The chancellor Kwasi Kwarteng announced his mini-budget on 23rd September. This rapidly followed the announcement of the energy bill relief scheme for businesses that will subsidise energy bills by at least 50 per cent for businesses, charities, and public sector organisations for six months, starting from 1 October 2022.
As part of his mini-budget, the chancellor announced several tax cuts and tax measures including changes to income tax, corporation tax, and stamp duty, as well as new investment zones, investment schemes, VAT-free shopping, and more.
Changes to corporation tax and the annual investment allowance
The mini-budget scraps the planned increase in corporation tax (CT) to 25% for profits over £250,000. Corporation tax will stay at 19% for all businesses for the foreseeable future. In addition, the planned increase to diverted profits tax to 31% will no longer take place, instead remaining at 25% to maintain its current six percentage point differential with the main CT rate.
Furthermore, the bank corporation tax surcharge will remain at 8% instead of dropping to 3%, and the bank surcharge allowance increases from £25m to £100m, as planned.
The annual investment allowance (AIA) will remain at £1m, rather than falling to £200,000, which should help businesses to have more certainty within the investment landscape.
Changes to income tax and national insurance
From April 2023, the basic rate of income tax will be cut from 20% to 19%. At the same time, the 45% top rate of tax, which currently applies to earnings above £150,000 and was brought in after the financial crisis, will be scrapped. High earners will pay the 40% tax rate on those earnings.
Meanwhile, national insurance contributions will be cut by 1.25% from November this year. The health and social care levy due to come in from April 2023, has also been withdrawn.
In addition, the government is reversing the 1.25% increase in dividend tax rates from April 2023.
How the mini-budget affects the IR35 off-payroll working rules
The Chancellor also announced that the government will repeal the 2017 and 2021 reforms to the IR35 off-payroll working rules, stating that the reforms to off-payroll working had added unnecessary complexity and cost for many businesses.
The IR35 reform had made it complex for contractors and independent workers to be hired by companies. Small companies had so far remained exempt, but the reform had already expanded from the public sector to medium and large businesses in 2021.
Contractors in the UK have welcomed the repeal of IR35 from April 2023. Instead of IR35, the original rules will be reinstated, and contractors will be responsible for assessing their own taxes. However, a clear and robust roadmap for reversing IR35 reform in the public and private sectors is now needed to ease the transition.
Mini-budget and changes to stamp duty
The cut to stamp duty aims to increase residential property investment and boost spending in other areas. The cut to stamp duty will double the nil rate band to £250,000, while first-time buyers will pay no SDLT up to £425,000 (up from £333,000) and can claim relief on properties valued up to £625,000.
Investment zones and investment schemes
Locations within 38 local authorities in England will benefit from new investment zones designed to receive time-limited tax benefits, accelerated development, and wider support for local growth.
In addition, the Seed Enterprise Investment Scheme (SEIS) will become available to more companies from April 2023. The gross asset limit will increase from £250,000 to £350,000. Presently, to benefit, a company must not have been trading for more than two years. This will be increased to three years. The annual investor limit will also double to £200,000.
The Company Share Option Plan (CSOP) limit will double from £30,000 to £60,000. The government has also announced it remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and is considering extending the schemes beyond their current 2025 sunset date.
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