New Chancellor Kwasi Kwarteng has today announced what he calls “the biggest package in generations”. With total tax cuts expected to exceed £45bn over the next 5 years, this ‘mini’ budget is arguably one of the most radical budgets in recent memory.
We have studied today’s announcement and analysts’ comments and have highlighted below what we believe to be the most key and relevant points for our clients.
Income Tax & National Insurance
The key points on personal taxes are as follows:
- From April 2023 the basic rate of income tax (PAYE/Self-Assessment) will reduce from 20% to 19%. This change was previously set for April 2024 but has now been brought forward by a year. Analysts estimate this to be an average annual tax saving of £170. 19% is the lowest income tax rate in the UK in modern times.
- The 1.25 percentage point increase in national insurance announced in the prior budget has been scrapped. The Chancellor suggests that this will be a saving of £330 per year on average. This change comes into effect from 6th November 2022.
- The above cuts amount to a combined saving per person of around £500 a year for the average person.
- The proposed rises in tax rates on dividend income have also been scrapped, meaning the proposed new rates (additional rate 39.35% and higher rate 33.75%) will now revert back to 32.5%. We anticipate this to be a real boon to our business owning clients.
- Mr Kwarteng has also removed the top tier of income tax, which was previously 45% on all income over £150k. Premier League Footballers rejoice! There will now be one higher rate of income tax, which is 40% on all earnings over £50,270.
- There were no changes announced in respect of Personal Allowance (the amount of income a person earns before paying tax) which will remain frozen at £12,570 for the next four years, as per the prior budget.
The key points on company taxes are as follows:
- The Chancellor has cancelled the proposed rise in Corporation tax to 25% next year, with the rate now remaining at 19%. Mr Kwarteng says this means the UK will have the lowest rate of corporation tax in the G20. This is great news for company owners.
- The Annual Investment Allowance (AIA) for capital allowances will now be set at £1m permanently. This was previously set to return to £200k in March 2023.
- As mentioned previously the scrapped increase of national insurance is beneficial to company owners too. The reduction in employers’ national insurance will directly reduce employment costs for all UK companies.
The Chancellor has pledged to simplify IR35 rules, with the reforms of 2017 and 2021 being scrapped. No concrete details have been given at this time so this will be something to keep an eye on for those affected. We will provide an update on this when more information is available.
As announced previously, the Energy Price Guarantee will cap the unit cost of energy for two years. This should ensure a typical household receives annual bills of around £2,500 during this period.
Stamp Duty has received some significant cuts, with stamp duty being scrapped on property purchases up to £250k, which is double the previous amount of £125k. First-time buyers get an exemption on properties up to the value of £425k. These changes are effective today.
Good news for those that like their booze!
Alcohol Duty will be frozen from February 2023, which until now has always increased with inflation. We know this will be welcome news to many of our clients (and staff)!
With what appears to be the biggest set of tax cuts in fifty years, one thing this chancellor cannot be accused of is ‘not taking action’. He appears to be setting a tone for the years ahead: simplifying tax, making the best of Brexit and making the UK attractive for companies and high earners. All good pursuits in theory (and perhaps in more stable times).
Though there are many changes to taxes, the large majority are just tweaks to rates and therefore will not affect most businesses and individuals practically, other than the figures on their tax bills.
The exception to this will be the reforms around IR35, which may be another unwelcome ‘movement of the goalposts’ for those who have been dealing with this for years now.
Billy Kent FCCA