24th September, 2022, Kayleigh Wilson
Considering the new Chancellor’s statement on ‘The Growth Plan’ was being dubbed by the media as a mini Budget, he managed to pack it with a stream of policy announcements.
Kayleigh Wilson, Tax Manager at Stephenson Smart Accountants and Business Advisors, gives a run down on the changes announced and what it means for you and your finances.
The Mini Budget
Kwasi Kwarteng’s statement to the House of Commons was not subject to a forecast from the Office for Budget Responsibility, with many predicting that this may mean a full Budget statement is still to come, before the end of the year.
As is now becoming the norm, before Mr Kwarteng stood up to make his statement on ‘The Growth Plan’ much of what he had to say about energy support for businesses and households, bankers’ bonuses, investment zones and reversals to NICs had already been announced.
But behind all the theatre, what do the policy announcements actually mean for you:
National Insurance contributions
In September 2021 the government published its proposals for new investment in health and social care in England. The proposals were intended to lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government introduced a UK-wide 1.25% Health and Social Care Levy based on the National Insurance contributions (NICs) system but ringfenced for health and social care.
The Health and Social Care Levy Act provided for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates were intended to revert back to 2021/22 levels and be replaced by a new 1.25% Health and Social Care Levy.
However, the new Chancellor has decided to:
- reverse the temporary increase in NICs from November and
- cancel the Health and Social Care Levy completely.
The Health and Social Care Levy was expected to raise around £13 billion a year to fund health and social care and the Chancellor has confirmed that funding will be maintained at the same level as if the Levy was in place, funded from general taxation.
According to the government, not proceeding with the Levy will reduce tax for 920,000 businesses by nearly £10,000 on average next year.
For SMEs, the government predicts that the savings will be around £4,200 on average for small businesses and £21,700 for medium sized firms from 2023/24.
In addition, it will help almost 28 million people across the UK save £330 on average in 2023/24, with an additional saving of around £135 on average this year.
How will this impact on employees and employers
The changes take effect for payments of earnings made on or after 6 November 2022, so:
- primary Class 1 NICs (employees) will generally reduce from 13.25% to 12% and 3.25% to 2% and
- secondary Class 1 NICs (employers) will reduce from 15.05% to 13.8%.
The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.
The government hopes that most employees will receive the NICs reduction directly via the payroll in their November pay but acknowledges that some will have to wait until December or January, depending on the complexity of their employer’s payroll software.
How will this impact on the self-employed
Following the principle detailed above, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.
The government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This is now being accelerated so that it takes effect from April 2023.
The government states that this reduction is worth over £5 billion for workers, savers and pensioners. Also, that 31 million taxpayers will benefit in 2023/24, with an average gain of £170.
In addition, to ‘incentivise enterprise and hard-work and simplify the tax system’, the government will abolish the 45% additional rate of income tax from April 2023. Consequently, there will be a single higher rate of income tax of 40%.
These changes will generally apply to taxpayers in England, Wales and Northern Ireland.
There are a number of tax consequences which stem from these changes. One of them is the amount of tax relief given at source on pension contributions and Gift Aid donations. This is currently given at the basic rate of 20%. The government has stated that there will be a four-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027. This will support almost 70,000 charities and is worth over £300 million. However, there was little comment on pension contributions other than that there will also be a one-year transitional period for Relief at Source pension schemes to permit them to continue to claim tax relief at 20%.
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% and
- the dividend additional rate will be abolished.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, it will also reduce to a 32.5% charge for loans made on or after 6 April 2023.
Corporation tax rates
It had been previously announced that the rate of corporation tax would increase for many companies from April 2023 to 25%. This change will now not go ahead, leaving the rate of corporation tax at 19% for the majority of companies.
The 19% UK corporation tax rate is significantly lower than the rest of the G7 and the lowest in the G20.
In line with this change, the Bank Corporation Tax Surcharge will remain the same, as will the Diverted Profits Tax.
The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery, including cars with zero emissions, up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent, and the proposed reduction will not occur.
Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses. Interestingly, these allowances were not mentioned, other than minor amendments to the current rules, so it appears the scheduled withdrawal of them will occur in 2023.
Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.
