On 23 September 2022, Kwasi Kwarteng, the new Chancellor (the fifth in as many years) delivered a Tax Cutting “Fiscal Event” or Mini-Budget to help boost economic growth. This was in line with promises made by the new Prime Minister Liz Truss when she was campaigning to be elected as new leader of the Conservative Party.

Why was that not a real budget?

The normal budget process is for the Office of Budget Responsibility (OBR) to report on the state of the UK economy at the time of the Budget and also assess the impact of the Budget proposals. As there was insufficient time for a full OBR report, the Chancellor’s statement was referred to as a “fiscal event”. We still anticipate a ‘real’ Budget later on this Autumn.

Health and Social Care Levy Scrapped

The Health and Social Care Levy has now been abolished and will not come in next April. Further, the Government is removing the associated 1.25 percentage point increase in NICs from 6 November 2022.

Employers will need to make sure that they update their payroll software in time for this third change in NIC rates and bandings in 2022/23!

Dividend rates reduced from 2023/24

Many director/shareholders of family companies pay themselves a small salary and take the rest of their “pay” in dividends. With dividends being free of NIC, this would have allowed them to avoid the extra 1.25% NIC charge when it was originally introduced. Consequently, the Government added 1.25% to the dividend income tax rates for 2022/23.

Although the NIC increase is being abolished from 6 November 2022, the additional 1.25% will continue to be applied to dividends paid throughout 2022/23.From 2023/24 the dividend income tax rate will however revert to 7.5% where dividends fall within an individual's basic rate band and 32.5% for higher rate taxpayers. Note that the first £2,000 of dividends continue to be taxed at 0%.

Income tax rates cut for 2023/24

The previous Chancellor, Rishi Sunak, had dangled a possible cut in the basic rate of income tax from 20% to 19% from 2024/25. This will now be brought forward by one year to 2023/24 and will apply to non-dividend income. The 45% and 39.35% ‘additional rates’ of income tax that apply to income over £150,000 will be abolished from 6 April 2023. This will mean that, in 2023/24, there will be just two rates of tax on general income - 19% and 40%, with two dividend income tax rates of 7.5% and 32.5%.

Further, those who would have otherwise been additional rate taxpayers will, from 6 April 2023, benefit from a Personal Savings Allowance of £500, in line with higher rate taxpayers. This was not previously available to them. Savings income within the Allowance is taxed at 0%.

Corporation tax rate increase scrapped

In the March 2021 Budget, Rishi Sunak announced that the rate of corporation tax would increase to 25% from 1 April 2023 where a company’s profits exceeded £250,000 a year, with the current 19% rate continuing to apply where profits were no more than £50,000 a year. There was also scheduled to be an effective 26.5% rate on profits between £50,000 and £250,000 a year.

Nevertheless, the planned increase will not now go ahead - in line with the promises made by Liz Truss in her campaign to be Conservative Party leader and Prime Minister. All companies currently paying corporation tax at 19% will continue to do so.

£1 Million Annual investment allowance now permanent

Businesses investing in plant and machinery will welcome the decision to make the £1 million Annual Investment Allowance (AIA) permanent. This has been extended several times and was scheduled to revert to just £200,000 from April 2023. Unlike the super-deduction, the AIA is available to unincorporated businesses as well as limited companies and the equipment does not have to be new. 

IR35 U-turn

The much criticised “off-payroll” working rules were introduced for the public sector from 6 April 2017 and then extended to large and medium-sized private-sector organisations from 6 April 2021. The rules replaced the ‘IR35’ rules where workers supplied their services to these organisations via a personal service company (PSC) or other intermediary. The effect was to transfer the, not insignificant, tax compliance burden from the PSC to the service-acquiring organisation.

The off-payrolling rules will now be removed from 6 April 2023 and the IR35 compliance burden will revert to resting with the PSC itself. This means the PSC must calculate and pay PAYE and NICs if the worker (often the Director) would be classed as an employee if they were working directly for the service-acquiring organisation. This aligns with the requirements in cases where a PSC supplies services to a small private-sector organisation.

New Investment zones

The Government is in discussion with 38 local authority areas in England to set up ‘Investment Zones’ in specific sites within their area.

Encouraging investment in unlisted companies

The new Chancellor has given his support to the tax-advantaged Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and said he sees the value of extending them in the future.

The vision is for the UK to be an entrepreneurial, share-owning democracy.

Employee share ownership

The Government has announced two changes to the tax advantaged Company Share Option Plan (CSOP) scheme. There is currently a maximum employee share option limit based on market value at grant of £30,000. This will be increased to £60,000 for any new options granted from 6 April 2023. Existing options are unaffected by this change.

There will also be increased flexibility for share options granted from 6 April 2023 due to a removal of conditions around the class of shares used.

SDLT threshold increased to £250,000

Chancellors always like to pull rabbits out of the hat and make surprise announcements at the end of their Budget speech. Although rumoured in the run up to this mini-budget, the SDLT announcement was still a surprise as house prices have been steadily rising. Increases in mortgage rates are likely to slow the market so the SDLT announcements are designed to stave off a housing slump. 

Moving house has a multiplier effect on the economy as people tend to spend money decorating and furnishing their new home, with estimates suggesting that doing so drives additional spending worth about 5% of the house value.

For residential property transactions completed on or after 23 September 2022;

• The Nil Rate Band (NRB) has been increased from £125,000 to £250,000.
• The NRB for first-time buyers has been increased from £300,000 to £425,000. This applies where first-time buyers purchase a property costing less than £625,000 (previously £500,000).

Different taxation rules apply to property transactions in Scotland and Wales and no changes have been announced in this regard.