Maxi tax changes in mini budget
**PLEASE NOTE THAT MOST OF THE CHANGES BELOW HAVE BEEN CANCELLED**
SEE HERE FOR MORE DETAILS
Mini Budget Summary
We knew that the new Prime Minister wanted to cut income tax rates. She told us repeatedly. We did not expect action so soon after the appointment of the new Chancellor. We certainly did not expect the scrapping of the 45% ‘additional rate’ tax band for those earning over £150,000. In the ‘mini budget’ the new Chancellor, Kwasi Kwarteng, delivered a package of more than 30 measures. The intention is to tackle high energy bills, drive down inflation and cut taxes to drive growth. You can read full details on the mini budget here.
Income Tax changes
In April 2010 the government introduced an ‘additional’ tax rate of 50%. The additional rate reduced to 45% three years later. From 6 April 2023 it will be no more. The 40% band will now be the highest tax rate. The 13.7% ‘additional’ rate taxpayers will pay less tax. Also, now everyone will benefit from the £500 personal savings allowance. The level of personal allowances remains, meaning taxpayers earning more than £125,140 will still have no personal allowances.
The government also reversed the increase in dividend rates from 6 April 2023. So the tax rates of income tax in England and Northern Ireland will be:
|Earnings band (after allowances)||On earnings and profits||On dividends|
|Basic rate (0 to £37,700)||19%||7.5%|
|Higher rate (above £37,701)||40%||32.5%|
This reduction/cancellation in tax rates is pleasing for the individual taxpayer. But it will affect tax relief given at source (currently at 20%) on pension contributions and Gift Aid donations. The government has confirmed that there will be a four-year transition period for Gift Aid relief. This is to maintain the income tax basic rate relief at 20% until April 2027. There is also a one-year transitional period for ‘Relief at Source’ pension schemes.
The rates of class 1 NIC will be back to the levels in place on 5 April 2022. But the rates imposed from 6 April 2022 to 6 November 2022 remain so there are two periods in the tax year. Firstly, for the first seven months (6 April to 5 November 2022). Secondly, for the remaining five months (6 November 2022 to 5 April 2023). The calculation means that over the year the main Primary rate payable by the employee will be 12.73%. That’s seven months at 13.25% and five months at 12%. The main Secondary rate payable by the employer will be 14.53% (15.05% and 13.8%). Corresponding rates of Class 4 NIC for the full tax year 2022/23 will be 9.73% and 2.73%. A reduction from 10.25% and 3.25% to 9% and 2% respectively.
The figures are as follows:
Employees’ class 1 NIC
12% on earnings in the band: £1,048 to £4,189 per month (£12,570 to £50,270 per year)
2% on earnings above £4,189 per month (£50,270 per year)
Employers’ class 1 NIC
13.8% on earning above £758 per month (£9,100 per year)
The employment allowance remains at £5,000.
Take care if payroll occurs around the changeover date. Depending on when software updates occur, the software could deduct too much NIC. Any net pay underpayment should be sorted out in the following payroll run.
Other key tax announcements
The statement included the reversal of a string of planned tax rises. Including the intended increase to 25% in the corporation tax rate originally set for 6 April 2023. This remains at 19%. The government also cancelled planned beer, wine, cider, and spirits duty rate increases. Overseas shoppers can now shop sales- tax free in the UK.
The Annual Investment Allowance provides a 100% tax deduction for up to £1m of equipment purchased in a year until 1 April 2023. But the government cancelled the cap reduction to £200,000 on 1 April 2023, keeping it at £1m indefinitely.
Queries remain over the application of the ‘super relief’. This is where qualifying expenditure on new plants and machinery incurred from 1/4/2021 to 31/3/2023 receives 130% tax relief. Thus creating an effective 24.7% tax relief on expenditure (130% x 19%). As the corporation tax rate remains at 19% from 1/4/2023, we emphatically await confirmation that this relief will remain.
The Enterprise Investment Scheme provides tax incentives for individuals to subscribe for shares in unquoted trading companies. It was due to end in 2025 but this will now continue for an undefined period. Similarly, Seed Enterprise Investment Scheme provides tax relief for investment in small trading companies. This also remains in place with increases in the annual investment caps of £100,000 per investor, £150,000 per company.
IR35 never really went away – the rules just changed. Now from 6 April 2023, another change means we are back to the original 2017 rules. So the government has scrapped the off-payroll working rules for public sector (from 6/4/2017) and for large private sector (from 6/4/2021). Consequently, it will now be up to the subcontractors to decide whether the IR35 rules apply. I.e. is there an employment relationship between the worker and the engager?
Stamp Duty Land Tax
From 23 September 2022, the SDLT threshold (on residential property) has doubled from £125,000 to £250,000. Consequently, there is no longer a 2% tax rate, saving purchasers a potential £2,500.
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