Seed Enterprise Investment Scheme
From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.
Company Share Option Plan
From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.
As part of the government’s plan to drive economic growth and encourage development the Chancellor confirmed that Investment Zones will be established across the UK, one of which is in Norfolk.
These zones will benefit from lower taxes and liberalised planning frameworks to encourage business investment.
The government is already in discussions with 38 local authorities to establish investment zones in England. In addition, it says it will work closely with the devolved administrations to offer the same opportunities in Scotland, Wales and Northern Ireland.
Businesses in designated areas in investment zones will benefit from 100% business rates relief on newly occupied and expanded premises.
In addition, businesses will receive full Stamp Duty Land Tax relief on land bought for commercial or residential development and a zero rate for employer NICs on new employee earnings up to £50,270 per year.
There will also be a 100% first year enhanced capital allowance relief for plant and machinery used within designated sites and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.
As well as time-limited tax benefits there will be designated development sites that will release more land for housing and commercial development in the zones. The need for planning applications will be minimised and streamlined.
Stamp Duty Land Tax
Several changes are made to the Stamp Duty Land Tax (SDLT) regime. Generally, the changes increase the amount that a purchaser can pay for residential property before they become liable for SDLT.
The residential nil rate tax threshold is increased from £125,000 to £250,000, with immediate effect.
The nil rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased to £625,000.
The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland.
There are no changes in relation to purchases of non-residential property.
Residential rates may be increased by 3% where further residential properties are acquired.
IR35 and off-payrolling
Over the last 20 years, there have been numerous changes to the tax system to try and address ‘disguised employment’ and to generate additional tax and NICs accordingly. In a surprise announcement, the government has stated that it will repeal the off-payroll working rules from 6 April 2023. From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
According to the government, this will free up time and money for businesses that engage contractors, that could be put towards other priorities. The change will also reduce the risk that genuinely self-employed workers are impacted by the off-payrolling rules.
Energy bills for businesses
On 21 September 2022 the government announced a new scheme, the Energy Bill Relief Scheme, which is designed to cut energy prices for non-domestic energy customers, such as businesses, charities and public sector organisations. The new scheme is in addition to the recently announced Energy Price Guarantee for households.
The scheme will apply to fixed contracts agreed on or after 1 April 2022 in addition to deemed, variable and flexible tariffs and contracts. Running for an initial six-month period, the scheme will apply to energy usage from 1 October 2022 to 31 March 2023. According to the government, savings will first be seen in businesses’ October bills.
Businesses are not required to take action or apply for the scheme; support will be automatically applied to bills.
The government intends to conduct a review of the scheme in three months to assess:
- how effective it has been in giving support to vulnerable, non-domestic customers
- which groups of non-domestic customers remain vulnerable to energy price rises
- the extent to which the scheme could either be extended or further targeted.
Support after 31 March 2023 will be determined following the review.
Over the next few weeks, the government will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back the financial services sector.
This raft of changes will have a big impact for the finances of individuals and businesses, in the immediate term to National Insurance Contributions and Stamp Duty Land Tax and the longer term in other areas, if they all come into place in the timelines given.
I am a tax specialist at Stephenson Smart and, supported by a team of qualified, experienced accountants, we are here to help you navigate the changes made in this mini Budget.
Please contact us if we can help you.
24th March, 2022, Kayleigh Wilson
Against a backdrop of rising inflation, Chancellor Rishi Sunak presented his first Spring Statement on Wednesday 23 March 2022.
The Chancellor announced a cut in fuel duty for petrol and diesel as he sought to ease the impact of rising prices for households and businesses.
He will lift the starting thresholds for National Insurance contributions (NICs) and also pledged a cut to income tax in 2024. However, the Health and Social Care Levy will still be implemented in April 2022.
For businesses, there is an increase to the Employment Allowance, as well as relief from business rates on a range of green technologies and help with training and the adoption of digital technology.
Increase in the National Insurance threshold and Lower Profit Limit
There had been speculation that the Chancellor would try and make some kind of tax cut to answer his critics that he was not doing enough to ease the cost of living rises. His solution was to announce an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit in his 2022 Spring Statement, to take effect from July 2022.
