Press Room

23 Sep 2022

Mini-Budget 2022

Following today’s Mini-Budget, please find below our summary of noteworthy updates for both businesses and individuals.

The new Chancellor Kwasi Kwarteng today announced measures as part of The Growth Plan, which has the key objective of reaching a 2.5% trend rate of growth. The Growth Plan will expand the supply side of the economy through tax incentives and reform and so “turn this vicious cycle of stagnation into a virtuous cycle of growth.”

We were left in no doubt that cutting taxes is a priority for the new regime. The Chancellor not only followed through on the Prime Minister’s stated intention to reverse the introduction of new taxes and increases to existing taxes which were due to take effect in April 2023 but further steps were taken by bringing forward scheduled income tax cuts.

Investment in UK plc will also be promoted through other measures such as the reform to the pensions regulatory charge cap and the creation of Investment Zones which offer tax and planning incentives to businesses and local councils.

Income tax

From 6 April 2023, the Government has announced that it will reduce both the basic rate of tax to 19% and the additional rate of tax, currently 45%, will be abolished.

The reduction in the basic rate tax band has been brought forward from 6 April 2024, however the abolition of the additional rate of tax is a new proposal and will impact around 660,000 taxpayers.

Both aim to help taxpayers with the current cost of living crisis and are part of the process of aiming for growth in the economy.

What’s more, dividends received on or after 6 April 2023 will not incur the additional 1.25% charge. Therefore, the tax rates on total dividends exceeding £2,000 for 2023/24 will be 7.5% and 32.5% respectively. This may mean that where possible, dividend payments due in early 2023 might possibly be deferred until after the end of the tax year.

Share incentives

The limit on the value of shares which can qualify under CSOP is to be doubled to £60,000 with effect from 6 April 2023. In addition, existing restrictions on the classes of shares which can be used under a CSOP are to be relaxed from the same date. The CSOP is a tax favoured share option plan that provides income tax advantages for qualifying share options. Qualifying CSOP options do not suffer income tax or NIC on any gains made when the options are exercised and the shares sold (they are subject to CGT instead).

CSOP is often seen as the “poor relation” of the Enterprise Management Incentive (EMI) scheme. This is likely to remain the case, but it should be noted that many of the limitations which apply to EMI do not apply to CSOPs. Therefore, it is likely to improve the attractiveness of the CSOP for those companies that have outgrown EMI or never qualified for EMI in the first place.

Investment incentives

The Seed Enterprise Investment Scheme (‘SEIS’) provides tax incentives for investors in early stage companies by providing the investor with income tax relief on investments made through the scheme. Access to the SEIS is limited by the size and age of the company, the amount of funding raised as well as the maximum amount for which the investor can claim tax relief. With effect from 6 April 2023 some of these limits will be raised, increasing the number of companies that will qualify for the scheme. From that date

  • The limit on fund raising for an individual company will be increased to £250,000 (from £150,000)
  • The maximum amount which an individual can invest through SEIS is doubled to £200,000
  • The age limit for qualifying companies will be increased to 3 years (from 2)
  • The gross assets limit for qualifying companies will increase to £350,000 (from £200,000)

These changes are positive, although it should be noted that companies who cease to qualify for the SEIS could still potentially use the “enterprise incentive scheme”, which sees no changes to its eligibility criteria, albeit that the tax reliefs under SEIS are more generous than its older sibling.

Corporation tax

The main rate of corporation tax will remain at 19% rather than increasing to 25% from 1 April 2023 as previously legislated.

The rate of Diverted Profits Tax will also remain at 25%, representing a 6 percent differential with corporation tax. This was due to increase to 31% from 1 April 2023.

The bank surcharge rate will also be adjusted so that the effective rate of corporation tax paid by banks (above the surcharge allowances) remains at today’s rate of 27%.

The announcements mean the UK will continue to have the lowest corporate income tax in the G20 and it is central to the Government’s strategy to maintain the UK’s competitiveness and deliver target growth.

Business tax

The Annual Investment Allowance – which allows businesses investing in qualifying plant and machinery to claim a full tax deduction – was expected to be reduced from £1,000,000 to £250,000 in April 2023. However, the current £1,000,000 allowance threshold will be fixed for all future periods.

In light of the corporation tax rate being retained at 19%, amendments will be made in due course in relation to the 130% super-deduction available in respect of new qualifying plant & machinery expenditure acquired between 1 April 2021 and 31 March 2023.

Payroll taxes

The ‘IR35 Rules’ requiring businesses to determine the employment status of their workers and account for PAYE where necessary will be repealed with effect from 6 April 2023. These responsibilities will revert to the worker from this date. These rules had imposed a significant compliance burden onto businesses who will no doubt be pleased to be relieved of this from next April.

National insurance and the Health and Social Care Levy

These cover two specific areas. Firstly, the recent National Insurance increase of 1.25% that applied to both employees and employers is being reversed in respect of payments on or after 6 November 2022.

Secondly, the Health and Social Care Levy of 1.25% that was to apply from 6 April 2023 will no longer apply.

This means that self-employed individuals and company directors will pay a blended rate of National Insurance for 2022/23 via their self assessment tax return.

Whilst these changes are welcome, and form part of the growth and cost of living strategy of the Government, it does raise the question: how is the shortfall in the Health and Social Care scheme going to be financed going forward?

Stamp duty land tax

The Government has doubled the nil rate band for Stamp Duty Land Tax (SDLT) on purchases of residential real estate in England and Northern Ireland. It has increased from £125,000 to £250,000 in a move that they expect to boost transactional activity. They have also increased the level that first-time buyers start paying SDLT from £300,000 to £425,000 and also allowed them access to relief on purchases up to £625,000 (this is currently £500,000).

The changes are effective from today and are a small step in the correct direction, however, they will fail to deal with the stagnation of certain parts of the London residential property market that have been driven by very high rates of SDLT of up to 17%.

Other indirect tax announcements

A modern, digital, VAT-free shopping scheme will be introduced for overseas visitors to enable them to obtain a refund of VAT on goods bought on the high-street, at airports and other departure points.

Alcohol duties will be frozen from 1 February 2023 and will make reforms to the systems following a recent consultation. The new regime will be implemented from 1 August 2023.

Investment Zones

The Chancellor’s Growth Plan announced the introduction of new ‘Investment Zones’ which will allow designated areas to benefit from tax incentives, planning liberalisation and wider support for the local economy.

The tax incentives under consideration are as follows:

  • 100% relief from business rates on newly occupied premises
  • 100% first year allowances on qualifying plant & machinery
  • An enhance rate of Structures and Buildings Allowance of 20% on qualifying non-residential property (typically 3%)
  • No employer’s national insurance on the first £50,720 of annual earnings of employees working at least 60% of their time in an Investment Zone
  • Full relief from stamp duty land tax on purchases of land and buildings for residential development