2022 Mini-Budget | Wow Commentary
Back in September 2022, Britain's ex-Chancellor of the Exchequer, Kwasi Kwarteng, presented an emergency mini-Budget. Just three weeks later, the government has a new Chancellor who has reversed most of the measures that were set out in the previous announcement.
Below is the initial growth plan announced by the former Chancellor. Here is the updated statement outlined by Jeremy Hunt on Monday 17th October.
The Ten Headline Announcements:
- Corporation tax will not rise to 25% as planned in April 2023, and will remain at 19%
- Dividend rates return to pre-April 2022 levels from April 2023
- For those earning over £150,000 a year, the additional rate of tax to be scrapped from April 2023.
- Basic rate of tax to be reduced to 19% from 20% from April 2023 for all taxpayers (excl Scotland)
- National Insurance contributions decrease by 1.25% from 6th November 2022, cancelling the Health & Social care levy
- No stamp duty to be paid on the first £250,000 from today (up from £125,000), whilst the threshold for first-time buyers rises to £425,000
- IR35 reforms to be reversed from April 2023
- Annual Investment Allowance will not be cut as planned and will remain at £1m
- SEIS limits to increase from April 2023
- Investment Zones to be created to encourage investment within certain areas in England
What this means for you and your team
The biggest impact on the mini-budget for you personally and for your team is the change to National Insurance and Income Tax rates as follows:
- If you take a combination of salary and dividends, this does not need to change for the rest of this tax year. For Wow clients, we will confirm with you the optimum levels for the next tax year of dividends and salaries ahead of April 2023.
- The basic rate of tax will be reduced to 19% from 20% from April 2023.
- The additional rate of tax for those individuals with employment income over £150,000 per year will be abolished from April 2023, meaning they will now pay 40% on those earnings.
- The additional tax rate of 38.1% on dividend income over £150,000 is also being abolished from April 2023 and shareholders will instead pay 32.5% on this income.
- Additional rate taxpayers will also benefit from the Personal Savings Allowance of £500, which was previously lost once income exceeded £150,000.
- The Health and Social Care Levy increasing National Insurance rates by 1.25% was introduced in April 2022. This is now to be reversed from 6th November 2022.
- The Health and Social Care Levy applicable to dividend rates is also being reversed from April 2023.
Stamp Duty Reduction
Changes to stamp duty land tax may also enable you and your team to purchase property, especially benefitting first-time buyers. The changes are as follows and will be effective immediately:
- The stamp duty threshold for house buyers has doubled from £125,000 to £250,000, meaning you will only pay stamp duty on purchase amounts over £250,000.
- The level at which first-time buyers start to pay stamp duty has increased from £300,000 to £425,000.
What this means for your business
Corporation Tax rates stay at 19%. Previously, the rate of Corporation Tax was to increase from 19% to 25% from April 2023 for firms making more than £250,000 profit.
Keeping the Corporation Tax at 19% will enable your business to have more profits available to take as dividends and/or more cash available to reinvest into your company.
Tax Relief on Business Assets
The Annual Investment Allowance that allows you to claim 100% tax relief on the purchase of some assets was planned to reduce down to £200,000 but today’s announcement confirms it will remain at £1,000,000. This means that you can claim tax relief on up to £1m of qualifying assets purchased in a year.
The Super Deduction was not mentioned in today’s announcement, but it is useful to note that this will end on 31 March 2023. The Super Deduction provides additional tax relief on qualifying asset purchases. For example, for every £100 you spend on these assets, instead of £19 tax relief you get £24.70. So if you’re thinking of making asset purchases, it makes sense to do so before 31 March 2023.
IR35 Reforms Scrapped
The 2017 and 2021 reforms to IR35, the laws affecting many consultants and freelancers, will be repealed from 6 April 2023. From this date, workers across the UK providing their services through a Limited company will be responsible for determining their employment status and paying the appropriate amount of tax.
Seed Enterprise Investment Scheme (SEIS)
SEIS is specifically designed to help newly-established companies raise investment as it can provide Income Tax relief (at 50% of the amount subscribed) as well as Reinvestment Relief against certain Capital Gains for qualifying investors. A company can usually raise a maximum of £150,000 through this scheme, however today the Government announced they will be raising this limit to £250,000 from April 2023. They have also extended the time period in which this can be claimed so companies can now benefit from this scheme until three years after they begin trading, rather than only two. To support these changes and encourage further investment, the individual investor allowance for SEIS will also be increased from £100,000 to £200,000.
It was announced that the Government will be setting up new ‘Investment Zones’' around England, which are being created to help drive growth in certain locations and encourage investment over 10 years. The location of the zones has not yet been confirmed, but there are potential plans to implement these across 38 different regions.
Businesses located within these zones will benefit from 100% business rates relief on newly occupied and expanded premises, and full stamp duty relief on land bought for commercial or residential development. It was also announced that Employer National Insurance contributions on new employees (earning up to £50,270 per year) could be 0%.
With these announcements, the government is making a £45bn bet that wide-ranging tax cuts will stimulate growth in the UK economy, therefore increasing tax revenues in the longer term. This is the biggest set of tax cuts in 50 years.
The government hopes to stimulate growth through giving tax cuts - in other words ‘trickle down’ economics. Whilst there may be little evidence of this approach having ever worked, we can hope that it will - whilst at the same time, plan for a scenario where it doesn’t.
Over the next few months, we’ll see if this strategy is working. Will these changes actually lead to businesses investing more? What will these changes do to consumer confidence?
Just to reiterate, the above is a statement made by ex-Chancellor Kwasi Kwarteng, click this link to see the latest mini-Budget statement from new Chancellor Jeremy Hunt.
Where are the opportunities in today’s announcements for you? If you’d like to talk through any of today’s announcements with us, please get in touch with your Wow adviser or email us at email@example.com.
As always, during uncertain times, there are some basic actions we can all take with our businesses:
- Prioritise cash collection and create a buffer;
- Create focus and alignment within your business on a few strategic priorities;
- Have a plan to support and develop your team.
Our friend and business owner, James Ludlow at The Code Company shared his thoughts on today’s announcements:
I have firmly mixed emotions about this all.
On the one hand it’s nice to have a little help and some quick wins here and there.
On the other, I’m not sure any of what Truss is implementing is really helping the economy become stronger in the long run, which is ultimately what we as business owners need.
Would love to get your thoughts… what do you think?