There were rumours ahead of the mini-Budget that it was going to a tax-cutting Budget. The new Chancellor, Kwasi Kwarteng, did not disappoint. The statement and ‘The Growth Plan 2022’ from the Chancellor turned out to be anything but the ‘mini’ budget promised. We outline below the key changes that were announced.
We also outline some of the U-turns, on tax cuts that were to happen and then were reversed. On 14 October 2022, the 'new' Chancellor, Kwasi Kwarteng, was removed with a new Chancellor, Jeremy Hunt, appointed. On 17 October 2022, further U-turns were announced.
National Insurance (scrapped)
The 1.25 percentage point rise in National Insurance rates that applied from 6 April 2022 will be cancelled from 6 November 2022. This will put the ‘new rates’ back to the ‘old’ rates that existed at 5 April 2022:
• Employee’s Class 1 (primary) - 12% and 2% (previously 13.25% and 3.25%)
• Employer’s Class 1 (secondary) - 13.8% (previously 15.05%)
The National Insurance rate of 3.25%, soon to be 2% again, is paid by employees earning over £4,189 pm (£50,270 pa).
Directors have an annual earning period for National Insurance purposes. Their National Insurance rates will be an average transitional rate of 12.73% on earnings between £11,909 and £50,270, and 2.73% on higher earnings. From 6 April 2023, the rates return to 12% and 2% respectively.
The self-employed will also pay an average composite rate of Class 4 National Insurance for 2022-23. The rate will be 9.73% on profits between £11,909 and £50,270 and 2.73% on profits above the upper limit of £50,270. From 6 April 2023, the rates return to 9% and 2% respectively.
For 2022-23 there will be an average transitional rate of 14.53%, for Class 1A, paid by employers on employee benefit in kind, and also for directors’ salaries. From 6 April 2023, the rate returns to 13.8%.
The strange looking average composite percentage rates, of 12.73%, 2.73%, 14.53% and 9.73% are based on 7/12ths of the year’s rate (for April to November) and then 5/12ths of the year (for November to April) at the new ‘old’ rate
The Health and Social Care Levy, which was due to replace the 1.25% National Insurance increase from 6 April 2023 will not go ahead.
However, unlike the reversal in National Insurance, the rate of dividend tax will NOT fall back by 1.25 percentage points from April 2023.
Income tax (scrapped)
The basic rate of income tax was to reduce from 20% to 19% from 6 April 2023. This was cancelled on 17 October by Jeremy Hunt, within days of taking over as new Chancellor. He said this was delayed "indefinitely until economic circumstances allow for it."
The additional rate of tax of 45%, payable on income over £150,000, was to be scrapped, but then within days the policy was cancelled.
Anyone earning over the personal allowance of £12,570 should benefit. It is estimated the average worker, earning just under £30,000, will save £170 of income tax a year.
However, with wage inflation and the freezing of income tax bands for five years, many workers are being pushed into higher tax brackets.
Corporation tax (scrapped)
The rate of Corporation Tax has been 19% for several years.
The rate of Corporation Tax was to be increased from 19% to 25% from 1 April 2023.
The mini-Budget confirmed that the increase in the rate of tax would not take place.
However, on 14 October 2022, Liz Truss announced that the rate will in fact increase to 25% from 1 April 2022.
The proposed reduction in the main rate of Corporation Tax, from 1 April 2023, from 25% to 19%, has therefore been cancelled.
Smaller companies, with profits between £50,000 and £250,000, will now pay 19% on the first £50,000 of profits and a marginal rate of 26.5% on this middle band of profits.
Companies with profits over £250,000 will see a full 7.5% tax increase on tax to 25%.
Micro companies, with profits up to £50,000 will continue to pay 19% Corporation Tax.
Dividend tax (scrapped)
The dividend tax rate, payable by shareholders of companies, which was linked to the 1.25% National Insurance increase on 6 April 2022, will now NOT be reversed.
Jeremy Hunt announced on 17 October 2022 that from 6 April 2023, the rates of dividend tax will now NOT return to 7.5% for basic rate taxpayers, 32.5% for a higher rate taxpayer and 38.1% for an additional rate taxpayer.
They will instead continue to be at the 'temporary one tax rate' of 8.75%, 33.75% and 39.3% respectively. They were increased on 6 April 2022.
Capital allowances (retained)
The temporary increase in the Annual Investment Allowance, from £200,000 to £1 million, until April 2023, for capital allowances on capital purchases, will now not revert to £200,000 in April 2023. Instead, the AIA will be permanently set at £1 million.
