The national economy in the UK is stagnant. Business and consumer confidence plummet as prices continue to increase. In response, the chancellor, Kwasi Kwarteng, presented his Growth Plan on Friday, 23rd September, in a mini-budget to release the great potential in the UK economy.
The mini-budget represents one of the most significant shake-ups to the British fiscal landscape in the past few years and covers, among other headline items:
- Changes to tax legislation
- Health & Social Care Levy
- Stamp Duty Land Tax cuts to benefit first-time home buyers
- Energy price caps
These changes aim to ease business and household finances, provide tax incentives, and offer fewer regulations.
The plan set a high target for a 2.5% growth rate securing sustainable funding in the hope of improving living standards for everyone.
This article discusses the impact on both businesses and private individuals. The article has been updated to reflect the Government u-turn taken on the 3rd of October relating to the proposed scrapping of the additional-rate tax band (45%).
Table of Contents
Mini Budget 2022 Impact On Businesses
The Chancellor unveiled significant changes to tax legislation and National Insurance in the 2022 mini-budget. The plan presents a large number of changes for business owners, including:
The increase in the National Insurance rate reversed
The National Insurance (NI) rates increase announced in the Spring Statement 2022 by 1.25% for a year, and it was to be replaced with a Health & Social Care Levy beginning April 2023. However, from 6th November 2022, the increase will be reversed, and the Health and Social Care Levy will not be introduced as planned earlier.
NI rates for England, Northern Ireland and Wales will revert as follows:
- Employee’s NI (Class 1) will revert to 12% (this is Category A which affects most people under PAYE)
- Employer’s NI (Class 1) will revert to 13.8% (again for Category A)
- Self-Employed NI (Class 4) will revert to 9% and 2%
- Self-Employed NI (Class 2) was not affected by the increase and, therefore, will not change.
For employees whose NI is calculated monthly, changes will take effect from their first payslip after 6th November. Those that pay NI on an annual basis, as part of their self-assessment tax return, will pay revised annual rates. As you would expect, these changes all affect the 2022/23 tax year.
The increased tax rate on dividends reversed.
To support investors and entrepreneurs, the 1.25% dividend tax increase announced in April 2022 will be reversed from April 2023. The result is that basic-rate and higher-rate taxpayers will again be taxed at 7.5% and 32.5%, respectively.
Abolition of corporation tax increase
The previously announced corporate tax rate rise from 19% to 25% from April 2023 has been cancelled. The tax rate paid by limited companies on profits will hence remain at 19%.
Annual Investment Allowance Set Permanently at £1m
Since January 2019, companies can deduct 100% of any qualifying plant and machinery expenditure for corporation tax, up to £1 million per year. From April 2023, this annual allowance was set to fall back to £250,000, but this reduction will now be cancelled, and the annual investment allowance will now be set permanently at £1m.
IR35 Tax rules to be simplified
The IR35 regime has been notoriously challenging to navigate, posing a substantial administrative burden for businesses and has led to extensive litigation. However, the Chancellor announced a simplification to IR35, unveiling a plan to repeal the reforms made in 2017 and 2021 from April 2023. This means it will again be the responsibility of contractors across the UK offering services through an intermediary to determine their employment status and pay any additional taxes and NICs – not the end-user in the public or private sector.
Changes to Investment Schemes
Under the mini-budget, the Chancellor announced a number of upgrades that offer a positive boost for investors in early-stage companies.
Under the Seed Enterprise Investment Scheme (SEIS), companies were previously limited to raising £150,000, but this level will increase up to £250,000. Furthermore, the gross asset limit is going up from £200,000 to £350,000, and the age limit of the company trading is also increasing – from 2 to 3 years.
To complement this, tax relief is also increasing for investors. Moving forwards, the limit that can be claimed in income tax relief is set to be increased from £100,000 to £200,000.
The Chancellor stated that the Government remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). The EIS was due to expire in April 2025 because of a European Union state aid ‘sunset clause’. Instead, it seems like an extension may come at some point soon!
