Chancellor reveals his plans for growth
On Friday, the new Chancellor of the Exchequer delivered a statement to parliament on “The Growth Plan” which contained a number of tax announcements and as a result, his statement has been termed a “Budget”. However the Chancellor did not make any significant announcements on public spending, nor was there an accompanying economic outlook report from the Office of Budgetary Responsibility.
It has since been announced that there will be a further fiscal event on 23rd November, which will include these elements of a traditional budget, and then a full budget in the spring. We may see more tax changes announced then. Over the coming weeks and months, we also expect to see further details emerge of the other priorities set out by the Chancellor in the statement, namely maintaining a responsible approach to the public finances and reforming the supply-side of the economy.
In the meantime, we set out the key changes and what they mean for you.
National Insurance contributions
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 from April 2023 based on the National Insurance contributions (NICs) system. For the 2022/23 tax year, there was to be a temporary 1.25% increase to both the employee and employer NIC rates.
The changes take effect 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%.
Income tax rates – income other than dividends
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.
At the Mini Budget on 23 September the government announced a plan to abolish the 45% additional rate of income tax from April 2023. However, Chancellor Kwarteng stated on 3 October that the government would not proceed with the abolition of the 45p tax rate.
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%.
Income Tax on Dividends
From April 2023:
- the tax rate on dividends within the basic rate band will reduce from 8.75% to 7.5%
- the tax rate on dividends within a higher rate tax will reduce from 33.75% to 32.5% and
- the top rate on dividends, currently 39.35%, will be abolished.
The corporation tax due on overdrawn directors’ loan accounts will also reduce to 32.5% for loans made on or after 6 April 2023.
These changes will apply throughout the UK.
Stamp Duty Land Tax
A number of changes were made to the Stamp Duty Land Tax (SDLT) regime for residential property in England and Northern Ireland. Wales and Scotland set their own rates of tax on property transfers.
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.
There are no changes in relation to purchases of non-residential property.
Corporation Tax rates
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%.
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 allowances were not mentioned, other than minor amendments to the current rules, so it is assumed they will be withdrawn as scheduled in March 2023.
IR35 and off-payroll working
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 6th 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.
Seed Enterprise Investment Scheme
From April 2023, companies will be able to raise up to £250,000 under the Seed Enterprise Investment Scheme (SEIS), up from £150,000 at present. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. The annual investor limit will also be doubled to £200,000.
Company Share Option Plan
From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit.
Investment Zones aim to encourage rapid development
As part of the government’s plan to drive economic growth and encourage development, the Chancellor confirmed that Investment Zones will be established across the UK.
These zones will benefit from significantly lower taxes and liberalised planning frameworks to encourage business investment. The government has said that it is already in discussions with 38 local authorities to establish investment zones in England. However, we do not yet have any detail of the potential locations. See the detail on the incentives for these areas on the UK Government website.
Plans to help cut energy bills for businesses
On 21st 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 1st 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 1st October 2022 to 31st 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:
- how effective it has been in giving support to vulnerable, non-domestic customers
- which groups of non-domestic customers remain vulnerable to energy price rises
- the extent to which the scheme could either be extended or further targeted.
Support after 31st March 2023 will be determined following the review.
Over the next few weeks, the government has announced that it will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve the immigration system, make childcare cheaper, improve farming productivity and back the financial services sector.