Prepared by the PEM tax team after the Mini Budget announcement in September 2022.
Basic rate tax band
The basic rate tax band will reduce to 19% from 20% on 6 April 2023, earlier than was previously planned. 31 million taxpayers will benefit from this policy in 2023-24 saving £170 on average for each taxpayer. Higher rate taxpayers will save up to £377.
Additional rate of income tax to stay
The additional income tax rate of 45% on annual income above £150,000 was to be abolished from 6 April 2023. However, after a turbulent reaction from the markets and growing Conservative revolt over the policy, the plan has been abandoned.
There has been no change to any of the thresholds.
Dividends
The dividend additional rate of tax was set to reduce to 32.5% from 39.35% on 6 April 2023. However, with the plan to abolish the additional rate of tax now abandoned, it seems the rate will revert to 38.1%.
Reversing NIC and tax increases – individuals
The temporary 1.25% rise in National Insurance Contributions (NICs) will be removed from 6 November 2022.
There has been no change to any of the thresholds.
The introduction of the 1.25% Health & Social Care Levy in April 2023 will not go ahead.
On average this is expected to save:
- Basic rate taxpayers approximately £75 this tax year (2022/23) and £175 in 2023/24;
- Higher rate taxpayers approximately £300 this tax year and £700 in 2023/24; and
- Additional rate taxpayers approximately £1,650 in this tax year and from £3,890 in 2023/24.
The rates of income tax on dividends will no longer increase by 1.25% from April 2023 – great news for all shareholders.
Reversing NIC and tax increases – employers
The reversal in NIC is the third change to the operation of NIC in the current tax year and may represent an administrative burden to employers.
The Class 1A NIC rate for 2022/23 that applies to benefits-in-kind has been reduced to 14.53% regardless of when the benefit is provided during the year. The same 14.53% rate applies to Class 1B NIC. Where Class 1A NIC applies to other payments, the applicable rate will be the prevailing rate on the date of the payment.
The changes to NIC rates from 6 November 2022 and to income tax rates from 6 April 2023 will both need to be factored into employer’s future decisions on remuneration strategies.
Off-Payroll Working
The Off-Payroll Working (OPW) rules will be repealed from 6 April 2023. This change shifts the burden of determining employment status from the engager back to the worker providing their services via an intermediary.
This welcome change removes a significant burden to engagers who have been struggling to operate these rules. Engagers must continue to assess the employment status of those engaged as self-employed.
This reversal is likely to be the first step in a promised simplification of the IR35 rules generally.
Employee share schemes
For those companies that do not qualify for Enterprise Management Incentives (EMI), for example, because of a non-qualifying trade or the level of the company’s gross assets, the alternative discretionary tax-favoured scheme is the Company Share Option Plan (CSOP). The individual limit under CSOP is to be doubled to £60,000 with effect from 6 April 2023 with additional easing on the rights of the shares that may be used.
Seed Enterprise Investment Scheme
Seed Enterprise Investment Scheme (SEIS) provides generous tax incentives to investors including up to 50% income tax relief on amounts invested, capital gains tax deferral and tax exempt growth on the sale of SEIS shares.
From April 2023:
- new start-ups can now raise up to £250,000 of SEIS investment (previously £150,000);
- the restriction on the size of companies that will be eligible under the scheme will be relaxed with the gross asset limit increasing to £350,000 (previously £200,000);
- it will be available to companies less than 3 years old (previously 2 years old);
- the annual investor limit will be doubled to £200,000. For an investor this will equate to £100,000 of income tax relief for qualifying investments.
Corporation tax rate
The corporation tax rate will remain at 19% on 1 April 2023 with the planned increase to 25% being abolished. It is the lowest headline rate in the G20.
This is a welcomed reversal which will allow companies to retain a greater proportion of profits to reinvest and drive growth.
Annual Investment Allowance
The temporary £1 million level of the Annual Investment Allowance (AIA) will be made permanent, instead of falling to £200,000 on 1 April 2023.
The AIA enables businesses to obtain 100% tax relief on assets qualifying as plant and machinery (excluding cars).
Super-deduction
The super-deduction gives relief at 130% on qualifying expenditure on plant and machinery.
The government will now amend some of the technical provisions for the super-deduction as a result of the corporation tax rate remaining at 19%. This will ensure that the relief continues to operate as intended.
Stamp Duty Land Tax
The Stamp Duty Land Tax nil rate band for residential purchases has been immediately increased from £125,000 to £250,000in England and Northern Ireland. This will save house buyers up to £2,500, although those buying more than one dwelling in a single or linked transaction will be able to achieve greater savings by multiple applications of the nil band when claiming multiple dwellings relief (MDR). However, HMRC has its eye on MDR so this benefit may be short-lived.
First Time Buyers’ relief will also be immediately more generous, as the purchase price can now be up to £625,000, rather than £500,000 and the nil band moves to £425,000. This will be of great benefit to those living in areas where house prices have risen significantly. For example, a purchase by a first time buyer of a property for £600,000 will pay SDLT of £8,750, instead of the £20,000 which would have been due before the changes to the relief.
VAT free shopping for overseas visitors
The government intends to re-introduce a VAT-free shopping scheme for overseas visitors. It hopes to boost the retail and tourism sectors by allowing tourists to claim a refund of VAT paid on personal goods when they are exported. A consultation on the design of the proposed digital scheme will follow.
Investment zones
The government will introduce investment zones across the UK to drive growth and unlock housing. These sites will benefit from various tax incentives that are under consideration which include:
- 100% business rates relief on newly occupied business premises, and certain existing businesses where they expand in these sites
- 100% enhanced capital allowances for companies’ qualifying expenditure on plant and machinery assets used in these sites.
- Accelerated structures and buildings allowances for businesses reducing taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
- Zero-rate employer NICs on salaries of any new employee working in these sites for at least 60% of their time, on earnings up to £50,270 per year, with employer NICs being charged at the usual rate above this level.
- Full Stamp Duty Land Tax relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
The government is in early discussions with 38 councils and combined authorities who have already expressed an initial interest in having a clearly designated, specific site within their locality. These include Bedford Borough Council, Central Bedfordshire Council, Essex County Council, Greater London Authority, Norfolk County Council, Suffolk County Council.