of any new employee for earnings up to £50,270 per year.
• Stamp Duty Land Tax exemption.

Capital Allowances - the temporary annual investment allowance (AIA) will become permanent at £1m. The current £1m limit was due to reduce to £200k on 1 April 2023.  This provides certainty for businesses with high levels of capital investment.

Super-deduction -There was no mention of any extension to the availability of the super deduction relief of 130% for companies so this is still expected to end on 1 April 2023.

National Insurance Contributions / The Health and Social Care Levy – as noted above the changes also reduce employers’ NIC by 1.25% from 6 November 2022 and repeal the proposed 1.25% Health and Social Care Levy which was to apply from 6 April2023.

Off-payroll working reforms (IR35) - the 2017 and 2021 reforms to the IR35rules will be repealed from 6 April 2023. This means that, from this date, workers across the UK providing their services via 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 NICs.  Whilst this will be a welcome relief for large and medium companies, the burden has simply moved back to the contractor who now must deal with the issues of compliance.

Directors’ loan accounts – there was no mention of changes to the rate of tax which applies on overdrawn loan accounts, known as S455 tax, however this rate follows the higher dividend rate so from 6 April 2023 we expect this to also be 32.5%.

The tax efficiencies that have previously existed for corporate business owners have been reinstated which will be welcome news for many. More so than ever it is important to crunch the numbers and ensure you are operating your business through the most tax efficient structure for you.

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Changes to indirect taxes

Alcohol duty rates and Alcohol duty reform - the duty rates for all categories will be frozen from 1 February 2023.

VAT free shopping for overseas visitors - a new digital, VAT-free shopping scheme will be introduced. The details will be open for consultation, but its implementation will mean non-UK visitors to Great Britain will be able obtain a VAT refund on goods bought in the UK when they leave.

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Changes to inheritance tax

No changes were announced to Inheritance Tax which means all current rates and reliefs remain in force.  It has been speculated in recent years that reliefs such as Agricultural Property Relief and Business Property Relief could be tightened up to create more tax revenue however it is pleasing to see these valuable reliefs remain untouched.

If you would like to know how the mini budget affects your particular circumstances, please get in touch.

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