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.
Are you making the most of your allowances from your residential property income?
If you receive income from letting a room in your property or renting out another property permanently or as a holiday let, there are various reliefs and allowances that can be applied to your income to reduce your tax bill.
Neil Gayton, manager at our King’s Lynn office, examines the reliefs and allowances that you may need to consider when completing your tax return.
The Rent a Room Scheme
The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.
You can let out as much of your home as you want. The tax exemption is automatic if you earn less than £7,500. If you earn more than this you must complete a tax return, you can then opt into the scheme at any time if you are a resident landlord or run a bed and breakfast or guest house and claim your tax-free allowance on your tax return.
You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.
You cannot use the scheme for homes converted into separate flats.
Property Income Allowance
If you are a landlord earning rental income from your property you can get up to £1,000 rental income tax-free each year from Property Income Allowance.
If you earn less than £1,000 from rental income, you don’t need to do anything. However, if you claim the Property Income Allowance, you cannot claim any other rental expenses.
If you own a property jointly with others (spouses, civil partners, etc.), you can each claim this £1,000 allowance – even though you divide the rental income between yourselves.
If you’re renting out a buy-to-let or a second property, usually your expenses are higher than £1,000 a year, so only use this allowance if you can’t find your receipts or if in one year you somehow have just a few expenses.
Residential Finance Costs
Relief for finance costs on residential properties is restricted to the basic rate of Income Tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.
When completing a tax return for income from a residential property it is possible to bring forward losses from previous years.
There are many things to consider when using a residential property for income purposes. At Stephenson Smart we are experts in helping people fully understand their liabilities. Please get in touch if we can help you.
Profile: Neil Gayton
Related articles: Furnished Holiday Lettings
In this article, Kayleigh Wilson FCCA CTA, tax specialist at Stephenson Smart accountants, explains how to make sure your property qualifies as Furnished Holiday Lettings.
The uncertainty of the last two years has impacted hugely on the holiday market. It is not only airlines that have been affected, but holidays closer to home. If you own a property that you rent as a furnished holiday let you need to be aware of the impact that a reduction in rental occupation may have on your tax affairs.
There are special tax rules for rental income from properties that qualify as Furnished Holiday Lettings (FHLs).
If you let properties that qualify as Furnished Holiday Lettings you can claim Capital Gains Tax reliefs and you are also entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures.
There is also a benefit to those wishing to use the earnings to increase the threshold to pay into a pension, as profits on Furnished Holiday Lettings count as earnings for pension purposes.
To qualify as a furnished holiday let your property must be commercially let as a business. You must make the property available for commercial let for 210 days in the year, and actually let the property as furnished holiday accommodation to the public for at least 105 days in the year.
Days when you let the property to friends or relatives at zero or reduced rates is not a commercial let.
There will be some furnished holiday let owners who will have struggled to meet these criteria this last couple of years. However, you may still be able to qualify for tax reliefs. If you have more than one property you may qualify for the averaging election or if your property reaches the occupancy threshold in some years but not in others, you may qualify for a period of grace election.
There are many tax, and other financial benefits, to owning and letting furnished holiday properties as a commercial business. I am a tax expert at Stephenson Smart and specialise in income tax and capital gains tax for individuals. I’m fully qualified to give tailored advice to help you navigate tax relating to your business and personal finances. Please get in touch if I can help.
Profile: Kayleigh Wilson, Tax Specialist
Image: Cranmer Country Cottages
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
In the Autumn Budget 2021 the chancellor announced tax changes due to come into play in April 2022. The two main changes are The National Insurance threshold and rate change along with the increase to dividend tax rates. There is also a change to capital gains tax reporting on the sale of a property.
Kayleigh Wilson ACCA CTA, tax expert at Stephenson Smart, examines these changes and what they might mean for your finances.
National Insurance threshold and rate tax changes
National Insurance rates are set to rise by 1.25 percentage points from 6 April 2022, as part of the government’s plan to introduce a health and social care levy where working people contribute to fund the NHS and the social care crisis.
In 2022-23 this will be taken along with the rest of your National Insurance payment, but the plan is to officially split out the levy from April 2023.
April 2023 will also be the point where the levy is paid by those who are above state pension age, but still in work.
The National Insurance lower earnings limits will increase by 2.5%. Upper earnings thresholds, however, is being frozen at £50,270.
Dividend tax changes – rates to increase
Similarly to the National Insurance rate rises, those who earn money from dividends will also see a 1.25 percentage point rise from April.
You may have to pay dividend tax if you’re an investor that earns money from owning company shares; you’re only charged tax on the amount you earn above the dividend allowance, which is £2,000 in 2022-23, unchanged from 2021-22.
Those with investments held in an ISA wrapper – such as a Stocks and Shares ISA – are tax free and so won’t be charged dividend tax.
Capital gains tax reporting extended
The time period within which taxpayers must report the gain and pay the tax owed after the sale of a property has increased from 30 days to 60 days.
This means anyone who makes a capital gain after selling a second home or buy-to-let property will need to submit a residential property return to HMRC and make a payment on account for the estimated tax owed within 60 days of the gain being made. This is only for properties sold on or after 27 October 2021. If you sold property between 6 April 2020 to 26 October 2021, you would have had to report and pay the CGT within 30 days.
It’s important to make sure you’re aware of the latest tax changes so you can plan ahead and avoid any fines for getting it wrong.
At Stephenson Smart we are experts in tax planning, please get in touch if we can help you to manage these changes.