Posted on:Insights, U.K. Tax, What’s New on the Blog?
On 23 September 2022, Chancellor Kwasi Kwarteng delivered his so-called “Mini Budget” which has been variously described as a “game changer”, a “new approach for a new era” and (perhaps less optimistically) a “gamble on growth”. Critics of the government have been quick to point out that the usual Office of Budget Responsibility forecasts have not been issued in conjunction with the government’s proposals, a feature which those critics say is essential to assessing the viability of the proposals in light of the UK’s current fiscal and economic circumstances.
Headline items include the abolition of the additional (45%) rate of income tax, an acceleration of the previously announced 1% reduction in the basic rate of income tax, the repeal of the Health & Social Care Levy (and reversal of the related interim increases to National Insurance contributions) and increases in various Stamp Duty Land Tax thresholds to benefit home buyers (particularly first time buyers). On the business front, the anticipated increase to 25% (from 2023) in corporation tax rates, as promised by former Chancellor Rishi Sunak, has been cancelled, and the government has announced that it is repealing various recent reforms to the existing so-called “IR35 regime”, the rules in place since 2000 which seek to tax what are effectively employment services provided through intermediaries. The “Mini Budget” is a very clear signal that the new Cabinet of just over two weeks wants to act fast and put significant distance between its fiscal action plan policies and those of the former Chancellor.
Detailed commentary on energy-related measures is outside the scope of this update, although it bears noting, given the current spotlight on soaring energy prices, that the “Mini Budget” also included various support measures intended to reduce the pressure on UK households and businesses.
Please contact a member of the Weil London Tax team if you would like to discuss anything in greater detail.
Business-related taxation measures
The government is of the view that high and/or complicated taxes reduce the incentive to work and hinder investment in enterprise. It has therefore announced the following measures:
- Corporate Tax Rates:
- Corporation Tax: The previously announced planned increase in the main corporation tax rate from 19% to 25% that was due to take effect in April 2023 will not go ahead. The headline rate will remain at 19%.
- Bank Corporation Tax Surcharge (BCTS): The scheduled reduction to the rate of the BCTS to 3% which accompanied the planned increase in corporation tax will also be cancelled. The rate will now remain at 8%, which means that the overall combined rate of corporation tax and BCTS will remain at 27%. The scheduled increase in the BCTS allowance (i.e. the amount of profits not subject to the BCTS) from £25 million to £100 million will, however, proceed as planned.
- Energy profits levy: There was no announcement of a change to the new 25% energy profits levy enacted in July this year, nor were there any changes to the rate of corporation tax (30%) and supplementary charge (10%) that apply to oil & gas companies.
- IR35 off payroll working rules: The 2017 and 2021 reforms to the off payroll working rules, also known as the “IR35 regime”, will be repealed from 6 April 2023. The IR35 regime may apply where an individual provides services to a client through an intermediary (such as a personal services company) but, in substance, that individual is (but for the intermediary) an employee of the end client. Broadly, the current version of the IR35 regime shifts the responsibility for assessing whether PAYE income tax and National Insurance contributions (NICs) are applicable to the intermediary’s fees to the end client (instead of the intermediary). The regime has been notoriously difficult to navigate, poses a significant administrative burden for businesses and has given rise to extensive litigation. From 6 April 2023, workers across the UK providing services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
- Capital Allowances Annual Investment Allowance: Since 1 January 2019, businesses can deduct (for corporation tax purposes) 100% of any qualifying plant and machinery expenditure, up to an annual amount of £1 million per year. This annual allowance was scheduled to fall to £200,000 from April 2023 but this reduction will now not go ahead and the annual investment allowance will therefore remain at £1 million.
- Seed Enterprise Investment Scheme (SEIS): The SEIS regime encourages investment in early stage businesses by providing investors that invest in qualifying companies with certain generous income tax, capital gains tax and other tax reliefs. Previously, companies seeking to benefit from SEIS were required to have gross assets of no more than £200,000 – this has been increased to £350,000. The annual investor limit will also be doubled to £200,000.