Changes were also made to the Company Share Option Plan (CSOP). The Government announced that the maximum employee share option limit will be increased to £60,000 for any new options granted from 6 April 2023 – double the previous limit.
Support for energy bills
Ahead of the recent mini-budget, Business Secretary Jacob Rees-Mogg presented the government’s Energy Bill Relief Scheme, which details the support for businesses promised by Prime Minister Liz Truss earlier.
Under the Energy Bill scheme, the government plans to provide a discount on wholesale electricity and gas prices for all businesses across the UK for a six-months from 1st October 2022.
Environment and infrastructure
The Chancellor laid out plans to further grow the UK economy to change the infrastructure planning system and accelerate other critical infrastructure projects, including rail, roads, and energy. The budget aims to streamline infrastructure planning for roads, hydrogen, renewables, nuclear, oil, CCUS, and gas. This new legislation will reduce barriers and restrictions, making planning and constructing roads easier, quickening the deployment of energy infrastructure such as offshore wind farms, and streamlining environmental regulations and assessments.
New investment zones
The Chancellor confirmed that the government is currently in discussion with 38 local authorities to establish investment zones in England, with plans to expand these zones across Wales, Scotland, and North Ireland.
These investment zones will offer businesses generous, time-limited, and targeted tax cuts and liberalized regulation to boost growth and encourage investment in new businesses across the UK.
Mini Budget 2022 Impact On Individuals
For individuals, the changes announced by Chancellor Kwasi Kwarteng included new economic measures designed to help the growth of private individuals and the overall economy. On top of the cut to Employee NI rates, the following topics areas were addressed:
Income tax rate cuts
The Chancellor announced a 1% cut to the basic rate of income tax one year earlier than the previous plan, which had been announced in the 2022 Spring Statement. From April 2023, the basic rate of income tax will be cut from 20% to 19%. It is anticipated that this change will also affect withholding tax on interest and other annual payments linked to the basic income tax rate.
Alongside reducing the basic rate of income tax, the additional (45%) rate of income tax was proposed to be abolished, taking effect from April 2023. However, under a large degree of pressure, a U-turn was taken on 3rd October to cancel the scrapping of the 45% rate.
In addition, the additional rate for dividends and savings will be abolished from April 2023.
Stamp Duty Land Tax cut
To reduce the burden on homeowners, the mini-budget doubles the threshold for SDLT nil rate from £125,000 to £250,000 for all purchases of residential properties from 23rd September 2022. In addition, the SDLT threshold for first-time buyers’ relief increases from £300,000 to £425,000 and applies to any property with a maximum value of up to £625,000 (from £500,000).
Reduced cost of household energy
The Chancellor also announced a set of measures to handle the significant drag on the UK economic growth – the high energy cost caused by the Ukrainian war, resulting in high inflation. To solve this problem, the government’s Energy Price Guarantee is set to save the typical household up to £1,000. The Energy Bill Relief Scheme is also planned to half the cost of business energy bills reducing inflation by about 5%.
Support for Universal Credit Claimants to secure more and better-paid jobs
New measures were announced to help Universal Credit Claimants earning less than the equivalent of 15 hours per week to take active steps to boost their earnings. This change aims to bring more people into the intensive job search regime.
Moreover, Universal Credit claimants over 50 years will be supported by the government to help them return to the workforce.
This aims to provide individuals with the best chances to be financially independent and to support growth.
Mini-Budget 2022 Summary
The headline tax legislation, stamp duty cuts, and recent energy price caps are measures aimed at boosting the UK’s economic growth. The plans are designed to ease business and individual finances and offer fewer business regulations and tax incentives. Hopefully, with these new measures, especially the tax changes, the UK is anticipated to have a more prosperous economic future.
If you need any help understanding how the new changes will impact your business or your personal situation, please don’t hesitate to get in touch. At DS Burge & Co, our friendly team of accountants are ready to help advise you on personal and business taxation. Contact us to find out more.