Primary Class 1 contributions are paid by employees. To align the starting thresholds for income tax and National Insurance contributions (NICs) the threshold will increase from 6 July 2022 from £9,880 to £12,570.
The Lower Profits Limit is the point where the profits of the self-employed become subject to Class 4 NICs. From 6 April 2022 the Lower Profits Limit is increased to £11,908 and from 6 April 2023 the limit is increased further to £12,570.
In addition, there will be no Class 2 NICs on profits between £6,725 and £11,908. £3.15 per week is payable where profits are over £11,908.
Temporary increase in National Insurance rates
The temporary increase in National Insurance rates (the Health and Social Care Levy) will still come into effect from April 2022.
There will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023.
With the increase to the thresholds announced in the Spring Statement, from 6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a 3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175 per week.
Although employees’ NICs only become payable once earnings exceed £242 per week, any earnings between £123 and £242 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs.
For the self-employed, where their profits exceed £11,908 per annum, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that upper profits limit.
Income tax reduction
The Chancellor announced the reduction in the basic rate of income tax for non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland to 19% from April 2024.
The change will be implemented in a future Finance Bill.
A welcome measure announced in the Spring Statement to help all motorists – individuals, small businesses and hauliers – fuel duty for petrol and diesel is cut by 5 pence per litre across the whole of the UK. This measure took effect from 6pm on 23 March 2022 and is in place for 12 months.
Increased Employment Allowance
Employers are able to claim the Employment Allowance which reduces their employer Class 1 NICs each year.
In the Spring Statement, the Chancellor announced an increase from April 2022 of £1,000 for eligible employers to reduce their employer NICs by up to £5,000 per year.
The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses, such as companies under the control of the same person or persons, are only entitled to one Employment Allowance between them.
VAT on energy saving materials
The Chancellor announced a UK wide, time-limited zero rate of VAT from April 2022 for the installation of energy saving materials. This will apply to installations such as rooftop solar panels.
This is in addition to the extension of the VAT relief to include additional technologies and the removal of complex eligibility conditions.
Green reliefs for business rates
The government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. It was announced in the Spring Statement, that these measures will now take effect from April 2022, a year earlier than previously planned.
Spring Statement Summary
These are the main highlights of the Spring Statement announcements by the Chancellor. An above average amount of changes to allowances and tax bands for a Spring Statement, some of which come into play very soon and will have an immediate effect on calculations.
At Stephenson Smart we are specialists in helping people navigate their business and personal finances. You should contact us for advice before taking any action as a result of the contents of this response.
Related pages: Budget 2021
27th October, 2021, Dan Jastrzebski
Autumn Budget 2021: Response by Dan Jastrzebski
Today’s Autumn Budget 2021 announcement and Spending Review by the Chancellor focused on economic recovery and investment.
Dan Jastrzebski, partner at Stephenson Smart, analyses the main changes that will impact upon our clients and local businesses.
Business groups have been lobbying for the government to support the high street and ‘brick and mortar’ businesses by looking at business rates in this Budget.
In response, the Chancellor announced three new measures that will directly affect business rates:
Firstly, a new temporary 50 per cent business rates relief for the Retail, Hospitality and Leisure industry in the financial year 2022/23. This is alongside freezing the business rates multiplier for a second year, from 1 April 2022 until 31 March 2023, keeping the multipliers at 49.9p and 51.2p.
The government will also look to introduce a 100 per cent improvement relief for business rates from 2023. This will provide 12 months relief from higher bills for occupiers, where eligible improvements to an existing property increase the rateable value.
Also introduce targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100 per cent relief for eligible heat networks, to support the decarbonisation of non-domestic buildings from 1 April 2023 until 31 March 2035.
There was very little mention of tax changes in the Autumn Budget 2021 announcement. However, there are tax changes afoot that are already in progress.
The Health and Social Care Levy is due to come into effect in April 2022; the income generated from this is due to be ring-fenced for spending on health and social care. Alongside this, it was also announced that there would be a 1.25 per cent increase to dividend tax rates.
We also already know that the main rate of Corporation Tax will rise from 19 per cent to 25 per cent from April 2023.
