18th October, 2022, Kayleigh Wilson
In a bid to stabilise the countries financial outlook, Jeremy Hunt, the new Chancellor, couldn’t wait until 31st October to make his ‘mini-budget’ scourging financial statement, instead opting to make an ‘emergency budget’ statement in the House of Commons, reversing most of what Kwasi Kwarteng had set out.
Kayleigh Wilson, Tax Manager at Stephenson Smart Accountants and Business Advisors, analyses what has now been announced, and what it means for you and your finances:
It is important to remember that as many statements, by as many chancellors as the government wish to appoint, can be made in the House of Commons, but until they are enacted as law the changes they announce don’t come into force.
For example, when Kwasi Kwarteng announced that Corporation Tax would no longer go up to 25% in April 2023 this wasn’t passed as tax legislation so effectively nothing has changed, as we were all still working to the legislation that had previously been passed, stating that Corporation Tax will go up to 25%, for some companies, from 19% in April 2023.
So, what do the rest of today’s announcement actually mean?
National Insurance contributions
The reversal of the temporary increase in National Insurance Contributions from 6 November 2022 still stands.
The UK-wide 1.25% Health and Social Care Levy, due to come in from April 2023, remains cancelled.
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%.
Jeremy Hunt has announced that the cut in the basic rate of income tax, from 20% to 19%, has been cancelled ‘indefinitely’.
It had already been announced that there will still be a 45% additional rate of income tax, this will not now change.
The announced change to reduce the rates paid on dividends has now also been scrapped. Meaning the dividend ordinary rate will stay at 8.75% and the dividend upper rate will remain at 33.75%.
Corporation tax rates
As previously mentioned, the planned change to corporation tax from 19% to 25% will take place from April 2023, for the majority of companies.
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. Kwasi Kwarteng had announced that the temporary £1 million level of the AIA will become permanent, and the proposed reduction will not occur. This still stands.
Stamp Duty Land Tax
The changes announced by Kwasi Kwarteng to the Stamp Duty Land Tax (SDLT) regime will remain in place.
The residential nil rate tax threshold has increased from £125,000 to £250,000.
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. Kwasi Kwarteng had announced a repeal of the off-payroll working rules from 6 April 2023, this has now been reversed by Jeremy Hunt.
Economic Advisory Council
Jeremy Hunt also announced the formation or another independent advisory group, the Economic Advisory Council, who will be made of analysts and accountants and should help to give the government more independent, informed advise on fiscal matters going forward.
In the financial statement, it was announced that by keeping the base rate of income tax at 20%, not cutting the Corporation Tax rate and reinstating the top rate of income tax will raise approximately £32 billion each year.
There are still more announcements to be made in the medium-term fiscal plan statement on 31st October 2022, that will be based on the judgement and economic forecasts of the Office for Budget Responsibility.
I am a tax specialist at Stephenson Smart and, supported by a team of qualified, experienced accountants, we are here to help you navigate these unstable times.
Please contact us if we can help you.
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