On 23rd September 2022, the UK Government announced a set of economic policies that whilst not officially a budget statement (and have been described officially as a “fiscal event”) have seen enough major changes that they have been described as a “mini-budget”.
Much of the discussions surrounding what has been titled by Chancellor Kwasi Kwartang as “The Growth Plan 2022” have focused on the immediate effects on the wider economy, the International Money Fund’s critical response and the effect on the value of the pound.
However, given the major implications this has for a lot of people who need to prepare for these changes with their tax accountant, it is important to, assuming that (sans the abolition of the 45 per cent tax rate) these policies will become law, understand what the changes will mean for people.
There is the potential, much like the overturning of the additional rate abolishment ten days after announcing it, that other parts of this mini-budget could change, but here are the key points you need to know about what the mini-budget means for your taxes.
Basic Rate Cut
The headline policies of the mini-budget were a two-pronged tax cut, although one of these prongs was cut off within ten days.
The remaining part of the cut reduces the basic rate of tax from 20 per cent to 19 per cent in England and Wales, which would for people making £25,000 a year mean a saving of roughly £200 depending on individual circumstances.
This is, assuming this financial plan continues, set to take effect in April 2023 and thus will benefit people filing their taxes next year and not for the current year.
For businesses, the planned increase in Corporation Tax to 19 per cent has also been removed, meaning that individuals and businesses will pay the same basic rate.
National Increase Rise Abolished
In early 2022, former Chancellor Rishi Sunak announced a 1.25 per cent increase in National Insurance contributions that would create a ringfenced fund for social care, the NHS and other healthcare policies.
This has been reversed from November 2022 and NICs will remain at their pre-levy levels.
Scrapping Of IR35 Reforms
In 2017 and later in 2021, major reforms to the off-payroll tax legislation IR35 had been slowly phased in, putting the responsibility for assessing whether a self-employed worker for a company was actually a “disguised employee” and would thus be taxed as such.
Exactly how much the repeal of this will change is uncertain, given that many companies have already altered their relationship with freelancers and contracted workers to factor in potential IR35 regulations.
Investment Tax Relief
Alongside tax reductions, there has also been a range of investment-based policies designed to incentivise investment in UK businesses.
The corporate investment allowance, a tax-free threshold for annual investment, is set to remain at £1m for the foreseeable future, and a regulations change will allow pension funds to increase their investment portfolios in UK businesses.
As well as this share options are set to double for employees, with a maximum option valuation of £60,000 as well as scrapping the limit on bonuses for bankers.
The Stamp duty threshold has been doubled with immediate effect, and new companies have been given a tax relief to raise up to £250,000 in investments.