Chancellor brings forward further medium-term fiscal plan measures
Following on from our earlier posts, political and bond market pressures have forced the government to scrap most of the measures which were announced in the “mini budget” on 23 September. Moving radically away from its previous tax cutting agenda, the government is now seeking to provide confidence that the government is committed to fiscal discipline, which means seeking to balance taxes and expenditure.
We are expecting a further statement from the new Chancellor, Jeremy Hunt, on 31 October, which is being referred to as the Medium-Term Fiscal Plan. At this point the Chancellor is due to publish the government’s fiscal rules alongside an Office for Budget Responsibility forecast, together with what are described as ‘further measures’. Government departments are being asked to find efficiencies within their budgets. There may also be further tax rises announced then with the aim of putting the government’s finances on a sustainable footing.
Given the changes in the past few weeks, we have outlined the current position.
National Insurance contributions
The changes to National Insurance Contributions in the “mini-Budget” will go ahead. This means that for payments of earnings made on or after 6th November 2022, so:
- primary Class 1 NICs (employees) will generally reduce from 13.25% to 12% and 3.25% to 2% and
- secondary Class 1 NICs (employers) will reduce from 15.05% to 13.8%.
For 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%. For the self-employed, the changes to Class 4 NICs will also be averaged across 2022/2023tax year so that the rate will generally be 14.53%.
For the self-employed, the changes to Class 4 NICs will also be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.
Income tax rates – income other than dividends
The planned reduction in the basic rate of income tax to 19% from April 2023 has been postponed indefinitely.
The proposed abolition of the top – 45p – rate has also been cancelled.
This means that rates of income tax will remain 20%, 40% and 45% going forward.
Income Tax on Dividends
The government has also abandoned its plans to reduce rates by 1.25% from April 2023. This means that rates of tax will remain as follows:
- dividends within the basic rate band – 8.75%
- dividends within higher rate tax – 33.75%
- dividends subject to top rate tax – 39.35%.
As corporation tax due on directors’ overdrawn loan accounts is paid at the same rate as dividends in higher rate tax, this will also remain at 33.75%.
It should be noted that although the government has reversed the increases the increases to National Insurance brought in in April 2022, it has not reversed the increases to dividend tax rates made at the same time.
Stamp Duty Land Tax
The changes to Stamp Duty Land Tax made in the mini-Budget remain in place.
Corporation Tax rates
It had been previously announced that the expected increase in the rate of corporation tax for many companies from April 2023 to 25% would not go ahead. However the government announced on 14 October that this increase will now proceed.
This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Coupled with dividend tax rates remaining at the increased rates, this represents a significant tax increase for many business owners. In a change to the position applying for many years, there will in many cases now be little difference in the overall tax burden whether a business owner draws their income in the form of salary and dividends, or all of it through the PAYE system.
No further changes have been announced. This means that the Annual Investment Allowance (AIA), which gives a 100% write-off on certain types of plant and machinery will have a permanent annual limit of £1million going forward.
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 allowances have again not been mentioned so it is assumed they will be withdrawn as scheduled in March 2023.
IR35 and off-payroll working
It had previously been announced that from 6 April 2023, workers providing their services via an intermediary would again be responsible for determining their employment status and paying the appropriate amount of tax and NICs. This change has now been abandoned and the current rules will remain in place.
The proposed extensions to the Seed Enterprise Investment Scheme and the Company Share Option Plan from April 2023 are still due to go ahead.
Plans to allow VAT-free shopping for tourists and to freeze alcohol duties have been abandoned.
The government has announced unprecedented support to protect households and businesses from high energy prices. The Energy Price Guarantee and the Energy Bill Relief Scheme are supporting millions of households and businesses with rising energy costs, but the government has now stated that these schemes will continue to do so only until April 2023. It had previously been announced that support would last for two years.
The government’s change of direction is based on its statement ‘that it would be irresponsible…to continue exposing the public finances to unlimited volatility in international gas prices’.
Consequently, a Treasury-led review will be launched to consider how to support households and businesses with energy bills after April 2023. The aim is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need. The government has also stated that any support for businesses will be targeted to those most affected and that the new approach will better incentivise energy efficiency.