17 October update
On 17 October, the new Chancellor of The Exchequer, Jeremy Hunt, brought forward a number of measures from the late October Medium-Term Fiscal Plan. These reversed most of the changes that had been announced by his predecessor, Kwasi Kwarteng, on 23 September.
Chancellor Kwasi Kwarteng’s mini-Budget was about growth over everything else. In practical terms, it was all about tax: reversing planned increases, cutting elsewhere, and maintaining attractive allowances.
While the reversal of the NIC and corporation tax increases were expected, removing the 45p additional rate of income tax was more of a surprise. It was a ‘go for growth’ plan driven by tax reforms.
“Everything in the Growth Plan is in the name; it’s ostensibly about trying to improve growth,” says Frank Haskew, Head of Taxation Strategy for ICAEW. “The government has decided that the tax system needs some pretty fundamental changes in order to achieve that.”
Here are all of the major tax measures included in the mini-Budget:
Stamp duty land tax
Stamp duty land tax (SDLT) will be cut with an aim to increase residential property investment and boost spending on household goods, vicariously creating work for property-related sectors such as builders, decorators and removal companies.
This will be achieved by doubling the nil rate band to £250,000, while first-time buyers will pay no SDLT up to £425,000, and can claim relief on properties valued up to £625,000. These cuts will take place in England and Northern Ireland only. It remains to be seen what the devolved nations will do, so watch this space.
Corporation tax and capital allowances
The planned increase in corporation tax (CT) to 25% has been cancelled, meaning that it will stay at 19% for the foreseeable future. Likewise the impending increase to diverted profits tax to 31% will no longer take place. It will remain at 25% to maintain its current six percentage point differential with the main CT rate.
The bank corporation tax surcharge will stay at 8% instead of falling to 3%, but the bank surcharge allowance will still increase from £25m to £100m – again to support growth.
The annual investment allowance (AIA) will remain at £1m, rather than falling to £200,000, which brings some certainty to businesses after seeing the limit change six times in 14 years. There was no announcement on what will happen with the 130% super deduction, however, so presumably this will end in April 2023 as announced previously.
“The Chancellor has given some certainty in relation to the annual investment allowance,” says Haskew. “Making the £1m limit permanent will be welcomed by businesses, in terms of at least having more of a certainty within the investment landscape.”
Locations within 38 local authorities in England will benefit from new investment zones. These will grace businesses with time-limited tax benefits, along with planning flexibilities. “Investment zones, on the face of it, look as though they could have some fairly attractive tax benefits within them, but also wider planning and housing easements as well,” Haskew says. “It’s effectively like the freeports that Rishi Sunak introduced, but we’ll have a lot more of them and they are potentially more generous. It's interesting to see that as a direction of travel.”
While England is the only nation within the UK where regions have been announced which could benefit from these new investment zones reliefs, the government says that it is working with the devolved governments to provide them in Scotland, Wales and Northern Ireland as well.
The Chancellor announced a number of measures to encourage investment. The Seed Enterprise Investment Scheme (SEIS), for example, will be available to more companies from April 2023. The amount that can be raised will increase by two-thirds from £150,000 to £250,000. The gross assets limit is going up from £200,000 to £350,000. Currently the company’s trade must be no more than two years old. This will increase to three years. The annual investor limit will double to £200,0000.
At the same time, the Company Share Option Plan (CSOP) limit will double from £30,000 to £60,000. The ‘worth having’ restriction on share classes will ease, aligning it with the Enterprise Management Incentive Scheme.
The government has said it remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending them beyond their 2025 sunset date.
VAT-free shopping ended for Great Britain in 2020, after the UK left the EU. It is currently only available in Northern Ireland. The Chancellor announced that this would be reintroduced through a refund scheme for non-UK visitors to Great Britain. This can be applied to goods bought on the high street, airports and other departure points, and exported in personal baggage. This new scheme will be digital.
Another major surprise in the mini-Budget was the reversal in the changes to off-payroll working rules that were brought in for the public sector in 2017 and the private sector in 2021. This doesn’t abolish IR35, but takes us back to the rules in place from 2000.
While this does make it easier for companies to engage with people through personal service companies, some of the issues with IR35 remain, says Haskew. “We still have the difference in the tax rules between the employed and the self-employed. That's all still there. What it has done is peel away some of the more recent and particularly difficult aspects of the rules, which have tightened the personal service market and increased costs for businesses.”
The government has published its response to its consultation on alcohol duty launched last Autumn. It has proposed changes in which the tax on alcoholic beverages will be determined based on their volume of alcohol. These will come into effect from August 2023.
As part of these changes, Small Brewers Relief will be reformed into Small Producer Relief, extending it to small producers of wines, spirits, ciders and lower strength beers.
The Chancellor also announced a freeze in duty rates for all categories from 1 February 2023 to support hospitality businesses.
The big announcement here was the removal of the 45% additional rate of tax, brought in after the financial crisis. Now all higher rate taxpayers will pay the 40% rate. At the same time, the planned cut to the basic rate of income tax to 19% has been brought forward to April 2023.
“The government has clearly decided that it wants to make the UK a more attractive and entrepreneurial place in which to do business from an income tax perspective, and that’s reflected in the decisions it’s made,” says Haskew.
NIC and the dividend tax
As previously reported, national insurance contributions will be cut by 1.25 percentage points from November this year. The health and social care levy, due to come in from April 2023, has also been cancelled.
The government is also reversing the 1.25 percentage point increase in dividend tax rates from April 2023. Additional rate taxpayers will also see the additional rate of dividend tax abolished.
The end of the OTS
In a surprise to many, the Chancellor announced that the Office for Tax Simplification (OTS) would be wound down after 12 years. Instead, HM Treasury and HMRC will be directly mandated to simplify the tax code.
There have always been questions about the OTS’s ability to affect change. While it made recommendations on everything from aligning income tax and NIC to capital gains tax, it was very easy for ministers to ignore their recommendations. Whether moving this responsibility to HM Treasury and HMRC, which are similarly beholden to the whims of Ministers, will change this remains to be seen.
More change to come?
The Growth Plan also takes steps to deliver a more pro-growth tax system. The government will conduct a review to identify where it can go further to make the tax system simpler, better for families and more pro-growth. The Chancellor will report on this next year.
Aftermath of September's Fiscal Event
Read ICAEW's analysis and reaction to the 23 September mini-budget and the new Chancellor's statement of 17 October, confirming plans to reverse most tax cuts and scale back energy price support.
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