However, the main changes to the tax system that the government are forecasting to bring in income to the Treasury are aimed at how the self-employed pay income tax.
From April 2024 there will be three main changes to income tax for the self-employed:
Sole traders and landlords with annual business or property income over £10,000 a year will be eligible for Making Tax Digital for Income Tax Self Assessment from 6 April 2024. This means that those businesses who are eligible will be required to submit their income and expenses via digital software, in a more timely, quarterly manner. Read more here.
From the same date, the government are looking to reform income tax basis periods so businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, regardless of its accounting date.
Lastly, the government are reforming penalties for late submission and late payment of tax for Income Tax Self Assessment, again from April 2024, for those taxpayers required to submit digital quarterly updates through Making Tax Digital.
Just these changes to tax strategy are forecast to bring in an additional £440 billion to the Treasury by 2026/27.
A surprising amount of the Chancellor’s Autumn Budget 2021 announcement was taken up by talking about alcohol duty. The main change worth mentioning is the reduction in duty on draft alcohol by 5 per cent – another welcome hand of support to the hospitality industry. However, increases to the living wage of 6.6 per cent for over 23 year olds from April 2023 could offset the reduction in duty meaning no decrease in prices for the consumer.
Our teams will look forward to further direction from the government on the announcements made today, and in the run up to the Budget, so that we can ensure our clients are compliant with any changes and managing their tax liabilities accordingly.
If you would like more detailed, one-to-one advice on any of the issues raised in the Chancellor’s Autumn Budget 2021 speech, please get in touch.
Profile: Dan Jastrzebski ACA CTA
Related Pages: Budget 2021 & Making Tax Digital
Related Articles: Autumn Budget Predictions
Further Reading: Autumn Budget and Spending Review 2021
26th October, 2021, Kayleigh Wilson
Autumn Budget Predictions
The Chancellor, Rishi Sunak will officially present his Autumn Budget and Spending Review to the Commons tomorrow, 27 October.
In this article, Kayleigh Wilson ACCA CTA, gives her Autumn Budget predictions, thoughts and analysis:
You may be forgiven for thinking that the Autumn Budget 2021 has pretty much all been announced via releases to the press; but these announcements are all the positives around spending and don’t dig into the details.
Based on these pre-announcements, we know that the Chancellor has already committed over £30 billion of investment to support economic recovery through schemes that support his government’s ‘Plan for Jobs’ and ‘Levelling Up’, although all this comes at a price and the announcements that will have the most ears will be around the measures put in place to financially support these.
We have already had a huge tax announcement this year with the planned introduction of the Health and Social Care levy that will raise National Insurance Contributions from April 2022.
This Budget also comes at the start of the government’s 10-year tax administration strategy and is being called a ‘technical budget’. This implies that the Chancellor may make technical changes that can raise revenue, rather than simply take the unpopular option of raising more taxes. An example of this is the proposed reform of basis periods for the self-employed, this is being sold as a simplification measure to help sole-traders and partnerships with the move to Making Tax Digital reporting from April 2023 but also has the potential to accelerate revenue for the Exchequer for 2023 and the next 5 years.
We know that Corporation Tax will rise from 19 per cent to 25 per cent from April 2023, but what other proposed changes might the Chancellor make to taxes in this Budget to try and balance the books?
Lots of commentators are predicting changes to Inheritance Tax and Capital Gains Tax following recent reviews by the Office of Tax Simplification. It is quite likely that the Chancellor could change Inheritance Tax Rules that would increase future revenues without directly changing headline tax rates.
Millions will get a pay rise next year when the National Living Wage is increased from £8.91 an hour, as the Treasury confirmed the move for all over-23s, on Monday.
This move supports the Prime Minister’s pledge to move Britain towards a high wage, high skill, high productivity economy.
With a lot of the Covid support schemes such as Furlough, Business Rates Relief and VAT relief coming to end, businesses will be feeling the impact on their cash flow.
There are calls from the business communities for the Chancellor to look at how business rates are calculated, to support the high street, and put some further package of support in for the hospitality and tourism industry.
We will be watching the Chancellor live as he presents to the Commons on Wednesday and analysing his announcement and the accompany documentation carefully.
