Posted by James Pearson on 05 Oct 2022
Mini Budget Tax Cuts
With a cost-of-living crisis as a backdrop and a recession on the horizon, the new Chancellor, Kwasi Kwartang, delivered what is widely termed a mini budget on 23 September, although it lacked the forecasts from the office for Budget Responsibility that would usually accompany such an event. There has been a dramatic reaction to the mini-budget from economic commentators and throughout the bond and financial markets, but our comments below are an unbiased summary of the tax announcements.
The mini budget set out a substantial package of tax cuts which Kwartang hopes will enable individuals to retain a greater proportion of their earnings and businesses to invest and expand, stimulating the UK economy back towards growth.
So, let’s look at how the biggest package of tax cuts in 50 years impacts both individuals and businesses.
Income tax and NI
The Chancellor’s desire to ensure that people retain more of their earnings was addressed by accelerating a proposed reduction in the basic rate of income tax from 20% to 19% to take effect from April 2023. This, the government believes, will save 31 million people around £170 a year.
The ‘mini budget’ initially offered further income tax reductions by removing the 45% enhanced rate of income tax, leaving only one rate for higher earners of 40%. However, due to significant criticism and a negative reaction within the financial markets, the Chancellor has U-turned, and the 45% enhanced rate of income tax will no longer be removed.
Since April both workers and employers have been paying an extra 1.25% of National Insurance Contributions, this has now been scrapped taking effect from the 6th of November. Alongside reversing the increase in National Insurance contributions, the government has decided not to introduce the Health and Social Care Levy to pay for the NHS.
Business and Corporations
Plans to increase the rate of Corporation Tax to 25% as of April 2023 have been abandoned, and as such companies will continue to pay 19% on their taxable profits.
Companies, as well as owner managed businesses, will benefit from the £1 million annual investment allowance becoming permanent, rather than returning to the £200,000 annual allowance as originally planned. This gives businesses 100% relief on expenditure on plant and machinery up to the value of £1 million.
A further attempt to stimulate economic growth took the form of newly formed Investment Zones. These new Zones will offer businesses tax cuts and reduced regulations in a bid to stimulate growth and investment in targeted areas across the UK.
Within these zones, enhanced structures and buildings allowance which reduces taxable profits by 20% for the cost of qualifying non-residential investment for a five-year period, will be in operation.
As well as the relief provided by the enhanced structures and buildings allowance, the Chancellor announced a full stamp duty land tax cut on commercial buildings which have been bought for use and development and the purchase of land or buildings for residential development in these investment zones.
Businesses in these areas will also pay no business rates on newly occupied premises for 10 years, and they will pay no National Insurance on a new employee’s annual salary if they work on site for 60% of their working hours.
The Government has yet to announce the exact locations of these ‘zones’.
Stamp Duty
In a bid to prevent a downturn in the property market, the Chancellor has introduced a cut to stamp duty for those purchasing property in England and Wales.
The stamp duty reduction is implemented through an increase in the 0% threshold from £125,000 to £250,000, which will save buyers purchasing properties over the threshold, of £2,5000 on the tax due on their purchase.
The tax savings for first time buyers go even further with no stamp duty due on the first £425,000 spent on property purchase. Moreover, under the Chancellor’s new proposals first time buyers can claim the relief on properties to the value of £625,000, rather than the previous threshold of £500,000.
Energy
As everyone is aware, we are all facing a huge hike in our energy bills, which in turn is creating rising inflation. In Friday’s ‘mini budget’ the Chancellor announced that the government would step in with an energy package that will freeze energy bills, ensuring that the customer does not feel the rising cost of wholesale energy. The Chancellor’s hope is that this measure will reduce inflation in the coming months by 5 percentage points. This package, it has been predicted, will cost the government an estimated £60bn for the six months from 1st October.
Self Employed (IRS35)
The Friday budget announcement saw the shift of the burden of responsibility for those self-employed individuals offering their services through an intermediary such as a personal service company. The 2017 and 2021 IR35 reforms were repealed and therefore, from April 2023, it will be once more the responsibility of the individual to determine their employment status and thus pay the correct amount of tax and National Insurance. The rules surrounding how to determine a person’s employment status have remained the same, only the responsibility of who should be interpreting and implementing these rules has changed
Bankers Bonus
A previous cap on Banker’s Bonus’ which limited them to 100% of the banker’s salary was scrapped by the Chancellor. The reasoning behind this is that the “strong UK economy has always depended on a strong financial sector”. The Chancellor hopes that deregulation of banker bonuses will encourage growth in the UK’s financial sector.
If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com
Share With