Mini Budget announced by the Chancellor on the 23rd of September has been widely welcomed by the hardworking people of the UK who will receive some respite to their pockets by the way of tax cuts that have been announced.
Here’s a summary of what was included in the Mini Budget and which taxes have been cut that will help you.
Income Tax changes announced in the Mini Budget
The basic rate of income tax will be cut to 19% from April 2023, 12 months earlier than planned. This will apply to non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland, the savings basic rate which applies to savings income for taxpayers across the UK and the default basic rate which applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of income tax.
A four-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027. There will also be a one-year transitional period for Relief at Source (RAS) pension schemes to permit them to continue to claim tax relief at 20%.
The additional rate of income tax will also be removed from April 2023 as announced in the mini-budget today. This will apply to the additional rate of non-savings, and non-dividend income for taxpayers in England, Wales and Northern Ireland.
The additional rate for savings, dividends and default rates will also be removed from April 2023, and this change will apply UK-wide. As the additional rate of income tax will be removed current additional rate taxpayers will also benefit from the Personal Savings Allowance of £500 for higher rate taxpayers.
Savings from a 1p cut to income tax
National insurance contributions changes announced in the Mini Budget
The following changes to national insurance contributions (NIC) have been announced in the Mini Budget:
- – the increase in the rate of Class 1 primary and secondary, Class 1A, Class 1B and Class 4 contributions by 1.25 percentage points that applied from 6 April 2022 will be cancelled with effect from 6 November 2022
- – the health and social care levy (HSCL) of 1.25% that was due to be introduced on 6 April 2023 will now not go ahead
For Class 1 NIC, the reduced rates apply to earnings paid on or after 6 November 2022 only for directors, who are assessed to Class 1 NIC on an annual basis, composite rates of 12.73% (main primary percentage) and 2.73% (additional primary percentage) apply for the individual and a composite rate of 14.53% applies for the employer for the 2022/23 tax year.
For Class 1A and Class 1B, a composite rate of 14.53% applies for the 2022/23 tax year. For Class 4 NIC, this is achieved by way of composite rates of 9.73% (main Class 4 percentage) and 2.73% (additional Class 4 percentage) for the 2022/23 tax year. The appropriate rates in the annual maxima calculation in SI 2001/1004, regs 21, 100 are similarly changed for the 2022/23 tax year.
These changes announced in the Mini Budget will be applied by way of the Health and Social Care Levy Repeal Bill. According to the business statement from Parliament on 22 September 2022, this is expected to be enacted on 11 October 2022.
The increase to the primary threshold for Class 1 primary contributions and the lower profits limit for Class 4 contributions introduced with effect from July 2022 are unaffected by these changes.
Although not mentioned in today’s document, it is assumed that the changes to Class 2 NIC that were to be introduced by way of regulations backdated to 6 April 2022 will still come into force. These changes would mean that Class 2 contributions would be credited to those with profits between the small profits threshold and the lower profits limit without the need for the individual to make the payment. Those below the small profits threshold would still need to pay voluntary Class 2 contributions if they wished to maintain their state benefit entitlement.
Reversal of the dividend tax increase in the Mini Budget
The government is reversing the 1.25 percentage point increase in dividend tax rates applying across the UK from 6 April 2023. The ordinary and upper rates of dividend tax will be restored to 2021/22 levels of 7.5% and 32.5% respectively (currently at 8.75% and 33.75% respectively).
At present, UK residents disposing of UK residential property have to report gains and pay CGT within 30 days after completion. A similar window applies to non-residents disposing of property in the UK. These windows will each increase to 60 days with effect for disposals that are complete on or after 27 October 2021.
Due to the abolition of the additional rate of income tax, dividend income that was previously charged at the additional rate (39.35% in 2022/23), will now be charged at the upper rate of 32.5%. No details have been made regarding the rate applicable to trusts (which mirrors the additional rate) and it remains to be seen if this will now follow the upper rate.
SDLT changes announced in the Mini Budget
SDLT thresholds for residential properties in the UK have increased from 23 September 2022 as below:Residential properties: 23 September 2022 onwards after the Mini Budget
|Property value||UK Residents||Non-UK Residents|
|Only property||Additional property||Only property||Additional property|
|Up to £250,000||Nil||3%||2%||5%|
|Next portion from £250,001 to £925,000||5%||8%||7%||10%|
|Next portion from £925,001 to £1,500,000||10%||13%||12%||15%|
|Remaining amount above £1,500,000||12%||15%||14%||17%|
From 23 September 2022, first-time buyers will not pay SDLT to pay up to £425,000 and 5% SDLT on the portion from £425,001 to £625,000. If the price is over £625,000, there is no relief available. For full SDLT rates, please refer to the ACCA guide to SDLT rates.
Personal Investment allowances (EIS, VCT, SEIS, CSOP) changes announced in the Mini Budget
The Chancellor set out his determination to make this country an entrepreneurial, share-owning democracy. He announced that the Enterprise Investment Scheme and the Venture Capital Trusts will be extended beyond 2025. The limits for the Seed Enterprise Investment Scheme and Company Share Option Plans will be increased to make them more generous.
These schemes offer private investors generous tax benefits such as income tax relief, and exemption from capital gains tax and inheritance tax and they are a vital part of driving investment for new start-up companies.
IR35/Off-Payroll Working changes announced in the Mini Budget
In a significant reversal, from April 2023 the Government has decided to completely cancel the IR35 or ‘off-payroll working’ obligations previously placed on end users of services (ie ‘clients’). These obligations were introduced in the public sector in April 2017, and for medium and large private sector clients, from April 2021.
However, from April 2023 the onus to decide whether an engagement contract falls inside or outside IR35, and to account for any PAYE/NIC accordingly, now falls on the contractor’s personal service company (the IR35 obligation, therefore, reverts to where it was before the 2017 and 2021 changes were introduced).
The switch in onus will be a welcome administrative easement for hirers, but those public and private sector clients affected will rightly ask why they have been forced to set up extensive IR35 review processes (often at considerable cost), only for the extra obligation to be removed within a couple of years?
It was always perceived that personalised IR35 reviews were very labour-intensive, from HMRC and the contractor’s viewpoint. Therefore, on the assumption that contractors will not just be left to ‘go their own way’, it will be important to understand what sort of IR35 compliance activities HMRC will undertake in future.
Corporation tax changes announced in the Mini Budget
The corporation tax rate will remain at 19%, irrespective of the profit levels. The chancellor scrapped the increase in corporation tax rates which was due to take place from April 2023.
The S455 tax rate on directors’ overdrawn loan accounts will remain at 32.5%.
Annual Investment Allowance (AIA) changes announced in the Mini Budget
The Chancellor has announced that the £1 million level of AIA (which was due to end on 31 March 2023) has been made permanent. This means businesses can deduct 100% of the costs of qualifying plants and machinery up to £1 million in the first year.
Businesses in designated areas in investment zones will benefit from 100% business rates relief on newly occupied and expanded premises. Local authorities hosting Investment Zones will receive 100% of the business rates growth above an agreed baseline in designated sites for 25 years.
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 National Insurance contributions on new employee earnings up to £50,270 per year.
To incentivise investment there will 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.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you would like further information about which taxes have been cut in the Mini Budget or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.