On 23 September the new UK Chancellor, Kwasi Kwarteng, delivered a ‘mini’ budget to deliver Liz Truss’s much hyped return to traditional Tory tax cutting policies. There was, however, nothing ‘mini’ about the announcements; the tax “giveaways” are the biggest seen in 50 years. Peter Webb, our Head of Tax Advisory, explores the announcements.
There was a great deal of expectation ahead of Kwasi Kwarteng’s first budget statement. And once it was revealed that the Office for Tax Simplification is being abolished (with a promise that simplification will be at the heart of government policy) it was clear this would be an interesting speech. So what did the new Chancellor announce?
As previously announced the uplift of 1.25% in National Insurance contributions – which applied from 6 April 2022 – has now been cancelled from 6 November 2022 and the replacement ‘Health and Social Care Levy’ won’t go ahead. The government has stated that funding for health and social care spending won’t be affected by the planned tax cuts.
In a genuinely surprising move the planned aim to reduce the basic rate of Income Tax has been brought forward, and from 6 April 2023 will be reduced from 20% to 19%. In addition, and somewhat controversially, the Chancellor also reduced tax for the wealthiest in society, abolishing the 45% additional rate of tax from 6 April 2023, with a 40% rate tax applying to anyone earning more than GBP150,000. This change reverses the additional rate first introduced in April 2010.
Other changes scheduled for next April have also been scrapped including the rise in the rate of dividend taxation of 1.25%; dividends will remain at the previous tax rates of 7.5% and 32.5%. The planned, and rather hefty, increase in Corporation Tax from 19% to 26% has also been rolled back. Other abandoned changes include the planned increase in the rate of Diverted Profits Tax from 25% to 31% and the expected reduction in the Corporate Tax surcharge rate for banking companies.
Reforms of the “Off-Payroll Working” rules will be reversed. From 6 April 2023, UK workers in the public and private sectors who provide their services via an intermediary such as a personal service company will once again be responsible for determining their employment status and paying the correct amount of tax and NI contributions.
In a welcome move we now have confirmation that the Annual Investment Allowance will be set at GBP1 million permanently. This is a tax relief for businesses for the purchase of business equipment and had previously been temporarily raised from GBP200,000 to GBP1 million.
There will also be new investments zones set up around the UK with enhanced tax reliefs for Stamp Duty Land Tax, Capital Allowances (to help businesses make capital investments), Structures and Buildings Allowance and reliefs for employer’s NI contributions.
The limits for investing in the Seed Enterprise Investment Scheme, which provides tax reliefs for investing in small start ups will be doubled to GBP200,000 from 6 April 2023 and it will also be available for investors to claim tax reliefs for Income Tax and Capital Gains Tax.
From 6 April 2023 the share option limit for the Company Share Option plan (CSOP) scheme has been doubled from GBP30,000 to GBP60,000 and there will be fewer restrictions on the types of shares that can qualify for the scheme.
An immediate reduction in Stamp Duty Land Tax (SDLT) was announced, including doubling the nil-rate threshold from GBP125,000 to GBP250,000, increasing the level at which first-time buyers start paying SDLT from GBP300,000 to GBP425,000 and allowing first-time buyers to access this relief on property purchases up to GBP625,000. It’s clear the government was to ensure that the UK property market, which has triumphed in recent years despite the pandemic, remains buoyant.
- Planned increases in Alcohol Duty Rates, scheduled from 1 February 2023 have been scrapped with a previously announced new Alcohol Duty System being introduced in August 2023.
- A new digital VAT free shopping scheme for non-UK visitors will be introduced as soon as possible.
The result of this ‘mini budget’ is a package of tax giveaways that are going to cost around GBP45billion. This is in addition to previous spending promises aimed at protecting households and businesses from higher energy bills. In short, Liz Truss’ new government is going to be spending far more this year than they had originally planned. Former Tory Prime Minister, Theresa May, famously once stated that “there is no magic money tree” and it’s clear that the government will be borrowing a great deal more money than they had previously announced. And let’s not forget, with rising interest rates the cost of borrowing that extra money is going up as well. It remains to be seen whether these cuts are enough to prop up the UK over the long-term, and early signs in the currency markets are that there isn’t a huge amount of confidence that these moves are the right ones. As always, time will tell, and we’ll continue to share the latest analysis as events unfold.
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