Earlier today, the new Chancellor, Kwasi Kwarteng, delivered a ‘fiscal statement’ (that’s a ‘mini-Budget’ to the rest of us) in the House of Commons.
However, as events transpired, it turns out there really wasn’t anything mini about it at all, as Mr Kwarteng used his first speech as Chancellor to make some pretty seismic economic interventions. In actual fact, it proved to be the biggest tax-cutting fiscal event since Nigel Lawson’s Budget in 1988 – with an estimated £45bn worth of cuts by the year 2027.
Coming less than 24 hours after the Bank of England raised interest rates for the seventh time since last December, the Chancellor’s ‘Growth Plan’ vowed to cut business bureaucracy and ‘end the cycle of stagnation’.
After what’s been an exceptionally challenging couple of years, UK firms remain under considerable financial pressure in the face of rising prices, pandemic reparations, escalating interest rates, cash flow concerns, wage increases, and a plummeting pound. So, the stakes were particularly high when Mr Kwarteng took to the despatch box.
So, what did he announce?
IR35
Reforms to off-payroll working in both the public and private sectors will be repealed from April 2023.
That means, from the new tax year, those in the UK who provide their services via an intermediary – such as a personal service company – will once again shoulder the responsibility for determining their own employment status and tax affairs.
Since the changes came into force in 2017 (public sector) and 2021 (private sector) respectively, it has instead been the end client, not the ‘contractor’, who’s been responsible for interpreting those working relationships. In other words, since the government’s changes in recent years, the ‘payer’ has been liable for deciding whether or not the ‘payee’ is employed or self-employed. That accountability has now been returned to the individual.
This minimises the risk of legitimate self-employed workers being unduly impacted – and taxed as employees – which exists under the current system.
Delivering his speech, Mr Kwarteng said: “To achieve a simpler system, I will start by removing unnecessary costs for business. We can simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. So, as promised we will repeal the 2017 and 2021 reforms.”
Corporation Tax
Tax cuts appeared to be the common theme throughout the Chancellor’s statement. He said the government intended to expand the supply side of the economy through tax cuts – targeting growth at a rate of 2.5% a year.
In that vein, the planned increase in corporation tax – a policy that was announced only this year by Mr Kwarteng’s predecessor – is to be scrapped completely and will remain at 19%.
Corporation tax is the amount of tax that a company pays on its profits and it had been due to rise by 6% (from 19% to 25%) as of next April.
The new government, though, argues that reversing said increase will help attract more companies to the UK and encourage investment, eventually reimbursing the government through taxation.
Promising to ‘plough almost £19 billion back into the economy’, Mr Kwarteng declared that the UK would “have the lowest rate of corporation tax in the G20.”
Income Tax
The basic rate of income tax will be cut to 19% (or 19 pence in the pound) as of next April.
This impacts those who currently pay 20% on annual earnings up to £50,270 (from £12,571). The government estimate that this change will mean at least £170 a year more for over 30 million Brits.
The Chancellor also announced the abolition of the 45% higher rate income tax. They will instead introduce one single higher rate of income tax set at 40%. Income tax bands are different in Scotland, where the basic rate is 21% and the additional rate is 46%.
Mr Kwarteng also said that the Office of Tax Simplification would be eradicated, with ‘tax simplification’ instead being embedded into government.
National Insurance
As of November (6th), the recent National Insurance rise will be reversed. The initial 1.25 percentage point increase was another policy introduced by former Chancellor – and leadership rival to new PM, Liz Truss – Rishi Sunak.
It’s meant that, since April, employers, employees, and the self-employed have paid an additional 1.25 pence in the pound in National Insurance contributions. The so-called ‘Health and Social Care Levy’ that had been ring-fenced will now not be introduced either.
Dividends
The Chancellor also announced a reversal of his predecessor’s dividend tax rise, which he believes will save investors an average of £345.
Tax on dividend income increased by 1.25% earlier this year, but the Treasury has scrapped this in a bid to ‘support entrepreneurs and investors’ to enable growth.
When you combine this with the shelved rise in corporation tax, it means that investors and directors who own company shares will be able to keep more of the profits made by the firms they invest in.
Directors and business owners can earn up to £2,000 a year before paying any dividend-related taxes. After that, those paying the basic rate pay 8.75% on any dividends they draw from their company, with higher-rate payers at 33.75% and those earning north of £150,000 a year paying 39.35% in dividend tax. Each of these rates will instead reduce by 1.25% from next April – though they will remain in place until then.
Energy Costs
The government has already acted to introduce a £2,500 energy price cap ahead of scheduled rises later this year.
In addition, the introduction of an ‘energy bill relief scheme’ for businesses will provide a price guarantee similar to that offered to UK households.
The total energy support package that’s been announced will cost an estimated £60bn in the six months from October but the government claims that their action will reduce inflation by as much as 5 percentage points
Stamp Duty
Stamp duty in England and Northern Ireland has been cut with immediate effect. No stamp duty will be paid on the first £250,000 of a property’s value. That’s double the current threshold.
Furthermore, the threshold for first-time buyers is to increase to £425,000. Government estimates suggest that around 200,000 more people will avoid paying stamp duty altogether as a result of this action.
Annual Investment Allowance
The Chancellor also announced further relief for some businesses by making the Annual Investment Allowance of £1 million permanent. The AIA is a tax relief on plant and technology investment and was initially due to return to £200,000 next March.
Today’s announcement means businesses will continue getting 100% tax relief on their plant and machinery investments up to £1m.
Investment Zones
The Chancellor also revealed that the government is in talks with almost 40 local authorities about the rollout of new ‘investment zones’. This would see taxes slashed for businesses in designated ‘zones’ for 10 years to ‘support investment, jobs and growth’. Measures include cutting planning rules, business rates, and waiving stamp duty.
Other Announcements
- There will be regulatory change in order to increase investments by pension funds into UK assets in a bid to benefit savers and incentivise investment into science and tech firms.
- Share options for employees are to double from £30,000 to £60,000.
- The current cap on bankers’ bonuses is to be removed. The cap was first introduced across the EU in the aftermath of the global financial crisis and, under the current rules, a banker cannot receive a bonus higher than twice that of their annual salary – unless agreed by shareholders. This is now set to change.
- Plans to increase the duty on alcohol have been cancelled.
- The government is also introducing ‘VAT-free shopping’ for overseas visitors.
Sam Wright
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications.
His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette.
He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.
