It's bold and it's risky; it's Kwasi Kwarteng's mini-budget. It may have been more of an announcement because of the Queen's funeral, but there was a stream of changes from the Chancellor ...
The UK Growth Plan has set out a completely new approach to our economy, which they are building around three key central propositions:
- Reform of the supply-side of the economy
- A responsible approach to public finances
- Tax cuts to boost growth
So, in this blog post, I'm going to summarise the main announcements. I've uploaded the full Mini Budget document in Word format for you to download if you click here.
National Insurance contributions
Under the previous Prime Minister, the Government published proposals for investment in Health and Social Care in England which should have led to a permanent increase in spending by introducing a UK-wide 1.25% Health and Social Care Levy on National Insurance Contributions.
This has been cancelled from November 2022, and the entire Health and Social Care Levy is no more. The Chancellor has confirmed that funding will be maintained at the same level as if the levy was still in place. This is going to save nearly a million businesses roughly £10,000 on average per year.
Income Tax
Under the previous Prime Minister and Chancellor, the Government has already announced a reduction in the basic rate of Income Tax from 20% to 19% from April 2024. This has been accelerated by a year, so now takes effect from April 2023. There will be a Budget proper before that in the spring, so that percentage cut may go down further if you've listened to new Prime Minister Liz Truss in recent media interviews.
The Government has also abolished the 45% additional rate of Income Tax from April next year too. This means that only the 40% tax rate remains for higher earners as a way to "incentivise enterprise and hard work, and simplify the tax system".
It does remain to be seen if the Scottish Government's top rate of 46% is reduced in line with these changes as otherwise, you may see a bit of a brain drain north of the border if they don't do something.
Gift Aid will have a 4 year transition period and will remain at 20% until April 2027. Nothing has been announced so far regarding pension contributions apart from a 1-year transition period. I'll blog again about that when I know more.
Dividends
From April 2023:
- the dividend ordinary rate of 8.75% will reduce to 7.5%
- the dividend upper rate of 33.75% will reduce to 32.5%
- the dividend additional rate will be abolished
Corporation Tax rates
It had been previously announced that the rate of Corporation Tax would increase to 25% for many companies from April 2023. This change will now not go ahead and remains at 19% for the majority of companies. This is significantly lower than the rest of the G7 and is the lowest in the G20 group of countries. The Bank Corporation Tax Surcharge and the Diverted Profits Tax remain the same.
Capital allowances
The temporary rate of 100% for the Annual Investment Allowance was supposed to reduce from £1m to £200,000 from April 2023. This higher level of AIA will become permanent, and the reduction will now not occur.
I'd still recommend timing your plant and machinery acquisitions carefully to optimise your cashflow, but some of the pressure to do it soon has now been removed.
Seed Enterprise Investment Scheme
From next April, companies can now raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, which is a two-thirds increase. The gross asset limit will be increased to £350,000 and the age limit from two to three years. In addition, the annual investor limit will be doubled to £200,000.
Company Share Option Plan
Qualifying companies will be able to issue £60,000 of Company Share Option Plan (CSOP) options to employees from April 2023 which is double the current limit. The 'worth having' restrictions will be eased aligning the scheme rules with the Enterprise Management Incentive scheme, in turn widening access to CSOP for growth companies.
Investment Zones
The Chancellor has confirmed a series of Investment Zones across the country to encourage economic development. These zones will have lower taxes and liberalised planning frameworks which should encourage investment in them.
So, far 38 local authorities are in discussion in England alone, and the Government says it will work closely with the devolved administrations to offer the same opportunities UK-wide. Businesses will get 100% Business Rates relief on new or expanded premises and full Stamp Duty Land Tax (SDLT) relief of land bought for commercial or residential development. They'll also get a zero rate for employer NICs on new employee earnings up to £50,270 per annum.
Stamp Duty Land Tax
Changes have been made generally to Stamp Duty Land Tax and these increase the amount a purchaser can pay for a residential property before they become liable for SDLT.
The residential nil rate threshold has been doubled from £125,000 to £250,000 and First Time Buyers' Relief has been increased to £625,000. These rates apply to all transactions on and after the 23rd of September 2022 in England and Northern Ireland. There are no changes in relation to purchases of non-residential property.
IR35
I was quite surprised when the Chancellor stated that the Government would repeat off-payroll working rules from April 2023. All workers providing services via an intermediary will once again be responsible for their own Income tax and National Insurance contributions.
Infrastructure
New roads, new rail lines, and new energy infrastructure will all be implemented with legislation which will cut barriers and planning restrictions. It looks like the days of the NIMBY are numbered.
State benefits
Anyone working less than 15 hours a week receiving less than the National Living Wage and in receipt of Universal Credit will be required to regularly meet work coaches and take active steps to increase their own earnings or face having benefits reduced.
This will start from January 2024 and those over the age of 50 will be given extra time with Jobcentre work coaches to help them back into work.
VAT-free shopping
With the aim of officing a boost to the high street and creating more jobs in retail and tourism, the Government is introducing a modern VAT-free shopping scheme for non-UK visitors to Great Britain. This means they can get a VAT refund at departure points when they leave the country.
Alcohol duties
Modernisation of alcohol duties is currently in consultation and the reforms will be implemented from the 1st of August 2023. Duties are frozen on alcohol from the 1st of February 2023.
The markets are currently wobbling at these announcements and the pound has fallen against the dollar, but if it works (and I truly hope it does) then we should see a growth in excess of 2% sometime next year. MPs say they'll support the Chancellor as long as the pound doesn't fall below the £1 to $1 exchange rate.
Considering the EU is heading into recession, the Government needed to do something and the 'same old same old' obviously wasn't working. Fingers crossed that it has a positive impact in the next 2 years or Labour will clean the floor with the Conservatives at the next General Election.
Other announcements are to follow about digital infrastructure, business regulations, housing supply, immigration, childcare, farming and financial services. I'll keep you updated as I hear more myself.
Do remember to download our Mini-Budget word document as it has a lot more detail.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.