With the change of Prime Minister and Cabinet shuffle earlier this month, and the ongoing cost of living crisis, the announcement of a “Mini” or “Emergency” Budget to be outlined on Friday 23 September 2022, came as no surprise to anyone.

As has now become their habit, the Government started making announcements ahead of the actual Budget speech, so we had a few things to think about in advance of this morning’s official announcements: On Wednesday, the new Energy Bill Relief Scheme was unveiled, promising support for businesses with the ever increasing costs of energy. By Thursday afternoon, the scrapping of the Social Care Levy (in the form of the 1.25% NIC increase) had also been announced.

Now on Friday, we have more details of the suite of financial measures being taken by our newly appointed chancellor, Kwasi Kwarteng, as he tries to navigate the difficult economic position he has inherited.

So, what does it mean for taxpayers?

For Individuals

1. Income tax rates cut

The basic rate of income tax will be cut from 6 April 2023. As a result of this, all taxpayers will benefit from the 1% reduction in income tax, which falls from 20% to 19%, a saving of up to £377, depending on income levels. Someone working full time on the National Living Wage is expected to save around £100.

On 23 September, the Chancellor also announced that from April 2023, the additional rate of 45% for incomes over £150,000 would be abolished. This decision has since been reversed and therefore the highest income tax rate remains at 45%.  Unfortunately, the tapering of the personal allowance for those earning £100,000 a year or more will remain.

2. Scrapping of social care levy – reversal of 1.25% NIC increase

This will apply from 6 November 2022 and will provide a saving for employees, employers and the self-employed, as the previous NIC increase that was introduced back in April is reversed.

This could save someone earning £30,000 a year £218 per annum. Anyone earning £100,000 will save over £1,000 each year, because effectively, the NIC rates will go back to the rates that we have become accustomed to in the past. Employers will save the same again as the rate reduction also applied to employers NIC.

3. Reduction of income tax rate applied to dividends

In line with the scrapping of the 1.25% NIC increase, the 1.25% increase on income tax paid on dividends will also be reversed, so that the rates paid on dividends return to the previous 7.5%, 32.5% and 38.1% from 1 November 2022. If you are planning on paying dividends before then, it may be wise to wait.

4. Stamp duty land tax (SDLT)

SDLT will be reduced with immediate effect, by increasing the threshold for when SDLT becomes payable from £125,00 to £250,000. Those buying property will benefit from a saving of up to £2,500. In addition, the threshold for first time buyers will be increased to £425,000 on properties valued at less than £625,000, providing a further saving of up to £2,500.

For Businesses and Companies

5. Planned corporation tax increase scrapped

Corporation tax had been due to rise to 25% for all but the smallest companies from April 2023, but this has now been reversed. Instead, the current 19% rate will continue. The aim is to attract investment into the UK, and make the UK a more competitive place to do business.

The planned change to the Bank Corporation Tax Surcharge has similarly been cancelled, and banks will continue to pay an additional 8%, rather than the reduced rate of 3% which was due to apply.

6. Annual investment allowance (AIA) fixed at £1 million

The temporary £1 million AIA is to be made “permanent”. This was due to reduce back to £200,000 next April. The AIA provides 100% tax relief for business investing in plant, machinery and equipment and the permanent increase is designed to ensure that businesses continue to invest in this way. For big spenders, this could save up to an additional £152,000 corporation tax a year.

7. Off payroll working reforms removed

From April 2023, the off payroll/IR35 working reforms first introduced in 2017 will be removed, in an attempt to reduce the administrative burden on businesses for dealing with this. Instead, workers providing their service via an intermediary company will once again be responsible for determining the correct tax and NIC that should be paid, enabling them to consider the nature of their relationship with the final customer, rather than this being determined for them.

Other Measures

8. VAT free shopping

In a bid to “modernise” the way visitors to the UK pay taxes into the economy, VAT free shopping will be introduced. How this will be implemented is currently under consultation.

9. Lifting the cap on bankers’ bonuses

Previously, these were capped at twice annual salary. This cap has now been removed.

10. Duty rates reduced on beer, cider, wine and spirits frozen

All planned increases to alcohol duties have been frozen until 31 January 2024, with the aim of supporting consumers with rising inflation.

And Finally

11. Dealing with the energy cost crisis

The energy price guarantee will be introduced in October 2022, enabling households to benefit from a cap on the cost of electricity and gas for a period of two years. The guarantee is designed to ensure that the average household annual bill on energy does not exceed £2,500 per year during that period. It is worth noting that the £2,500 is based on unit prices, so some households who use more gas and electricity than this, will pay more.

Businesses will receive support for a six month period through the Energy Bill Relief Scheme which will discount wholesale gas and electricity prices. Further support is expected to be announced after March 2023.

What the reaction to Mr Kwarteng’s first budget will be and the impact this will have on the economy, only time will tell.

If you would like to understand more about how this impacts you and/or your business, please contact the CBW Tax Team or your usual CBW contact partner for more assistance or advice.

This article was written by Michaela Lamb, CBW Tax Partner.