- Company Share Option Plans (CSOPs): CSOPs are a form of tax advantaged share option scheme available to businesses with UK employees. The current limit on the value of shares (at the time of grant) under CSOP options will be increased from £30,000 to £60,000. Certain other restrictions will be eased to align the scheme with the generally more flexible Enterprise Management Incentive (EMI) scheme.
Personal taxation measures
- Income Tax (Additional Rate): In what is perhaps the biggest surprise announcement of the “Mini Budget”, the Chancellor announced that the additional (45%) rate of income tax will be abolished from April 2023, in an effort to “simplify the tax system” and allow individuals to “keep more of what they earn.” The additional rate for savings and dividends will also be removed from April 2023.
- Income Tax (Basic Rate): The basic rate of income tax will be reduced to 19% from April 2023, from the existing 20% rate. This is an acceleration of the cut to the basic rate which had been announced in Spring Statement 2022, and which was originally not due to be implemented until April 2024. It is expected that this change will also carry over to withholding tax on interest and other annual payments that are linked to the basic rate.
- Stamp Duty Land Tax (SDLT): To reduce the burden on home buyers, the SDLT nil rate threshold doubles to £250,000 for all home purchases from 23 September 2022; the nil rate threshold for first-time buyers’ relief simultaneously increases to £425,000 (from £300,000), and applies to any property with a value of up to £625,000 (rather than £500,000).
- National Insurance Contributions (NICs): As pledged by Liz Truss early in the leadership contest, the short-lived 1.25% increase in the NICs threshold will be reversed from 6 November 2022; measures announced in Spring Statement 2022 to increase the threshold had only just taken effect in July 2022. This measure goes hand in hand with the repeal of the Health & Social Care Levy (see below).
- Health & Social Care Levy: The 1.25% levy, which had been due to take effect from April 2023, has been completely scrapped, with the government suggesting that the reversal will make it cheaper for businesses to employ more staff.
- Tax on Dividends: In an effort to support entrepreneurs and investors, the government will reverse the 1.25% increase in dividend tax rates from April 2023, meaning that the ordinary and upper rates of dividend tax will be reduced to the 2021/22 levels of 7.5% and 32.5%, respectively.
- Bankers’ Bonuses: As part of its drive to “reaffirm the UK as a financial services centre”, the government has announced that the cap on bankers’ bonuses will be removed by the Prudential Regulation Authority. The existing cap essentially limits bonuses to 100% of fixed salary (or 200% with shareholder approval). The Chancellor alluded to further regulation to come.
- Tax-free shopping: The government will introduce a “modern, digital, VAT-free shopping scheme” for non-UK visitors to Great Britain, with the stated aim of offering a boost to the high street and creating jobs in the retail and tourism sectors.
- The government has announced that it will introduce new “Investment Zones” across the UK. Early discussions have begun in relation to 38 proposed investment zones. The aim of this measure is to drive investment through tax incentives, planning permission relaxations and certain other measures. From a tax perspective, the key tax incentives under consideration are:
- Business Rates: 100% relief from business rates on newly occupied business premises and certain existing premises that have expanded into an investment zone.
- Enhanced Capital Allowances on P&M: 100% uncapped first year capital allowances for companies’ expenditure on qualifying plant and machinery acquired for use in investment zones.
- Enhanced Structures and Buildings Allowance: Accelerated structures and buildings allowance enabling businesses to reduce taxable profits by 20% of the construction expenditure on qualifying non-residential investments per year (allowing 100% relief in respect of such expenditure over five years). Current rules only permit a 3% per annum allowance over a 33 year period.
- Employer NICs Relief: The first £50,270 of salary for any new employee working in an investment zone will not be subject to employer NICs. Normal rates of employer NICs apply above the £50,270 threshold. Note there is no impact on employee NICs, so this represents an employer saving only.
- Full SDLT Relief: No SDLT will be payable on land purchased in an investment zone for commercial use or development for commercial purposes.
The Growth Plan is generally light on detail, and it remains to be seen what additional information will be published by the government in due course. We are still expecting an official Budget from the government later this year, which may shed more light on the above measures in addition to any further measures that may be announced at that time.
UPDATE: On Monday 3 October, in a U-turn following market turmoil and the response from the public to the measure, the Chancellor announced that the Government was not proceeding with the abolition of the 45% rate.