September 2022 Mini Budget: Here’s what it means…
Last week’s emergency mini budget included several significant new measures linked to personal, corporate and property tax rates, business investment initiatives and off-payroll working.
Here’s an outline of the changes and what they mean for individuals, businesses owners, landlords and contractors.
Personal taxation changes
- The Health and Social Care Levy has been scrapped. This means that the temporary 1.25% increase in employee and employer contribution rates which came into effect on 6 April 2022 will be reversed on 6 November 2022.
- The levy was intended to be formally separated from NICs from 6 April 2023, and would have been payable at a rate of 1.25% from 6 April 2023, effectively as a separate tax. This levy has now been cancelled.
- The basic rate of income tax will be reduced by 1% to 19% from April 2023 – i.e. you will pay 19p in the pound on earnings between £12,571 and £50,270.
- The 45% additional tax band for earnings over £150,000 will be scrapped from April 2023. This means that all earnings above £50,271 will be taxed at 40%.
- In April 2022, dividend rates (applicable to shareholders and self-employed directors) had increased by 1.25% to 8.75% for basic rate income tax payers and to 33.75% for higher rate tax payers. This increase in dividend rates will be scrapped in April 2023. The additional-rate tax band for dividends will also be scrapped.
Business taxation and investment
- The proposed corporation rate rise to 25% planned for April 2023 has been scrapped. The rate will remain at 19%.
- The planned reduction in the Annual Investment Allowance (AIA) to £200,000 has been cancelled. The AIA will remain at £1 million.
- The Seed Enterprise Investment Scheme (SEIS) is a decade-old initiative that offers investors generous tax reliefs for investing in early-stage businesses. From 6 April 2023, the maximum companies will be able to raise from the scheme will be increased from £150,000 to £250,000.
- The age limit for companies qualifying from the scheme will also be increased from two years to three years, and the gross asset limit for SEIS companies will increase to £350,000.
- The maximum amount investors are able to invest into SEIS companies will be doubled to £200,000.
The government plans to set up investment zones within 38 local authorities. Businesses based in these zones look set to benefit from a range of time-limited tax benefits and flexible planning rules. These include 100% business rates relief on newly occupied or expanded properties, stamp duty relief, reduced NI liabilities and enhanced capital allowances and enhanced structures & buildings allowance relief.
The planned alcohol duty increase has been cancelled in a bid to support the hospitality sector.
Property taxation changes
- The lower threshold for Stamp Duty Land Tax (SDLT) has doubled. This means there is no SDLT paid on the first £250,000 of a property purchase, up from £125,000.
- First time buyers pay no SDLT on properties up to £425,000 (up from £300,000), with relief available on properties up to £625,000.
- The rise in SDLT thresholds applies to buy-to-let properties, too. However, buyers of second properties – including btl landlords – will still have to pay the existing 3% SDLT surcharge.
The Chancellor used the mini budget to announce that the recent changes to the IR35 off-payroll working rules will be scrapped.
Introduced in 2017 in the public sector before being extended to medium and large private sector businesses last year, these rules shifted the responsibility for determining a contractor’s employment status to the hiring party. Where working arrangements fell under IR35, it became the hiring party’s responsibility for calculating and deducting tax and NI under PAYE.
HMRC billed the changes as a way of cracking down on tax avoidance. In reality, the rules were heavily criticised for making it needlessly difficult for workers to be engaged on a self-employed basis. Their abolition will be welcomed by contractors, contractor accountants and hiring businesses alike.
The government’s stated aim with these measures is to go all-out to stimulate economic growth and boost investment. There’s certainly an interesting change of emphasis from a tax policy perspective.
Little by little over recent years, it seemed like the Treasury was seeking to engineer the dividend income tax rates so that those owner-directors who extract money from their companies through dividends would pay increasingly similar amounts of tax to those who use PAYE. The reduction of the dividend rate and the cancellation of the proposed CT hike both point to a marked departure from that policy. For some sole traders, this might strengthen the case for incorporating limited companies from a tax efficiency point of view.
Bear in mind that the CT and IT rate changes come into effect next year, so think carefully about the timings of any transactions you are planning to make. In particular, owner directors who are currently classed as additional taxpayers will find it beneficial to delay dividend payment until after 5 April, when the additional rate is due to be abolished.
Are you in a position to maximise your tax efficiency in light of the changes announced in the mini budget? Combining expertise in personal and corporate taxation, payroll, accounting and business restructuring, London based accountants, MJH Accountancy can help. To review your position, contact us today.