As Kwasi Kwarteng addressed the new ‘Mini Budget’ on September 23rd 2022, he explained the key policies that are being put in place to confront the inflation of the cost of living in the UK. This “new era for Britain” as promised by the new Chancellor aims to change many things including the recession of our economy through the following adaptations.
The increase of the corporation tax rate from 19 percent to 25 percent that was due to take effect from April 1st 2023, has been scrapped. Instead, the headline UK rate will stay at 19 percent which is one of the lowest rates in the G20. Government projections suggest this will save businesses just under £19bn per annum by 2026-27. Of course, the other side of this equation is that the UK tax take will reduce by £19bn in that year, with the government clearly hoping that the policy stimulates sufficient economic growth to generate additional receipts to offset this shortfall.
The Chancellor has announced a change to the annual investment allowance, which provides for 100 percent tax relief on capital investment in qualifying plant and machinery, up to a set expenditure limit. The limit was scheduled to reduce from £1m to £200,000 on April 1st 2023, but the Chancellor has confirmed that it will remain at £1m. This £1m limit has been applied since 2019, and since 2021 as the popular term “super-deduction”, which was scheduled to end on the 31st March 2023 in Rishi Sunak’s last Budget. This scheme has provided an even more generous incentive for capital expenditure, yet capital investment in the UK continues to lag behind comparable countries.
The Government has also provided more details on the tax reliefs that will apply in each investment zone it has announced that it will be setting up. In addition to streamlined planning processes for developments, the Government will: subside 100 percent relief from business rates; apply a zero rate of stamp duty land tax (SDLT) on land bought for commercial or residential development; provide relief from employer’s National Insurance Contributions (NICs) on the first £50,270 earned by new employees working in the investment zone for at least 60 percent of their working time; legislate for an uncapped 100 percent first year allowance for plant and machinery used in the investment zone; and, provide an enhanced 20 percent per year allowance for structures and buildings (the general rate is 3 percent). The location of the investment zones is still to be confirmed, but the Government is in discussions with 38 local authorities in England and will work closely with the developed administrations and local partners in Scotland, Wales and Northern Ireland to deliver similar opportunities.
The Health and Social Care Levy (and transitional temporary increase in NICs rates prior to its introduction) has been scrapped, and the previously planned 1p cut in the basic rate of income tax has been accelerated to take effect from April 2023.
Alongside the reduction in taxation on companies and individuals, the Government has identified investment into private businesses as a key area to fuel growth of the UK economy. The Seed Enterprise Investment Scheme (SEIS) has been extended from April 2023. Companies will now be able to access £250,000 of SEIS investment, a two-thirds increase on the previous limit, and the restrictions on gross assets and age of the company will be relaxed to enable more companies to access such funding.
The positive news also extends to individual investors as the maximum amount that can be invested will be doubled to £200,000. Those investing the maximum amount can see their income tax bill reduced by up to £100,000. In addition, capital gains tax relief of up to half the value invested can also be claimed.
Whilst no changes were made to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules, it appears that they will also form the backbone of encouraging private sector investment as there was comment about potentially extending them in future.
VAT & indirect tax
Contrary to pre-mini-Budget rumours, there have been no cuts to the standard rate of VAT or VAT on fuel and power. Instead, the Chancellor has limited his indirect tax announcements to the reintroduction of VAT-free shopping for overseas visitors and a forthcoming reform of the alcohol duty regime.
National Insurance contributions and the Health and Social Care Levy
The Government is reversing the temporary 1.25 per cent increase, in Class 1 NICs that was introduced in April 2022, with effect from 6 November, and cancelling the Health and Social Care Levy that was due to take its place as a separate tax from April 2023.
This change will be challenging for employers and those updating payroll software to reflect before it takes effect, given the requirement to file RTI returns ‘on or before’ the date an employee is paid, and the need for most employers to run their payroll ahead of pay day.
The HMRC release announcing this measure suggests that most employees will receive a cut to their NICs directly via payroll in their November pay, albeit with some receiving it in December or January, depending on the complexity of their employer’s payroll software.
The resulting NICs rate for Class 1A (on P11D benefits) and Class 1B (on PAYE settlement arrangements) for 2022/23 will be 14.53 percent and directors’ annual earnings NICs rates are also blended for 2022/23 being: 12.73 percent for employee contributions on income between the lower and upper earnings limits; 2.73 percent for employee contributions above the upper earnings limit; and 14.53 percent on employer contributions.
In a significant change following concerns raised, the Government has announced a repeal of the off-payroll working administrative rules introduced for the public sector from April 2017 and extended to medium-sized and large private sector businesses from April 2021.
This will reduce the burden on engagers that currently requires them to undertake status assessments, issue status determination statements and, where necessary, add contractors hired via intermediaries that do not meet the test to be treated as self-employed to payrolls for deduction of tax and NICs under PAYE.
From 6 April 2023, workers providing their services via an intermediary will once again be responsible for determining their own employment status and accounting for tax under the original IR35 rules to HMRC, putting the burden back on HMRC to check compliance with the IR35 rules.
Once further details are known, affected engagers and contractors should consider their off-payroll hiring and working models and plan for the change in April 2023.
Company Share Option Plans
Company Share Option Plans (CSOPs) are tax advantaged share incentives that allow companies to grant tax efficient share options to employees selected at the employer’s discretion. Several key conditions apply; however, from April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit.
In addition, the rule that restricts companies whose shares are eligible for CSOP incentives to those with share classes that are ‘worth having’ will be eased, better aligning the CSOP rules with the rules in the EMI scheme and widening access to CSOP for growth companies.
The Government has reduced the SDLT payable by people buying a home in England and Northern Ireland. The threshold above which SDLT must be paid on the purchase of such residential properties has increased from £125,000 to £250,000, which should provide a maximum saving of up to £2,500. The increase in the thresholds may be of particular interest to landlords with larger residential property portfolios who may have been debating whether to transfer their portfolio from personal ownership into a company. SDLT often represents a barrier to such structuring but the impact of this may now be reduced for many. If the average value of the residential dwellings in their portfolio is £250,000 or less, the applicable rate of SDLT may potentially be capped at 3 percent if relief is available and claimed.
Based on last year, at least 64 percent of all residential property transactions would have fallen out of SDLT altogether, excluding first-time buyers’ relief. It is notable that this change benefits all purchasers – landlords, those purchasing second homes, and owner-occupiers alike.
The Government has also increased the relief for first-time buyers. The threshold at which first-time buyers begin to pay SDLT on residential property will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase, from £500,000 to £625,000. This will deliver a maximum saving of £11,250.
Hopefully our summary of the upcoming changes outlined in September’s Mini Budget is a useful tool in preparing you for what’s ahead. If you need help understanding, preparing for or forecasting how the Mini Budget may affect you and your business, please email email@example.com or call 01249 691360 to speak to an expert.