The Growth Plan 2022
Sarah Hamilton - October 18th, 2022
In just under 30 minutes on 23/09/22 the new Chancellor of the Exchequer announced tax giveaways estimated at nearly £150 billion over 5 years. Many of the tax and NIC increases announced during 2021 were cancelled or reversed. The aim is to boost growth, although there is speculation that inflation will be stoked, leading to interest rate increases. There has been an immediate adverse impact on the strength of the pound against the dollar.
As Tax Advisers we seek to provide our clients with best advice on compliance and planning matters. Significant tax cuts have been announced and we will guide clients through the changes and their impact.
Headline points which may particularly affect owner managed businesses and individuals include:-
This article has been updated to reflect further announcements in the weeks that followed the mini-budget.
The basic rate of income tax drops from 20% to 19% with effect from 06/04/23. This is the first change to the basic rate since 2008/09. The adverse impact on charities reclaiming basic rate tax under the gift aid scheme will be phased in and there will be a 4 year transitional relief period. Taxpayers will no longer get an automatic 25% top up to monies paid into pensions to cover basic rate tax relief, and will instead see a 23% boost, although some basic rate taxpayers will get an extra year’s breathing space due to technical transitional arrangements.
In a surprise announcement, the additional rate of income tax on high earners (Taxable income over £150,000) has been scrapped from 06/04/23, with the highest rate of tax now capped at 40%. This measure was overturned on 03/10/22.
Dividend tax rates are also reducing. The rate of tax on dividends in 22/23 is basic rate: 8.75%, higher rate: 33.75% and additional rate: 39.35%. From 06/04/23 the rates revert to 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate tax payers and of course the premium additional rate tax charge will be abolished. The tax free dividend allowance each year is believed to remain at £2000.
We will work with our clients to take into account these significant changes when considering the tax efficient extraction of profits from Companies.
The main rate of corporation tax will no longer be increased from 19% to 25% (as had been scheduled for large profit companies effective 06/04/23). Without this reversal many of our clients would have paid corporation tax at a marginal rate between 19% to 25%; this change is a significant saving for corporates, a simplification and will also mean the deferred tax provisions in limited company accounts are more comprehensible. It is anticipated that there will be amendments to the super deduction rules so that this “enhanced relief operates as intended”. Details to follow.
The temporary increase in the limit of the Annual Investment Allowance of £1million will be made permanent which will assist greatly where businesses are planning capital expenditure.
Incentive Schemes (Seed Enterprise Investment Scheme and Company Share Option Plan) are being made more generous. Do contact us if you would like further information regarding these schemes.
NATIONAL INSURANCE AND THE HEALTH & SOCIAL CARE LEVY
The 1.25% rise in national insurance currently in place will reverse from 06/11/22, and the Health & Social Care Levy will not now be introduced on 06/04/23. The practical implementation of this change for Directors who have national insurance calculated on an “annual earnings period” may be a headache – hopefully payroll software will be updated in short order.
The self employed will also see reductions in their Class 4 national insurance rates.
Again, we will liaise with our clients advising them of timing issues and appropriate salary levels for Directors who extract profits both via salary and dividends. Where employers pay bonuses there will be merit in the bonuses being paid after 06/11/22 to benefit from the reduced employee and employer national insurance levels.
IR35/OFF PAYROLL WORKERS
In the period between April 2021 and April 2023 the “engager” is responsible for determining if the “worker” providing labour via a personal service company is in fact a quasi employee of the engager, and if so, fees paid need to be payrolled. From 06/04/23 the responsibility will switch back to the personal service company. However, it remains the case that if the worker can be construed as being engaged directly by the fee payer the usual (complex) criteria will apply to ascertain whether there is an employment status (as opposed to self employment) here. The Government do not like off payroll working; but the complexity of the “IR 35” rules has created a major administrative burden.
Stamp Duty Land Tax thresholds have been increased, particularly for first time buyers. This change took effect on 23/09/22. A link to the new rates is here
BUSINESS ENERGY RELIEF SCHEME
Support on energy costs for businesses will apply from 01/10/22, discounts to be applied to bills automatically by suppliers. The scheme only runs until March 2023 but we are promised a further review in early 2023.
Billed as a low tax, pro business mini budget, the announcements made are significant. We will be agile in our response to the changes already announced, and alert to future reviews. The Office of Tax Simplification has been axed with the remit to simplify the system passing to the Treasury. There is already speculation that the restriction that removes the tax free personal allowance when a tax payer hits £100,000 per annum (tapered for those earning between £100,000 and £125,000) will be removed.
We act for a number of farming clients who will be watching anxiously for the forthcoming “rapid review” of the agricultural subsidy system which may see the Environmental Land Management Subsidy scheme scrapped almost before it really begins.
There have been so many changes over the last two and a half years. Expect the unexpected, with the national press telling us that there are more tough times ahead which may warrant further interventions.
It is more important than ever to plan finances with a sensitive awareness of tax aspects. Richard Sexton & Co LLP remains committed to interpreting the issues facing our clients to offer best advice for individual circumstances. Please do contact us.