Kwasi Kwarteng’s first set piece as Chancellor of the Exchequer was never going to be easy, even before the 0.5% increase in interest rates the day before. The new Prime Minister Liz Truss revealed much of what we might expect before Mr Kwarteng spoke a word, so we already knew that there would be:
- a two-year £2,500 Energy Price Guarantee (EPG) for consumers;
- similar but shorter-lived support for businesses and other non-domestic energy users;
- cuts to National Insurance Contribution (NIC) rates; and
- a reversal of the planned April 2023 increases in the rate of corporation tax.
Nevertheless, Mr Kwarteng’s launch of ‘The Growth Plan’ contained some surprises, including the end of additional rate income tax (outside Scotland) and the reversal of recent changes to IR35.
We’ve worked with a number of our partners to compile this summary of the announcement, focussing on the aspects we believe will most interest our clients. Before we dig in, this summary isn’t financial advice and we’d recommend seeking advice before taking action. If you are a client of Emery Little, we will discuss the implications at your next review meeting. If you have any questions in the meantime, just get in touch.
Tax, tax, tax
As we said, it came as no surprise that a large part of the mini budget was focussed on tax and the measures Mr Kwarteng has planned.
The reduction in the basic rate of income tax to 19%, which was originally scheduled for 6 April 2024, will now take effect from the beginning of the 2023/24 tax year.
A four-year transition period for gift aid relief will maintain the income tax basic rate relief at 20% until April 2027. A one-year transitional period for relief at source will allow pension schemes to continue claiming relief at 20%.
The additional rate tax of 45% that currently applies on annual income over £150,000 in England, Wales and Northern Ireland will be abolished from 2023/24.
These changes do not affect Scottish tax rates.
The additional rate for savings, dividends and the default rates will also be removed from April 2023 and this change will apply across the whole of the UK.
From 2023/24, the tax rates applicable to dividends will be reduced by 1.25 percentage points, taking them back to 2021/22 levels.
|Basic rate||Higher rate||Additional rate|
National Insurance Contributions
The additional 1.25 percentage points previously added to all 2022/23 Class 1 and Class 4 NIC rates will be scrapped. The change will take effect from 6 November 2022.
The 1.25% health and social care levy, due to replace the NICs increase from 2023/24, will be abandoned.
There is no change to the increased 2022/23 Class 1 primary threshold and Class 4 lower profits threshold announced in the Spring Statement 2022.
The rates and thresholds for the rest of the 2022/23 tax year for those affected are as follows:
|6 July 2022 to|
5 November 2022
|6 November 2022 to|
5 April 2023
|Employee – Primary||£242–£967 pw: 13.25%|
Over £967 pw: 3.25%
|£242–£967 pw: 12.00%|
Over £967 pw: 2.00%
|Employer – Secondary||Over £175 pw: 15.05%||Over £175 pw:13.80%|
|Directors: Primary||£11,908–£50,270 pa: 12.73%|
Over £50,270 pa: 2.73%
|Directors: Secondary||Over £9,100 pa: 14.53%|
|£11,908–£50,270 pa: 9.73%|
Over £50,270 pa: 2.73%
Stamp duty land tax
Stamp duty land tax (SDLT) rates for residential property will be revised from 23 September 2022, increasing the 0% band threshold from £125,000 to £250,000.
The Government will also increase relief for first-time buyers, raising the 0% band threshold from £300,000 to £425,000 and the maximum value of property on which they can claim the relief from £500,000 to £625,000.
These changes only affect England and Northern Ireland. The Scottish Government has announced that it will set out its plans for land and buildings transaction tax as part of the normal budget process and the Welsh Government has given no information about its land transaction tax.
The increases to corporation tax rates due to take effect from April 2023 will no longer take place. The main rate of corporation tax will remain at 19%.
The corresponding increase in diverted profits tax from 25% to 31% will also be cancelled from April 2023.
Furthermore, the 5% reduction in the bank corporation tax surcharge will no longer take place, meaning it will remain at 8%.
Annual investment allowance
The current £1 million level of the annual investment allowance will be made permanent.
IR35 – off-payroll working
The 2017 and 2021 reforms to the off-payroll working rules (commonly known as IR35), which required employers to categorise their workers, will be repealed from 6 April 2023.
From 2023/24, workers providing their services via an intermediary, such as a personal service company, will be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
Pensions cap charge
It was also announced that regulations will be introduced to remove ‘well-designed performance fees’ from the occupational defined contribution pension charge cap.
Our partners also summarised the energy price schemes announced over recent days. You’ll find that summary here.