The provisions for the ‘super-deduction’, available from 1 April 2021 until 31 March 2023, which provides a 130% first-year capital allowance to most business on qualifying plant and machinery purchases will be amended. These changes will ensure that the temporary tax relief operates as intended. This will probably mean there will be a clawback of the extra 30% cost claimed by increasing the deemed disposal proceeds by 30% too.
VAT (scrapped)
A new digital VAT-free shopping scheme was to be introduced to help attract non-resident visitors to the UK and buy more goods. Jeremy Hunt, new Chancellor, cancelled this on 17 October 2022.
Visitors would be able obtain a VAT refund on any goods bought on the High Street, airports and other UK departure places when they take their goods out of the UK in their personal baggage.
Stamp duty land tax (retained)
From 23 September 2022, the nil-rate band of £125,000 will double to £250,000 for all residential property purchases. This means the 2% tax rate has been abolished.
First time buyers will receive the greatest benefit. They will pay no stamp duty on purchases below £425,000, up from the previous £300,000 nil-rate threshold.
In addition, with immediate effect, the amount before a first-time buyer starts to pay Stamp Duty will increase from £300,000 to £425,000. The maximum value of a property which qualifies for First-Time Buyer's Relief will increase from £500,000 to £625,000.
The new Stamp Duty rates for residential property purchase are:
Property value | Stamp Duty rate |
Up to £250,000 | 0% |
he next £675,000 (the portion from £250,001 to £925,000) | 5% |
The next £575,000 (the portion from £925,001 to £1.5m) | 10% |
The remaining amount (the portion above £1.5m) | 12% |
Off-payroll working (scrapped)
Jeremy Hunt, announced on 17 October 2022 a repeal of initial announcement by Kwasi Kwarteng of the easing of IR35 rules for the self-employed introduced in 2017 and 2021.
The U-turn means that employers will remain responsible for determining the employment status of their workers who provide their services through a company.
The initial mini-Budget announcements are show below:
Over the past 20 years or so, the Government have introduced numerous changes to the tax system to try and address ‘disguised employment’ and collect additional tax and National insurance.
‘Disguised employment’ is where individuals are typically taxed as self-employed workers rather than their correct status as an employee. The rate of National Insurance paid by employees is higher than paid by the self-employed. In addition, employers also pay National Insurance, at 13.8%, on employees' salaries; but not on amounts paid to the self-employed.
In a surprise announcement, the changes made to the ‘off-payroll working’ rules from April 2017 to April 2021, for public and private sector entities respectively, will be cancelled. The IR35 adaptions for ‘off-payroll working’ currently only apply to paying public and private sector entities that are classified as medium or large entities.
The Chancellor said, “From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.”
From 6 April 2023, the responsibility for determining employment status, where services are provided through your own or an umbrella company, will, once again, fall back on the individuals providing their services.
Whilst many people see the current ‘off payroll working’ rules as the same as IR35, which was originally introduced in April 2000; they are not. Following the 'off-payroll working' legislation, IR35 currently only applies to individuals working through an intermediary, including their personal service company, where the customer is a small entity.
The ‘off payroll working’ rules force medium and large sized entity ‘employers’ to do the assessing, deducting tax and National Insurance and paying over to HMRC. From 6 April 2023, affected individuals will once again have to ensure that employment related taxes, mainly National Insurance, are paid on their dividend income. This will once again firmly place the responsibility for determining employment status on the individual doing the work.
We have seen many individuals of owner managed businesses forced to accept ‘incorrect’ employment status classifications from faceless large organisations. The ‘off payroll working’ rules may have correctly classified other workers, who were not paying the correct higher employment related taxes, or who had previous fallen under the radar, either through ignorance or on purpose.
To be clear, the legislation commonly referred to as IR35 will remain in place. It is the 2017 and 2021 reforms, for 'off-payrolling' that are being revoked. We will therefore revert back to the position before April 2017. It will then be the responsibility of the directors of the intermediary company, with assistance from the actual workers, to decide whether there would be an employment relationship between the worker and the engager (end-customer), if the intermediary (e.g. personal service company) in the chain is ignored.
There will be winners and losers, but at least individual workers will be given the chance for all their relevant employment status matters to be assessed in determining their employment status and not just a few of them apparent to a larger organisation that knows little of the little person’s actual business circumstances.
Other announcements
The Office of Tax Simplification will be disbanded. It was introduced in 2016. The OTS should provide the Government with independent advice on simplifying the tax system. This is to help reducing compliance burdens on businesses and individual taxpayers. We cannot say we have seen much in tax simplification in the last six years; with Making Tax Digital being a classic example of making everything much more complicated.
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