A Mini – Budget packing a big punch!

Your Mini Budget Break Down

Our tax team here at TAG Accountants have reviewed the so-called mini-Budget of 23rd September which was clearly designed to give a boost to the UK economy via a series of major tax cuts.

The main announcements have been summarised below and will impact both individuals and businesses.

Income tax

The basic rate of income tax is currently 20% and, following the previous Budget, was to be reduced to 19% from 6 April 2024. This reduction has now been brought forward to 6 April 2023 for England, Wales, and Northern Ireland.

The reduction will also apply to savings income, non-savings income and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of Income Tax

For Gift Aid purposes, the 20% basic rate of income tax will continue to apply until April 2027. For relief at source for pension contributions, pension schemes are permitted to continue to claim relief at 20% until 5 April 2024.

The additional rate of income tax of 45% will be removed from 5 April 2023 and will no longer apply to the non-savings, non-dividend taxable income of taxpayers in England, Wales, and Northern Ireland. The removal applies to all taxpayers in the UK in respect of savings, dividends, and default rates.

National insurance

The increase in the rate of Class 1 primary and secondary, Class 1A, Class 1B and Class 4 contributions by 1.25% that came into effect from 6 April 2022 will be cancelled from 6 November 2022. This means that the health and social care levy of 1.25% that was due to be introduced from 6 April 2023 will now not proceed.

For Class 1, the reduced rates apply to earnings paid on or after 6 November 2022 only. For directors, who are assessed to Class 1 NIC on an annual basis, there will be the application of composite rates of 12.73% (main primary percentage) and 2.73% (additional primary percentage) for employees and a composite rate of 14.53% for employers for the 2022/23 tax year.

For Class 1A and Class 1B, a composite rate of 14.53% applies for the 2022/23 tax year. For Class 4 NIC, there will be composite rates of 9.73% (main Class 4 percentage) and 2.73% (additional Class 4 percentage) for the 2022/23 tax year.

Dividend tax

The 1.25% increase in dividend tax rates from 6 April 2023 is being cancelled. The ordinary and upper rates of dividend tax will be restored to 2021/22 levels of 7.5% and 32.5% respectively (currently at 8.75% and 33.75%).

Due to the abolition of the additional rate of income tax, dividend income that was previously charged at the additional rate (39.35% in 2022/23), will now be charged at the upper rate of 32.5%.

Corporation tax

What had been a planned increase in April 2023 to the corporation tax rate (from 19% to 25%) for companies making more than £250,000 profit has been cancelled. This means that the rate will remain at 19% for all companies.

Thankfully, the reintroduction of the difference between the main rate of corporation tax and a small profits rate, together with marginal relief for profits falling between £50,000 and £250,000 has been dispensed with.

Some technical aspects of the rules for the super-deduction (the 130% first-year capital allowance for qualifying plant and machinery assets and the 50% first-year allowance for qualifying special rate assets) are going to be amended to ensure that the relief operates as intended.

A reminder that the super-deduction will be available until 31 March 2023, with no extension announced thus far.

Annual investment allowance

The Annual Investment Allowance (AIA) had been subject to a temporary increase from £200,000 to £1m and was due to revert to £200,000 on 31 March 2023. The Chancellor has announced that the £1m AIA will become permanent. AIA will continue to run alongside the super-deduction until 31 March 2023.

Stamp duty land tax (“SDLT”)

From 23 September 2023, the nil-rate SDLT band applying to purchases of residential property in England and Northern Ireland will be doubled to £250,000. The threshold for first-time buyers will increase to £425,000 and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase to £625,000.

IR35

A major surprise has been the decision to completely cancel the IR35 or ‘off-payroll working’ obligations previously placed on end users of services (clients of contractors’ personal service companies) from April 2023. This means the onus to decide whether an engagement contract falls inside or outside IR35, and to account for any PAYE/NIC accordingly, now reverts to the contractor’s personal service company as it was previously before changes were made to put the onus on end users.

This switch is likely to be welcomed by end users albeit they have had to set up extensive processes and resources to deal with changes of responsibility (brought in from 2021 for the private sector). It will be interesting to see if HMRC will now beef up IR35 compliance resources to ensure contractors’ personal service companies are following the rules correctly.

Tax efficient investments

The maximum amount of Seed Enterprise Investment Scheme (SEIS) investment that can be raised by a qualifying company will increase from £150,000 to £250,000 from April 2023.
There is also a relaxation in the qualifying criteria for SEIS through increases to the gross asset limit from £200,000 to £350,000, the age limit from 2 to 3 years and the annual investor limit will be increased from £100,000 to £200,000.

It was indicated that the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) will be continued in the future. The EIS is currently due to end for shares issued on or after 6 April 2025.

Company Share Option Plans (“CSOP”)

The value of options which may be granted under an HMRC approved Company Share Option Plan (CSOP) will be increased by £30,000 to £60,000 from April 2023. Also, the restrictions on certain classes of shares are set to be eased with details to follow.

The use of CSOP means that options do not have to be offered to all employees and does not require the employing company to be carrying on a qualifying trade nor is there a gross company assets limit. This can make them more attractive than EMI schemes.

Investment zones

New investment zones are to be introduced across the UK which will provide tax incentives, fewer planning restrictions and wider support for the local economy. These zones will be determined following an expression of interest process and require local consent. The Government is in discussion with thirty-eight local authorities on establishing an investment zone in their area.

Incentives which are under consideration include 100% relief from business rates on newly occupied/expanded business premises, 100% first-year capital allowances on plant and machinery, increased structures and buildings allowances at 20% per year, no employers’ NICs on salaries of new employees up to £50,270 and full relief from SDLT both for land and buildings for commercial use/development including any land or buildings for new residential development. Note that this scheme will run alongside the existing freeport programme.

Alcohol duty

Alcohol duty rates will be frozen for all categories from 1 February 2023.

There will also be broader reform of alcohol duty and reliefs involving creating a standardised series of tax bands based on alcohol by volume (ABV). These are set to be effective from 1 August 2023.

VAT free shopping

A VAT-free shopping scheme will be introduced after an initial consultation, with the aim of boosting the high street and creating jobs in the retail and tourism sectors. This will be for non-UK visitors to Great Britain, who will be able to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal luggage.

We can help you with all of this

The mini-Budget included numerous announcements across a wide range of areas with the overall purpose of easing the tax burden on UK businesses and individuals.

With all that in mind, if you would like to know more or need assistance in understanding how these changes may affect you and/or your business please call one of our friendly tax experts here at TAG Accountants on 01902 783172. Alternatively, just click HERE to contact us via our website and we will be in touch.

We very much look forward to your call.