A week is definitely a long time in politics and a month is even longer.
It is less than four weeks ago that Kwasi Kwarteng, the then Chancellor in Liz Truss’s new Government, announced a number of tax and National Insurance cuts and policy changes as part of his Growth Plan.
Some of the measures were scrapped quickly. And now new Chancellor, Jeremy Hunt, has made further U-turns, reversing most of the original `mini-Budget’ measures ahead of his Medium Term Fiscal Event at the end of this month. The changes announced by the Chancellor are estimated to be worth around £32 billion a year.
Key dates
The planned National Insurance cuts will go ahead as planned from November 6, 2022, and the increases in the residential stamp duty thresholds will remain.
However, planned cuts in the basic rate of tax and in the dividend tax rates and the repeal of the off-payroll working rules, due to take effect from April 6, 2023, will no longer take effect.
Let’s take a look at which key mini-Budget measures are staying and what has been scrapped.
National Insurance
The National Insurance cuts promised by Prime Minister Liz Truss will go ahead.
Consequently, from November 6, 2022,the main primary Class 1 rate will fall from 13.25 per cent to 12 per cent and the additional primary rate will fall from 3.25 per cent to 2 per cent. From the same date, the secondary Class 1 rate will fall from 15.05 per cent to 13.8 per cent.
Directors have an annual earnings period regardless of their actual pay interval. For 2022/23 they will pay primary Class 1 National Insurance at a main rate of 12.73 per cent and an additional rate of 2.73 per cent. Secondary contributions on their earnings are payable at an annual rate of 14.53 per cent.
The Class 1A rate on benefits-in-kind and the Class 1B rate are revised to 14.53 per cent for 2022/23. Class 1A contributions on taxable termination payments and sporting testimonials are payable at the prevailing secondary Class 1 rate at the time that the payment is made.
Class 4 contributions are payable by the self-employed on their profits. For 2022/23, the main Class 4 rate is revised to 9.73 per cent and the additional Class 4 rate to 2.73 per cent.
Health and Social Care Levy
The cancellation of the planned Health and Social Care Levy was announced ahead of the mini-Budget. The cancellation will go ahead.
Income tax rates
At the time of the mini-Budget, the then Chancellor announced that the additional rate of tax would be scrapped from April 6, 2023, and the basic rate of tax would fall from 20 per cent to 19 per cent from the same date. Shortly after the mini-Budget, the plan to abolish the additional rate of tax was scrapped.
The new Chancellor has announced that the cut in the basic rate of tax will be delayed ‘until economic conditions allow for it to be cut’. Under former Chancellor Rishi Sunak’s plans, the basic rate of income tax was scheduled to fall to 19 per cent from April 2024.
Dividend tax rates
As part of the package of Health and Social Care measures comprising National Insurance increases and the introduction of the now-cancelled Health and Social Care Levy, the dividend tax rates were increased by 1.25 per cent from April 6, 2022. As these measures are now not going ahead and the National Insurance rises are being reversed from November 6, 2022, the dividend tax increases were due to be reversed from April 6, 2022, taking the dividend tax rates back to their 2021/22 levels. This measure has now been cancelled.
Consequently, dividends will continue to be taxed from April 2023 at 8.25 per cent where they fall in the basic rate band, at 33.75 per cent where they fall in the additional rate band, and at 39.35 per cent where they fall in the additional rate band.
This will affect personal and family companies extracting profits as dividends.
Corporation tax reforms
At the time of the mini-Budget, it was announced that the planned corporation tax reforms would not go ahead, and the corporation tax rate would remain at 19 per cent from April 1, 2023. In another U-turn, the Prime Minister announced last week that the reforms were back on, and that the cancellation of the reforms had been cancelled.
Under the reforms, from April 1, 2023, corporation tax will be payable at the small profits rate of 19 per cent where profits are below the lower profits limit and at 25 per cent where profits exceed the upper profits limit. Between these limits, a company pays corporation tax at 25 per cent, as reduced by marginal relief, giving an effective rate of between 19 per cent and 25 per cent depending where in the band the profits fall.
For a stand-alone company, the lower profits limits is £50,000 and the upper profits limit is £250,000. Where a company has associated companies, these limits are divided by the number of associated companies plus one. The limits are also proportionately reduced where the accounting period is less than 12 months.
Off-payroll working rules
To reduce burdens on business, the off-payroll working rules were due to be scrapped from April 6, 2023. The reforms have now been cancelled and the existing rules will remain in place.
Consequently, the off-payroll working rules will still need to be considered by public sector bodies and medium and large private sector organisationsthat engage workers providing their services through an intermediary, such as a personal service company. As now, the IR35 rules will apply where a worker provides his or her services through an intermediary to a small private sector end client and, but for the intermediary, the worker would be an employee of the end client.
Stamp duty land tax
The increase in the residential stamp duty threshold to £250,000 and the corresponding increase in the first-time buyer threshold to £425,000, which took effect from September 23, will remain in place.
Energy support
The Energy Price Guarantee was due to be in place for two years from October 1, 2022. The Chancellor has now announced that this measure will remain in place until April 2023, at which time a Treasury-led review will be launched to consider how to support households with energy bills after that date.
VAT-free shopping
The proposed VAT-free shopping scheme for non-UK visitors to Great Britain will not now go ahead.
Alcohol duty freeze
Alcohol duty rates will not now been frozen from February 2023, as previously announced.
Get in touch if you need help with any of the issues raised here.