Profile: Kayleigh Wilson ACCA CTA
Related pages: Budget 2021
3rd August, 2021, Henry Pettitt
What is Legislation Day?
Dubbed as ‘Legislation Day’ the announcements made by HM Treasury on 20 July included draft legislation, consultation updates and promises of future tax measures as a build-up to Finance Bill 2022.
Nothing announced will have immediate effect, but the various documents do give a good sense of the direction of travel for future changes to the tax system. The key announcements include proposals to reform income tax basis periods, clamp down on promoters of tax avoidance schemes and introduce a requirement for larger businesses to notify HMRC about uncertain tax treatments.
The full list of tax measures can be found on the Finance Bill 2021/22 page.
Below is a summary of the key areas that I feel may have the potential to bring about the biggest change.
Legislation Day: Sole traders and partnerships
One of the proposals was that sole traders and partnerships will be taxed by reference to profits earned in a tax year, rather than taxed by reference to the profits of an accounting period where that period does not coincide with the tax year ended 5 April, from 2023.
For example, if a business draws up accounts to 30 June every year, currently the income tax for 2023/24 would be based on the profits in the business’s accounts for the year ended 30 June 2023, subject to basis period rules. The proposed reform would mean income tax for 2023/24 would be based on: 3/12 of year end 30 June 2023, plus 9/12 of year end June 2024. So, there is an acceleration in profits being assessed and taxed.
It is felt that setting tax year 2023/24 as the year of change (with year 2022/23 as a transitional year) is very ambitious and it may be that the speed of change is linked to Making Tax Digital for Income Tax Self-Assessment, as this is scheduled to be mandatory from April 2023. Another move towards real-time tax reporting and payment for the self-employed.
We have been anticipating this change to how business profits are quantified and encouraging clients to consider their year ends and utilising overlap profits.
Legislation Day: Pensions
There was draft legislation released relating to pensions.
Of interest is a proposed increase in the normal minimum pension age from 55 to 57 in April 2028.
Where a pension scheme annual allowance charge of at least £2,000 arises, the scheme member can request that the liability is met from their pension fund under the “scheme pays” rule. The deadline for doing this is currently 31 July in the year following the end of the tax year. However, where an annual allowance charge is triggered retrospectively, because of retrospective amendment to their pension input amount (as could be the case with the government’s planned remedy for addressing the age discrimination found in the 2015 public service pension reforms), the taxpayer may be out of time to request that the scheme meets their liability.
To address circumstances where a scheme member is informed of a retrospective change to their pension inputs by the scheme administrator, draft legislation extends the deadline to the earlier of three months following the date that the scheme administrator provides that information and six years following the end of the tax year in question.
Legislation Day: Tax avoidance
HMRC published a summary of responses to its proposals made earlier this year for measures to clamp down on promoters of tax avoidance. Four new measures are being introduced:
- A new power for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of breaching anti-avoidance obligations.
- New rules that would enable HMRC to make a UK entity that facilitates the promotion of tax avoidance by offshore promoters subject to a significant additional penalty.
- A new power to enable HMRC to present winding-up petitions to the courts for companies operating against the public interest.
- New legislation that would enable HMRC to name promoters, details of the way they promote tax avoidance and the schemes they promote, at the earliest possible stage, to warn taxpayers of the risks and help those already involved to get out of avoidance arrangements.
Other areas of note published on legislation day:
An amendment to allowance statement for structures and buildings allowance.
Insurance premium tax
Draft legislation has been published to move the criteria for determining the location of a risk for insurance premium tax into primary legislation.
As announced on 23 March, the government will not be taking forward any changes to VAT grouping but has now published a summary of the responses to the call for evidence on VAT grouping establishment, eligibility and registration.
Legislation Day: Next steps
Once all the consultations have ended in September, there will be a Finance Bill in the Autumn, possibly to accompany an Autumn Budget and a Spending Review.
However, it has been reported in the media that the Budget may be deferred until Spring 2022 to reflect more on the economic impact of the pandemic.
If you would like to discuss how any of the proposed changes may affect you or your business, please get in touch.
Profile: Henry Pettitt ACA CTA
Related Articles: Tax Day: Response by Kayleigh Wilson
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